Direct Hire Placement Profitability
Is this direct-hire placement actually profitable?
Use your expected guarantee cost from Replacement Guarantee Economics rather than guessing it here.
Why this comes up
A direct-hire fee looks like pure profit at a glance, a single payment with no ongoing servicing cost. What actually lands after recruiter delivery cost, sourcing, commission, and expected guarantee cost is usually meaningfully less, and worth knowing precisely before treating direct-hire as automatically higher-margin than contract placements.
How we calculated this
Placement Contribution = Placement Fee - Recruiter Delivery Cost - Sourcing Cost - Variable Commission - Expected Guarantee Cost - Other Direct Placement Costs Contribution Margin = Placement Contribution / Placement Fee
Worked example: $16,000 placement fee, $3,000 recruiter delivery cost, $500 sourcing cost, $2,000 variable commission, $400 expected guarantee cost.
Placement Contribution = 16,000 - 3,000 - 500 - 2,000 - 400 = $10,100 Contribution Margin = 10,100 / 16,000 = 63.1%
What this means
- Nearly 37% of this placement fee goes to direct costs before contribution is realized, a meaningful gap from treating the full fee as profit.
- Expected guarantee cost specifically is easy to underweight; use Replacement Guarantee Economics to compute a real figure from your own historical replacement and refund rates rather than guessing.
- This is a per-placement figure, not a fully loaded one; it doesn't allocate the recruiter's fixed salary across all their placements, only the direct, variable costs of this specific one.
Common mistakes
- Treating the full placement fee as profit, ignoring recruiter delivery cost, sourcing, and commission entirely.
- Leaving expected guarantee cost at zero rather than computing it from actual historical replacement and refund rates.
- Comparing direct-hire margin against contract margin without accounting for the fact that direct-hire is a one-time contribution while contract is recurring, see the mix comparison for that distinction.
Frequently asked questions
Where does the expected guarantee cost figure come from?
Compute it directly with Replacement Guarantee Economics, using your own historical replacement and refund rates, rather than an assumed zero or a guess.
Should I include recruiter salary allocation here?
No, this engine deliberately uses only direct, per-placement costs; fixed recruiter salary belongs in a broader recruiter-economics check like Recruiter Break-Even, not attributed to a single placement.
How does direct-hire compare to contract placement economics?
See Contract vs Direct-Hire Mix for a side-by-side comparison that also weighs recurring revenue and cash requirement, not just margin.
Limitations
This only counts direct, per-placement costs; it doesn't allocate fixed recruiter salary, overhead, or other indirect costs across placements.
Next decision
Learn more
Temp, Temp-to-Hire, and Direct-Hire Economics — three placement models with genuinely different economics.