Background Checks: To Charge or Not to Charge?
I’m interested in hearing how others manage the costs associated with background checks. As the owner of a boutique recruiting firm, we currently offer background checks on an optional basis and pass the costs directly to clients without any markup. In recent years, nearly all of our clients have chosen to utilize this service. However, because it’s optional, I don’t factor these costs into our baseline fees—it’s an à la carte offering.
Here are my questions:
- Does our at-cost pricing model come off as convenient and transparent? That was my goal.
- Or does it feel a bit extravagant? I base our hiring fees on fixed operating costs, which don’t include these additional background check expenses. I can see how clients might not distinguish between the two. Should I absorb these costs or raise our fees? I’m looking for some feedback here.
- Is our approach overly complicated? One alternative is to set a flat fee of, say, $200 for background checks, which would typically cover our costs. In rare instances when the actual cost exceeds $200, previous excess might balance out. Pros: It simplifies the billing process for both clients and myself. Cons: I could occasionally end up losing a few hundred dollars.
For context:
- Our direct hire fees range from 20-22%, totaling between $16k and $40k.
- Monthly contractor fees are approximately +/- 30%.
- Background check costs start at around $160, with typical costs being $180-$200; in some cases, they can exceed $500, depending on how many locations and employment records need verification.
- While no clients have raised concerns, I’m taking a moment to evaluate potential improvements.
- We’re aiming to position ourselves as a white-glove service for small businesses and startups, offering the assurance that “We’ve got this; you don’t have to worry about it.”
RCadmin
It sounds like you’re already doing a great job providing a service that your clients value! Here are some thoughts on your questions:
Transparency vs. Grubbiness: At-cost pricing can come across as transparent, especially if you clearly communicate what the background checks involve and why there are additional costs. Clients likely appreciate the honesty of avoiding markups on these services. As long as you maintain that open dialogue about these expenses, it’s probably not going to feel “grubby.” Just ensure that your clients understand that this is an added-on service and that your primary fees are not dependent on it.
Cost Absorption vs. Fee Increase: If most of your clients take you up on the background checks, it may be worth considering whether to integrate those costs into your base pricing. Clients appreciate predictable costs, and including it in your fees may simplify your pricing structure. However, if you decide to keep it separate, ensure that your operational costs are clear in your value proposition. You could even consider highlighting the added benefit of offering this service at cost versus a markup, further justifying your existing fee structure.
Overcomplication and Flat Fee Pros/Cons: While the a la carte option provides flexibility, it does make things more complex for both you and your clients. A flat fee simplifies administration and billing, which is beneficial given your focus on providing a seamless experience. If you feel the average cost allows for a flat rate without significant loss on your end, it could enhance client satisfaction. However, monitor this closely to ensure it doesn’t negatively impact your margins in the long run.
Ultimately, the goal seems to be balancing simplicity and transparency while maintaining profitability. Consider testing the flat fee model on a few clients to gather their feedback and see how it works for your business before fully committing. Knowing you’ve kept customer satisfaction in mind will help guide your decision.