A recent forum posting on one of the UK recruitment forums recently gave rise to a lively debate around the issue of how software  and service (for Front Office Recruitment Software in this instance, but it applies equally to may other types) should be valued.

The main thrust of the argument surrounded the idea that one guy wanted to buy some recruitment software for his own use and resented the fact that most vendors had solutions based around some sort of monthly fee.

The argument got quite heated with lots of the vendors jumping it (feet first) to argue their case, falling back finally to the argument ‘But our product XXX is only a fraction of the (‘£3,£6 £10, £30K…’) fees you charge your clients, so what’s the problem?’  

That’s upset some people and I can completely understand why as sometimes the same charge ‘..but you only have to stick a server in telehouse…’ is leveled back which not only betrays a lack of understanding about what the costs of servicing a business really are (and that applies just as much to the enourmous amount of hard work, rejections, missed opportunity and expenditure that goes into finding and placing good candidates as it does deliverying SaaS software), but much more importantly it’s absolutely  wrong in the assumptions it makes around how services such as these compete.

The point is that actually neither software development (particularly if it’s a hosted solution), nor service provided by a recruitment consultant is generally provided on a cost-plus basis.. but rather is a function of the value provided or opportunity offered by taking the service.

Most recruitment businesses  set their pricing around the value their service is to their clients, taking advantage of the skills, resources, access to candidates they have to charge a margin that is attractive to their clients.

Recruitment is of course a competitive business and as a consequence, the majority of people working in the industry have to work extremely hard to earn their keep…. We see first hand just how hard our clients work..   A few do exceptionally well and make a lot of money because they are able to offer better value (in the widest sense) to their customers.. who they would argue (and customers being objective would probably agree) are happy to pay their fees for the value created by the opportunity.

At the other end of the scale, the CV pushers (I’d like to think we don’t have many represented among our customers!), resented by many, offer little value add (and create unwarranted downward pressure on margins that make life difficult for the people who do add value)..  yet for some of the market, the trade off of a low, or fixed cost fee offers them value too (perhaps because they are in a commoditized market or require lightly skilled individuals).. They are still pricing opportunity, although their pricing may be marginal..

It’s not really any different from a software vendor's perspective..

If the vendor has any substance (and like the CV pushers in recruitment, there are many '2 developers in a bedroom' outfits), then they will be investing heavily in product development in order to continue to compete (add value and opportunity) in a highly competitive market (any of the main vendors are spending considerably more than 300K developing/ maintaining their products by the way!).

They need to do this on an ongoing basis. It’s a competitive market with many things that change outside of their control..  new technologies, feature competition, capacity to scale etc (our capital investment in product development/ infrastructure has never dropped year to year).

For most, having a recurring revenue stream is a way of building a stable business where they can plan for the future, without having to charge much bigger up-front fees that would otherwise be required.. For many recruitment companies, this is also attractive as it moves cap-ex to opex and allows them to variablise the cost of providing the service to their users.

But whether they sell the product for an upfront fee and then charge support, or whether it is rolled into a monthly service charge, their business model are still principally priced on the value and opportunity that is offered by buying their product and services vs. the competition.

For some prospective customers, there won't be value (perceived or real) from a given set of features or supporting services for the point they are in their business.. that's absolutely fine, there is nothing wrong with that and you should be free to choose a low/ no cost (or single fee, no ongoing support) solution if it meets the needs of the business.

On the other hand for many (maybe the majority) of recruiters, their front office system is a valuable tool that adds value to their business.. They need that tool to work reliably and they need support when something goes wrong.. whatever that is (very few people today would argue that a recruitment company investing in internal IT resource adds much value). 

For many, a particular strategy that they have to add value for their clients (and are able to price for the opportunity) relies on a set of features/ service level from their supplier which they recognize as a key factor in the success of that strategy and as a consequence are willing to pay for.

Moreover, for many, the ability to have input into the future direction a product takes (we try to pay serious attention to this aspect of what we do.. many of the features that come into each release are 100% client driven), allows them to be dynamic in a way a 1-time purchased solution wouldn't.

So, either way that's absolutely fine...

No one solution is good for everyone (despite what many Vendors sales people will tell you ;-) ) and you should make you buying decision based on the value that the solution offers.. both now (and as importantly), for the future (look at their history, do they have a track record of innovation, regular new features, consistent service)....

As an observation of our side of the industry as a whole, I think this is one perspective that many vendors don't take (which is why you get the 'but its only XXX of a placement fee' arguments).. Not only irritating, but a strategic mistake because if you approach it from the 'How can we innovate to drive up value for our users, so they perceive the relative cost to be lower?' then everyone wins... we get a better (more valuable) product.. our customers get the opportunity that offers.

The one thing no one wants it to be committed to a product/ service that you are paying for on an ongoing basis where the drive to continue to add value (which in real terms means drive down relative cost and increase opportunity) has stopped..  

(we are working hard on the next version of evolve as I write ;-) ).

Have a good weekend..