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.
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 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.
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.