Recruitment agency costs are out of control: what to do
If your agency bill has crept up to the point where finance is asking questions, the problem is rarely one bad supplier. It's the model. Contingency recruitment charges for outcomes, not effort, so the price has nothing to do with how hard the role was. Fix the model and the bill follows. Here's how to work out which fix you need.
How the bill got this big
Nobody sets out to have fourteen agencies on their preferred supplier list (PSL). It happens one hard role at a time. A hiring manager can't fill a pricing analyst vacancy, an agency they know sends a decent CV, and now there are fifteen.
Three things then compound:
The fee is detached from the work. A 20% fee on a £60,000 hire is £12,000 whether the agency spent three weeks on it or found the candidate in their database in an afternoon. You're not paying for effort. You're paying for access, and you pay full price every time.
The list has no owner. Procurement negotiated terms two years ago. HR adds suppliers. Hiring managers pick whoever calls back fastest. The total sits in three budget lines and nobody looks at the sum.
Agencies price in the competition. When five suppliers work the same role, each knows they'll win one in five. Their fee has to cover the four they lose. You're funding their conversion rate.
Work out what you're actually spending
Before deciding anything, get the real number. Most of the companies we talk to underestimate it by a wide margin, mostly because the obvious figure (invoices) isn't the whole figure.
Pull together, for the last twelve months:
Agency invoices, permanent and contract, across every cost centre
Contractor margins, if you're paying agencies a daily mark-up on contract staff
Rebates you were entitled to and didn't claim (early leavers, duplicate submissions)
Roles filled by agencies that your own careers page or LinkedIn also sourced a candidate for
Hiring manager time spent screening agency CVs that went nowhere
The last two rarely make it into anyone's spreadsheet. They should. If an agency placed a candidate who also applied directly, you paid a fee for someone you already had.
Once you have the number, divide it by hires. That's your true cost per hire from agencies. Keep it handy, because every option below needs to beat it.
If you want a sense of scale before you start pulling invoices, our agency spend calculator does the headline sum in under a minute. Three sliders: average salary, permanent hires this year, typical fee. It gives you the annual total and, more usefully, how many months of each person's salary you're handing over in fees. Nothing to fill in, nothing stored. It covers permanent hiring only and won't catch the hidden costs above, so treat it as the floor, not the total.
Four ways to bring it down, and when each one works
1. Tighten the PSL
Cut fifteen different suppliers to a handful of specialist agencies. Set fee bands by role type. Give the survivors exclusivity on defined roles in return for lower fees and faster turnaround.
Works when the problem is sprawl rather than volume. If you're hiring twenty people a year and the list has just got out of hand, this is probably enough.
Doesn't work when the volume is the problem. A tidier list at a slightly lower fee is still a per-hire cost that scales with every hire.
2. Renegotiate fees
Push everyone down a few percentage points. It feels like a win, and on a per-hire basis it is one.
Works when your fees are genuinely above market for the roles you hire. Worth checking. It isn't always the case.
Doesn't work as a fix because it changes the rate, not the model. You're still paying a percentage of salary on every hire, so the total still climbs with volume and with pay inflation. And a lower fee usually comes with give on your side: exclusivity, retained terms, longer payment windows. Fair trades, but the bill hasn't gone anywhere. It's just been rearranged.
3. Hire an in-house recruiter
A talent acquisition manager on payroll, sourcing directly, using agencies only for the hard roles.
Works when hiring is steady and predictable. Someone hiring thirty to forty people a year in a consistent pattern can run that in-house and save real money.
Doesn't work when hiring is unpredicatable (recruitment in insurance and financial services usually is - a transformation programme lands, a new product launches, a competitor closes an office and forty CVs arrive). One recruiter can't absorb all the peaks, so agencies come straight back in for the overflow, and you're now paying for both.
4. Move to RPO
Bring in one provider who takes accountability for the whole hiring outcome: sourcing, screening, process, employer brand, hiring manager experience, the lot. Usually priced as a management fee plus a reduced per-hire cost, or a fixed fee for an agreed volume, rather than a percentage of every salary.
Works when you want the total to be knowable in advance, you have enough volume to justify a dedicated team, and you'd rather someone else owned hiring performance so your HR leadership can stop managing suppliers and get back to the job.
Doesn't work when you're hiring a handful of people a year. An RPO requires significant commitment to make it work effectively and it needs volume to pay for itself. If your annual hiring fits on one hand, it may be sensible to fix the PSL and move on.
