Contract margin and mark-up calculator
Put in what the client pays and what the contractor is paid, per day, and see the margin, the mark-up and the gross profit over the life of the contract. Or set a target margin and get the charge rate you need to quote.
- Margin per day
- £100.00
- Margin (of charge rate)
- 15.4%
- Mark-up (on pay rate)
- 18.2%
- Gross profit a week
- £500
- Gross profit over 26 weeks
- £13,000
Work backwards from a target margin
- Charge rate needed on a £550 pay rate
- £670.73
Margin and mark-up are not the same number
Both start from the same figure: the charge rate minus the pay rate. On a £650 charge rate and a £550 pay rate, that is £100 a day. Margin expresses the £100 as a share of the charge rate, 15.4 per cent. Mark-up expresses it as a share of the pay rate, 18.2 per cent. The same deal, two percentages.
The confusion is expensive in negotiation. A client who agrees to an 18 per cent margin and an agency that meant an 18 per cent mark-up are about £22 a day apart on a £550 pay rate (£670.73 against £649.00), and over a six-month contract that is more than £2,800. Agree which one you mean in writing.
| Measure | Formula | On £650 charge, £550 pay |
|---|---|---|
| Margin per day | Charge rate minus pay rate | £100.00 |
| Margin % | Margin per day divided by charge rate | 15.4% |
| Mark-up % | Margin per day divided by pay rate | 18.2% |
| Weekly gross profit | Margin per day times days a week | £500 |
| Contract gross profit | Weekly gross profit times weeks | £13,000 over 26 weeks |
Working backwards from a target margin
Because margin is measured on the charge rate, the charge rate needed for a target margin is the pay rate divided by one minus the margin. For an 18 per cent margin on a £550 pay rate, that is £550 divided by 0.82, or £670.73 a day. Adding 18 per cent to the pay rate would give £649, which is an 18 per cent mark-up and only a 15.3 per cent margin.
Where the margin actually goes
For a contractor engaged through their own limited company and outside IR35, the agency pays the company's invoice gross, so the gap between charge and pay is close to the agency's real gross profit. It is not all profit: payment terms, bad debt and any funding costs come out of it.
Inside IR35 is a different calculation. Where the agency is the fee payer, the payment to the contractor's company is treated as deemed employment income, and employer National Insurance and the Apprenticeship Levy become costs that someone has to bear. This calculator does not model those, because who bears them is a question of contract and advice, not arithmetic. Use it for outside-IR35 limited company work, or treat the result as the margin before deemed employment costs.
Common questions
- What is a good margin on a contractor?
- It varies widely by sector, rate and volume. Specialist day-rate contracts through a limited company often run somewhere in the teens as a percentage of the charge rate, with high-volume or preferred supplier arrangements lower and scarce skills higher. The useful comparison is your own desk over time, not a published average.
- Should I quote margin as a percentage or as a fixed amount per day?
- A fixed amount per day is harder to misread and does not grow when the contractor's rate rises, which some clients prefer. A percentage scales with the rate. Either works if the terms say which one applies and what happens on a rate change or extension.
- Does the calculator include VAT?
- No. Charge and pay rates are compared net of VAT, because VAT charged to the client and VAT charged by a VAT-registered contractor's company pass through rather than affecting the margin.
In Vayora
Vayora books pay, bill and gross profit on every contract placement as it happens, per contractor and per desk, and the margin on each approved timesheet flows through to the self-bill and the client invoice. It supports contractors engaged through their own limited company; umbrella and agency PAYE payroll are not part of the finance engine.
Contract finance in Vayora