What it means
A headhunter works what recruiters call the passive market, meaning people who are performing well in their current job and have applied for nothing. The approach is confidential, and the value to the client is access to candidates who would never appear in an ordinary applicant pool.
Retained search is the model used for executive roles. The client pays a retainer in instalments, often a third on engagement, a third when the shortlist is delivered and a third on placement, and the firm works the assignment exclusively.
Contingency recruitment carries no upfront cost, but because payment depends on a hire, several firms may chase the same vacancy at once. Fees usually run between 20% and 35% of first-year base salary, sometimes calculated on guaranteed bonus as well.
That makes a single senior hire a five-figure line in the budget, which is why finance teams treat recruitment fees as a predictable cost of growth rather than an occasional surprise. Most agreements include a rebate or replacement guarantee, refunding part of the fee if the hire leaves within a set window, commonly three to six months.
Off-limits clauses are the other detail worth reading, since they stop the firm approaching staff at a client it recently placed into, and the length of that protection varies widely.
In practice
Real-world examples.
Example
A payments business needs a chief technology officer with card-scheme experience and gives a retained firm an exclusive twelve-week mandate. The firm charges 30% of a $250,000 base salary, or $75,000, split across three billing points.
Example
A hospital group uses three contingency agencies to fill a nurse manager vacancy. The first to place a candidate earns 20% of the $95,000 salary, or $19,000, and the other two are paid nothing for the work they did.
Example
A fast-growing agency signs with a search firm without reading the off-limits clause. Eighteen months later it discovers it cannot approach anyone at a company the firm also serves, which rules out the obvious source of experienced account directors.
Formula
Calculation
Headhunter fee = fee percentage x first-year base salary, plus any agreed bonus or guaranteed elements included in the fee base.
A manufacturing group hires an operations director on a base salary of $180,000 through a retained search firm charging 25%.
The fee is 0.25 x $180,000 = $45,000, billed in three equal instalments of $45,000 / 3 = $15,000 at engagement, shortlist and start date. If the contract had also included a guaranteed first-year bonus of $20,000 in the fee base, the base would rise to $180,000 + $20,000 = $200,000 and the fee to 0.25 x $200,000 = $50,000, an extra $5,000. Had the hire resigned in month two under an agreement giving a 50% rebate inside 90 days, the group would have recovered 0.50 x $45,000 = $22,500.Case study
Seen in the real world.
Brightwater Logistics is a fictional regional carrier used here as an illustrative example. It needed two senior hires in one year, a finance director and a network operations lead, and had never used external search before.
For the finance director role it engaged a retained firm at 22% of a $140,000 base salary, a fee of 0.22 x $140,000 = $30,800. The role filled in nine weeks. For the operations lead it used contingency agencies, which produced volume but little seniority, and the vacancy stayed open for five months at an estimated cost of $12,000 a month in overtime and missed service credits, or about $60,000 in total.
The finance director's first act was to model both routes properly. The retained fee looked expensive on paper, but against $60,000 of carrying cost for an unfilled operational role, the board agreed that speed mattered more than headline fee percentage for any position that directly touched service delivery.
Watch out
Common mistakes.
- Comparing headhunters purely on fee percentage, while ignoring time to fill, rebate terms and off-limits restrictions that cost far more in practice.
- Believing the candidate pays part of the fee, when in a legitimate arrangement the hiring employer pays all of it.
- Budgeting the fee as a one-off oddity rather than including expected recruitment fees in the annual hiring plan.
Questions
People also ask.
What is the difference between a headhunter and a recruitment agency?
A headhunter proactively targets named individuals in named companies, while an agency more often works from advertisements and its own candidate database.
When is a retained search worth the upfront money?
When the role is senior, confidential or scarce enough that you need a firm committing real research hours rather than racing rivals to send a CV.
Does the guarantee cover a hire who is dismissed?
Usually only for defined reasons and within the stated window, so read whether resignation, redundancy and dismissal are all treated the same way.
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