5. Bring in embedded recruiters
A recruiter, or a small team, from a provider, sitting inside your business, working under your brand and in your systems, for a fixed monthly fee. In-house capability without the permanent headcount, and without a fee attached to each hire.
Works when the problem is capacity rather than structure. Your process is fine, your managers are engaged, you just have more roles than hands: a programme, a new product line, a backlog after a freeze. Embedded recruiters start quickly, cost the same whether they make three hires that month or eight, and leave when the peak does. It's also the right starting point if you're not ready to commit to an RPO but want to stop paying per hire now. Done properly, it can scale into one later.
Doesn't work when the process itself is the problem. If approvals take three weeks and hiring managers don't turn up to interviews, adding a recruiter adds a witness. That's an RPO or advisory conversation.
PSL vs RPO: the actual difference
People compare these as if they're rival products. They're not, they are very different solutions to the same problem.
A PSL is a list of who you're allowed to pay. Every supplier on it is still a contingency agency, still paid per placement, still incentivised to fill the role rather than fix your process.
An RPO is a single party accountable for the outcome. The RPO provider owns your time to hire, your cost per hire, your candidate experience and your hiring manager satisfaction, and is measured on all of them. When a role is genuinely hard, a good RPO will still use specialist agencies for it, but on your terms, under one set of fees, and it'll apply to a small percent of your roles rather than all of them.
So the question isn't "PSL or RPO". It's "do I want a list, or do I want someone to own the result".
What it costs
If we’re being totally honest, costs will vary widely - it depends on volume, role mix and how much of the process you want to hand over, so anyone quoting a headline figure without asking those questions is guessing.
What we can say is how the models are priced, because that's where the saving comes from:
Agency: percentage of salary per hire. Scales up with every hire and every pay rise.
Embedded / Recruiter-as-a-Service: fixed monthly fee (monthly subscription pricing) for a named recruiter or team working inside your business. Same cost whether they make three hires that month or eight.
RPO: usually either a management fee plus a reduced per-hire fee, or a fully fixed fee for a defined volume. Predictable, and usually well below the agency cost per hire once you're past a certain volume.
Our own experience is that moving from agencies to an RPO can save on average up to 30% on hiring costs. But let's be straight: every business is different, so we can't guarantee yours will be cheaper. What we can guarantee is that you'll know the figure up front, rather than finding it out in December.
Where Vermelo fits
We run RPO, embedded recruitment and MSP programmes for insurers, MGAs, brokers and financial services firms, mostly mid-sized, where the hiring is specialist enough to need sector knowledge and unpredictable enough to break an in-house team. We also happen to have a specialist recruitment agency in our wider group, so we know exactly how contingency pricing works from the other side.
That means we'll tell you if the answer is "tidy your PSL and keep your money". Not every problem needs an RPO.
Want to chat through your options?
santa.benga@vermelorpo.com | 07304 094171
Frequently asked questions
How do we reduce recruitment agency spend without losing hiring speed?
Start by measuring the true cost per hire, including contractor margins and unclaimed rebates. Then match the fix to the problem: consolidate the PSL if it's sprawl, move to embedded or RPO if it's volume. Speed usually improves under one accountable supplier because roles stop being worked by five agencies at once.
We have too many recruitment agencies on our PSL. How many should we have?
Enough to cover your role types with genuine specialists, and no more. For most mid-sized insurers and financial services firms that's no more than a handful of specialist agencies. If the list has grown well past that, it's probably being managed by whoever calls back fastest.
What's the difference between a PSL and RPO?
A PSL is a list of approved recruitment agencies, each still paid per placement. An RPO is a single provider accountable for your whole hiring outcome, measured on time to hire, cost per hire and quality. A PSL controls who you pay. An RPO controls the result.
Our agency fees are out of control. Should we talk to an RPO provider?
If you're hiring at volume, yes. If you hire a handful of people a year, an RPO is more than you need and a tighter PSL will most probably do the job. A good provider will tell you which camp you're in. If you still want external support but not a full RPO, or your hiring is unpredictable, embedded recruiters are usually a good solution.
How is RPO priced compared to agency fees?
Agencies charge a percentage of salary per hire. RPO is usually a management fee plus a reduced per-hire cost, or a fixed fee for an agreed volume. The saving comes from predictability and from taking the middle of your hiring in-house rather than paying full agency rates on every role.
Vermelo is a UK talent solutions specialist delivering RPO, MSP, embedded talent (RaaS), total talent and advisory. Named Best Recruitment Process Outsourcing (RPO) Business at the Global Recruiter Awards 2025. Part of the same group as Gerrard White Consulting and FlarePeople.