Markup

What is a client really asking when they ask for your markup?

Usually they are asking a comparison question, and the number alone cannot answer it. Two suppliers quoting the same figure can be offering materially different things if one includes statutory employer costs and holiday accrual in the rate and the other passes them through separately, or if one is quoting on a margin basis and the other on a markup basis. The useful response is to state the basis, list what the rate includes, and state the payment terms assumed. That converts an incomparable number into a comparable one, which serves an honest buyer better than a lower headline.

Does markup work the same on overtime and premium hours?

Not automatically, and this is where invoices go wrong. If the worker is paid a premium for overtime or unsocial hours, applying the standard markup to the premium pay rate produces a bill rate that may be higher than the agreement intended, while applying no uplift at all means the supplier funds the premium out of its own spread. Most agreements state a specific treatment for premium hours. Whatever it is, it has to be written down and configured consistently, because reconciling it manually every month is how disagreements start.

How does markup relate to a rate card?

A rate card fixes the bill rate; markup is what remains once the pay rate is set within it. That means the supplier's effective markup on a carded role moves every time it has to pay more to attract someone, without the client rate changing at all. Suppliers working to a card should therefore watch the pay rates they are actually agreeing rather than assuming a card cell delivers a stable contribution, and should raise a review when a cell has stopped working rather than absorbing it quietly.

What is markup a proportion of, and why does that matter?

Write the pay rate as P and the bill rate as B. The gap between them, B minus P, is the spread. Markup states that spread relative to the pay rate: markup equals (B minus P) divided by P. Gross margin states the same spread relative to the bill rate: margin equals (B minus P) divided by B. Identical numerator, different denominator.

Because B is always larger than P on a profitable assignment, the denominator in the margin calculation is always the larger of the two, so the margin figure is always smaller than the markup figure for the same deal. Nothing has changed about the money; only the base of comparison has. This single fact causes more confusion in staffing conversations than any other piece of arithmetic in the industry.

How do you convert between markup and margin?

The two are related by a direct formula, so neither carries information the other lacks. Margin equals markup divided by one plus markup. Markup equals margin divided by one minus margin. Both take the figures as decimals rather than percentages, so a stated percentage is divided by one hundred before it is used and multiplied back afterwards.

Two practical consequences follow. First, quoting one and comparing it against a competitor's quote of the other is meaningless, and it happens constantly in procurement conversations. Second, as the spread widens the two figures diverge further, so the confusion is smallest exactly where the stakes are lowest. Anyone comparing supplier pricing should convert every quote to the same basis before looking at it, and should say which basis they are using when they quote.

What does the spread have to cover before any of it is profit?

The spread is not margin in the everyday sense of money kept. Out of it come the statutory employer costs attaching to the engagement, whatever insurances the client contract requires, any paid leave or holiday entitlement the arrangement carries, and the cost of any benefits provided. Then come the operating costs: the recruiter time spent finding the person, payroll and compliance administration, the software the desk runs on, and the cost of funding the pay cycle while waiting for the client to pay.

Finally there are the losses nobody quotes for: hours the supplier expected to bill and did not because the worker was between assignments, sick, or on unpaid leave; assignments that ended early; and invoices that were never collected. A markup figure that looks generous against direct pay costs can be thin or negative once those are subtracted, which is why suppliers who manage only to markup rather than to contribution after all costs can grow their revenue and shrink their cash at the same time.

Why there is no universal markup percentage

Figures circulate as though a standard existed. They should be treated with suspicion, because the ones in general circulation are almost always repeated from secondary sources that do not identify how the number was measured, across what sample, in which markets, or on which basis. A number whose method cannot be inspected cannot be compared with your own arrangement, and using it as a target imports assumptions you cannot see.

Even a correctly measured figure would transfer poorly. Statutory employer costs differ by country and often by state. What the engagement obliges the supplier to provide differs by contract. Payment terms change the cost of funding the spread. Volume, exclusivity, and category scarcity all move the answer. A single benchmark applied across those differences misleads in both directions: it makes a well-priced arrangement look expensive in one market and an unsustainable one look acceptable in another. Build the number from your own inputs and check it against your own outcomes.

How to derive the number from your own inputs

Work upward from cost rather than downward from a target percentage. Start with the pay rate you must offer to attract the person for this role in this location. Add every employer cost that attaches to paying them, expressed on the same hourly basis. That gives a fully loaded cost per billable hour, which is the true floor.

Then adjust for the hours you will not bill. If a proportion of the assignment's hours will not be invoiced, the loaded cost has to be recovered across the hours that will be, so divide the loaded cost by the share of hours you expect to bill. Add the contribution the assignment must make towards desk overhead and profit. The result is the bill rate. Only now compute (B minus P) divided by P for markup and (B minus P) divided by B for margin, and treat both as outputs of the calculation rather than as inputs to it. Running the same arithmetic with a worse billable-hours assumption shows immediately how sensitive the answer is.