Mark-up vs margin

Both describe the same pounds. The difference is the denominator. Mark-up divides the profit by what you pay; margin divides it by what you charge. Because the bill rate is always larger than the pay rate, the margin percentage is always the smaller number, and the gap widens as the percentages rise.

The conversions are simple once written down. Margin equals mark-up divided by one plus the mark-up, so a 25 per cent mark-up is a 20 per cent margin and a 20 per cent mark-up is a 16.7 per cent margin. Going the other way, mark-up equals margin divided by one minus the margin, so a 20 per cent margin needs a 25 per cent mark-up and a 15 per cent margin needs 17.6 per cent.

Suppose an owner tells the desk that contracts must make 20 per cent. One consultant prices a £550 contractor at a 20 per cent mark-up and bills £660. Another reads it as a 20 per cent margin and bills £687.50. The first earns £110 a day, the second £137.50. Over a five-day week and 46 billable weeks, that £27.50 a day is £6,325 a year from one contractor, and an owner who believes the whole book runs at 20 per cent margin is wrong about most of it.

Clients add a third meaning. A procurement team that asks for the agency's margin often wants the spread in pounds, then compares it with the pay rate, which is a mark-up. Terms of business and rate cards should say which one they mean, in words and with a worked number, so nobody has to guess when the contract is renewed or a supplier list is re-tendered. Where a percentage is quoted at all, the safest form states both, for example a 20 per cent mark-up, which is a 16.7 per cent margin.

The same confusion appears inside agencies when a consultant's commission is quoted on margin and their pricing guidance is quoted on mark-up. If the two are set by different people, it is worth checking they describe the same deal.