US · Margins
What is the difference between markup and margin in staffing?
Why a 40 percent markup is not a 40 percent margin, how to convert between them, and which one clients negotiate on.
The short answer
Markup is expressed on your cost; margin is expressed on the bill rate. A 40 percent markup on a $25 burdened cost gives a $35 bill rate and a 28.6 percent gross margin. Clients negotiate in markup, funders and investors measure in margin, and confusing the two overstates profitability by several points.
Key facts
- Markup formula
- (Bill − Cost) ÷ Cost
- Margin formula
- (Bill − Cost) ÷ Bill
- 25% margin equals
- 33.3% markup
- 40% markup equals
- 28.6% margin
The two numbers describe the same spread from different ends, and the gap between them widens as the spread grows. At a 10 percent margin the difference is small; at a 40 percent margin, markup is 66.7 percent and the numbers no longer look related.
Which base you use also matters. Some agencies quote markup on the raw pay rate and others on the fully burdened cost. Markup on pay hides employer taxes and workers' compensation, so a 45 percent markup on pay can be a 22 percent margin once burden is included — perfectly viable, but not what the founder thought they were selling.
Clients and vendor management systems almost always negotiate markup on pay, because it is comparable across suppliers. Accept the convention, but convert every quoted markup into a burdened margin and a gross profit per hour before you agree to it.
The conversion is simple: margin equals markup divided by one plus markup. A 33.3 percent markup is a 25 percent margin; a 50 percent markup is a 33.3 percent margin; a 100 percent markup is a 50 percent margin.
Judge desks on gross profit per hour alongside percentage. A 20 percent margin on a $90 bill rate yields $18 an hour; a 30 percent margin on a $22 bill rate yields $6.60. The first funds a business, the second barely funds the recruiter.
Run the numbers
Convert markup to burdened margin
Enter a pay rate and target margin and get the bill rate and markup multiple.
Open the calculatorUnited States
How this differs by US state and metro
The answer above holds nationally. What changes locally is registration, insurance, wage rules and how much cash each contractor consumes — these are the states and metros founders ask us about most.
Illinois
Chicago · Naperville · Rockford
Illinois compliance costs are front-loaded, and light industrial margins are thin, so the funding line has to cover both the payroll gap and the administrative load. Model the long-assignment pay step-up into your bill rate from day one or it will eat the margin later.
Illinois guideOhio
Columbus · Cleveland · Cincinnati
Ohio's industrial base runs high headcount at moderate bill rates. That combination means the cash gap grows fast while margin per contractor stays modest, so a factoring line sized to invoice volume usually beats trying to self-fund.
Ohio guideGeorgia
Atlanta · Savannah · Augusta
Atlanta is a competitive, relationship-led market where clients push payment terms. Agencies that grow here usually secure a factoring facility early, because a single large logistics client can double your payroll requirement in a fortnight.
Georgia guidePennsylvania
Philadelphia · Pittsburgh · Allentown
Health systems are excellent clients and slow payers. If your first anchor client is a hospital network, assume 45 to 60 day terms and a credentialing lag before the first invoice, and secure funding that covers both.
Pennsylvania guideMetro-level wage, bill rate and startup cost detail:
Local questions
Does this change if I start in Illinois?
The national answer holds. What changes in Illinois is local: Illinois compliance costs are front-loaded, and light industrial margins are thin, so the funding line has to cover both the payroll gap and the administrative load. Model the long-assignment pay step-up into your bill rate from day one or it will eat the margin later. Check the Illinois page before you register anything, and model the cash gap on Illinois pay rates rather than national averages.
Is the answer different in Ohio than in Illinois?
The economics are the same shape; the local detail is not. In Ohio: Ohio's industrial base runs high headcount at moderate bill rates. That combination means the cash gap grows fast while margin per contractor stays modest, so a factoring line sized to invoice volume usually beats trying to self-fund. That affects your registration checklist and your working capital number, not the underlying principle.
Which US cities does this apply to?
All of them — but we publish metro-level bill rate, wage and startup cost detail for Cincinnati, Atlanta, Philadelphia, Pittsburgh and more, because pay rates and buyer mix vary far more between metros than between states.
Do I need a separate licence in every state I place in?
You register where you have employees and where you do business, not once nationally. Most states require unemployment insurance and withholding registration plus workers' compensation cover; a minority licence employment agencies, and some cities — New York City among them — licence separately from the state. Confirm each state and city before your first placement there.
Go deeper
How much do staffing agencies charge employers?
What staffing agencies charge employers: temp bill rates and markup, permanent placement fees, temp-to-hire conversion fees, and what actually sits inside the number.
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