Margin and markup measure the same difference between your charge rate and your cost, but express it as a percentage of different amounts. Margin uses the charge rate. Markup uses the cost. For a recruitment placement, confusing the two can leave less money available to cover your agency’s costs than you planned.
A 20% markup gives a 16.67% margin. To achieve a 20% margin, you need a 25% markup on the same cost base. This guide shows the calculations and explains what to include before you quote a client.
What is the difference between margin and markup?
For the simple placement calculations below, “cost” means the candidate pay rate. The difference between the charge rate and pay rate is the amount left before any other costs. All figures are illustrative, in pounds sterling and exclude VAT.
| Measure | Formula | What it tells you |
|---|---|---|
| Margin (%) | (Charge − cost) ÷ charge × 100 | The share of the charge left after the cost |
| Markup (%) | (Charge − cost) ÷ cost × 100 | The uplift applied to the cost |
Use the same period and cost base for both calculations. Compare daily pay with a daily charge, or hourly pay with an hourly charge. The margin formula requires a non-zero charge rate; the markup formula requires a non-zero cost.
Worked example: £325 daily pay and a 20% margin
Suppose you pay a contractor £325 per day and want a 20% margin over that pay rate. Pay must represent 80% of the charge rate:
Charge rate = £325 ÷ (1 − 0.20) = £406.25 per day.
- Amount left after candidate pay: £406.25 − £325 = £81.25 per day.
- Margin: £81.25 ÷ £406.25 × 100 = 20%.
- Markup: £81.25 ÷ £325 × 100 = 25%.
For five billed days at these rates, client charges total £2,031.25 and candidate pay totals £1,625. The difference is £406.25 before other costs. This is not your agency’s net profit: the example excludes employment on-costs, funding fees, operating overheads and tax.
Why a 20% markup does not give a 20% margin
If you add 20% to the same £325 pay rate, the charge is £390 per day. That leaves £65 per day, giving a margin of £65 ÷ £390 × 100 = 16.67%.
Compared with the £406.25 charge needed for a 20% margin, that is £16.25 less per billed day. Across 20 billed days, the difference is £325. These examples use identical pay rates and exclude other costs.
| Markup on cost | Equivalent margin |
|---|---|
| 10% | 9.09% |
| 20% | 16.67% |
| 25% | 20.00% |
| 30% | 23.08% |
| 50% | 33.33% |
To convert a markup percentage to margin, divide it by 100 plus that percentage, then multiply by 100. For example: 25 ÷ 125 × 100 = 20%.
How to set a charge rate from your target margin
Charge rate = cost ÷ (1 − target margin as a decimal).
Write 20% as 0.20, for example. For a positive cost, the target margin must be below 100%. If you work from markup instead, use charge rate = cost × (1 + markup as a decimal).
Choose the cost base before using either formula. If you want the result to cover additional direct placement costs, include those in your cost figure rather than treating the candidate pay rate as the full cost. Check your rounded charge rate against the agreed margin before quoting.
Which costs should a recruitment agency include?
The simple margin and markup calculator compares the rates you enter. It cannot determine your agency’s total profit from pay and charge rates alone.
- Candidate pay: use the amount your business pays for the work, consistently across the calculation.
- Employment costs: where your business employs the worker, allow for applicable employer National Insurance, pension contributions and holiday pay. Avoid counting costs twice if they are already included in your starting figure. The government’s guide to employment costs explains the categories to consider.
- Other placement costs: check any agreed payroll, administration, insurance or funding charges that affect the commercial return.
- Agency overheads: salaries, software, premises and other operating costs still need to be covered before you assess overall profitability.
For PAYE placements, use the PAYE charge rate calculator to explore employment costs alongside your target margin. Check the assumptions and applicable rates for the arrangement you are pricing.
Agree consistent definitions with your finance team when reporting placement margin, gross profit and net profit. A percentage calculated only from candidate pay and client charge should not be presented as the agency’s net profit margin.
A profitable placement can still create a cash gap
Margin tells you about the relationship between revenue and cost. It does not tell you when cash arrives. If you pay workers before the client pays your invoice, you still need cash to cover that interval.
Before taking on more placements, consider both the return and the payment timetable. You can explore recruitment invoice finance for eligible invoices and discuss the terms that would apply to your business.
If you are comparing funding proposals, include their costs in your planning. Our invoice finance costs guide outlines questions to ask about charges.
Before you send a client quote
- Confirm whether the target is margin or markup.
- Use matching hourly, daily or weekly figures, with a consistent VAT basis.
- State whether the cost includes candidate pay alone or additional direct costs.
- Check the result in the margin and markup calculator.
- Review overheads, funding costs and payment timings separately before agreeing the placement.