We believe that contractors should know how much their agents make and they should expect payments to be fair, accurate and timely. Unfortunately, many contractors have first-hand experience of their agents taking more than their fair share.

One of the simple agent tricks is to use margin calculations, rather than markup.

When an employer agrees a rate, the method of calculation should be clear from the start and here’s why.

## Markup vs Margin

Markup and margin are the two calculation methods for determining payments to the contractor and the agent. The difference between these methods can cause a lot of confusion.

### Doing the maths

The best way to understand the difference between the markup and margin methods of rate calculation is by working through some examples.

### Mark-up

Imagine you have a relationship in which you agree £100 for the contract resource. This fee doesn’t cover the agent fee.

To calculate the agent’s fee, simply add a percentage to the contractor fee.

By way of example, the contractor fee is £100 per day and the agreed agent fee is 15%:

Contractor fee: £100

Agent mark-up: £15 [Mark-up rate of 15% x **Contractor rate** of £100]

Total daily fee: £115 [Contractor rate of £100 **plus** Agent mark-up of £15]

Of a total fee of £115 per day, the agent takes £15 per day.

### Margin

Margin is the percentage of total fee payable to the agent.

Let’s use the total of £115 from the earlier markup calculation. Of that total fee, the agent earned £15 markup.

Using the margin approach, we calculate the agent fee as 15% of the total fee:

Total fee: £115.00

Agent margin: £17.25 [Margin of 15% x £115]

Contractor fee: £97.50 [Total rate of £115 **less** agent margin of £17.25]

Of a total fee of £115 per day, the agent takes £17.50 per day.

### Advice

In each example, the percentages are the same, bit the method is different. A markup relationship delivers more of your money to the contractor.

Our advice is to agree the type of relationship you prefer in advance and leave nothing to chance.