Placement fee

From CEOpedia | Management online

Placement fee is a term which genereally means the agreed amount of money by two entities and paid for the placement service. It is the most often used in the area of recruitment as well as advertising. In general, this term refers to payment for positioning operations provided by suppliers to their customers.

Placement fee in recruitment area

Placement fee in the recruitment process is a payment imposing on a worker for service of searching for him a suitable employer, provided by the employment agencies. It can be said that it is a fee for intermediation in finding a job. There is not only one payment model, what means that the fee can be charged not only for a successful matching, but also throughout the entire process called then continuous stream. Furthermore, in contrast to selling a job, leasing a job makes employees more dependent on the services of the agencies for a longer time, so it results in regular placement fees (Gonos G. 2000, pp. 21, 30).

The employment agencies service is based on triangular relationship between:

  • angencies,
  • employees,
  • employers,

but it has to be highlited that connection of employees and employers always takes place through the agency thus this solution provides them with higher earnings. Moreover, it is also beneficial for employers, because this arrangement results in weakening ties with employees what reduces the risk of higher wage pressures in the future (Gonos G. 2000, p. 21).

The placement fees issue is mostly regulated by law what results in different rules depending on the country. What is interesting, in Irealand, the United Kingdom and the Netherlands only employers pay placement fees, with exception of the entertainment area. Furthermore, in the UK to run an empleyment agency a license is required and this depends on the decision issued by the Secretary of State for Employment. Of course, the amount of placament fees is also different. In the UK it is around 12 to 30% of annual salary, but in Irealand it is 8 to 18%. It should be also noted that in this situation employers are exposed to financial risk related to inadequate placement fees paid for low quality services. Therefore, some researchers claim that there is a necessity of free public placement service, which would increased the transparency of this service (Walwei U. 1991, pp. 249-252).

Placement fee in advertising

On the other hand, the placement fee term can be also used in refer to advertising service. It is a payment paid for a product placement in movies or television shows, but also in other mass media. This type of advertising became popular in the US in 1982 after the commercial success of a candy producer who placed this product in the movie "E.T.". It has to be said that there are different ways to determine amount of placement fee, but usually the main factor is the predicted popularity of the movie or the show, which is calculated on the basis of special raitings. Often the level of producers' revenue is also taken into account (Gupta P. B., Lord K. R. 1998, pp. 47-48).

Others

As it has been already said, the placement fee is a wide term, which can occur in various fields. It appears in areas such as:

Examples of Placement fee

  • Recruitment Services: Placement fees are usually paid by employers to recruitment agencies for placing a suitable candidate for their job opening. This fee is usually a percentage of the candidate’s annual salary.
  • Advertising Services: In the advertising sector, placement fees are the payment made to media outlets for the placement of advertisement. These fees are often charged on a per-impression or per-click basis.
  • Real Estate Services: In real estate, placement fees are also known as brokering fees and are charged by real estate agents for the placement of a buyer and a seller in a property transaction. The fee is usually a percentage of the total sale price.
  • Consulting Services: In the consulting sector, placement fees are the fees charged by consulting firms for placing a consultant in a particular project. The fee is usually a percentage of the annual salary of the consultant.

Advantages of Placement fee

Placement fees offer many advantages to both the supplier and customer.

  • For the supplier, placement fees represent a reliable revenue stream from their customers. This revenue can be used to finance the supplier’s operations and help them expand their business. The fees also give the supplier a chance to build strong relationships with their customers, as they are incentivized to provide a high-quality service.
  • For the customer, placement fees represent a cost-effective way to find the right candidate for their organization. The fees also give the customer the assurance that they are working with a reputable supplier that is committed to delivering the best results. This provides peace of mind and eliminates the risk of hiring a candidate who is not a good fit for the job.

Limitations of Placement fee

Placement fees can have a variety of limitations depending on the industry or the specific agreement between the parties. Generally, the following limitations can be observed:

  • The fee must be reasonable, as it should not be a barrier for the customer to access the service.
  • Placement fees must adhere to any applicable laws or regulations.
  • There should be a clear understanding between the supplier and the customer about the payment of the fee, including when it is due, and what services it covers.
  • The fee should be calculated in a fair manner, based on the services provided and the value they bring to the customer.
  • The fee should not be excessively high, as it can be seen as exploitative or unfair.
  • The customer should be aware of the fee and any modifications to it in advance.

Other approaches related to Placement fee

Placement fees are used in many contexts, and there are several other approaches related to them. These include:

  • Recruiting fees, which are paid by employers to recruiters for successfully filling open positions.
  • Advertising fees, which are charged by media outlets for running ads.
  • Referral fees, which are paid by companies to individuals or companies for referring potential customers or employees.
  • Commission fees, which are paid by companies to salespeople for services rendered.
  • Placement agency fees, which are paid by employers to placement agencies for placing job seekers in positions.

In summary, placement fees refer to payments made in exchange for services related to the placement of individuals or products in various contexts.


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References

Author: Agnieszka Wierzba

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