The quiet economics of retained search

Boards and management committees that have not engaged retained search firms before are usually surprised by two things. The first is the fee structure — typically a third of first-year cash compensation, paid in three instalments, which sounds like a great deal of money for what is, after all, an introduction.

The second is the structure of the engagement — the time it takes, the depth of work that happens before any candidates are mentioned, the small number of candidates eventually presented. This is what the fee is actually for. The introduction is the smallest part of it.

What the fee buys

A serious retained engagement runs over twelve to sixteen weeks. Inside that time, a senior partner is dedicating perhaps a third of their working hours to your search. This is not a sustainable commitment if the partner is running ten engagements in parallel — which is why partner-led search firms structure themselves to run two or three engagements per partner at any moment, not ten.

The fee, divided by the hours, divided by the search firm’s actual operating cost, is approximately what you would pay for a senior strategy consultant for the same duration. The economics, viewed at that resolution, are unremarkable.

What is remarkable is what the senior consultant does not have access to but the senior search partner does — twenty years of relationships at the level of the eventual appointment, the personal credibility to make those relationships useful, and the institutional discipline to use them only on engagements where doing so is appropriate.

Why contingent search does not solve the same problem

It is reasonable, when faced with retained fees, to ask whether the same outcome could be achieved on a contingent basis at lower cost.

For most roles, the answer is yes. Contingent search firms are well-suited to roles where the candidate pool is reasonably wide, where the brief can be specified in writing and worked against by a research team, and where the eventual appointment will not materially shape the firm’s next decade. These are the majority of senior hires.

For a small subset of roles, the answer is no, and the reasons are structural. Contingent search rewards speed and volume. Retained search rewards depth and selectivity. The economics of the two models point in opposite directions, and the candidate pools they reach differ accordingly. A retained partner can spend three weeks talking to fifteen senior leaders who are not currently in the market, on the firm’s behalf, in confidence. A contingent firm cannot, because that work is unfunded until an appointment is made.

The question is not which model is better. It is whether the role you are filling justifies the structural commitment of retained work. Most do not. A few do.

When the work matters most

The roles where retained search matters most are the roles where the briefing work matters most. Chair, Chief Executive, and the small number of functional appointments where the candidate will themselves shape the firm’s next chapter. These are the roles where the brief is most often misspecified, where the institutional investor view matters most, where the internal candidate question is most fraught.

These are also the roles where the search firm’s relationships matter most. Not because the search firm “knows” the right candidate — that is search firm marketing copy of a kind we find slightly embarrassing — but because the firm has the standing to convene a serious conversation with someone who is not, today, looking for a role. That conversation is the work. It cannot be replicated by a database.

A small number of engagements, well done

We are, deliberately, a firm of six partners that completes roughly forty engagements a year. This is fewer engagements than we could be doing, and substantially less revenue than we could be earning. It is the right number for the work we want to do, and for the depth of partner involvement that the work requires.

The economics of running a search firm this way are tighter than the alternative. The marketing copy is easier to write.