Glossary · Commercials
What is Gross margin
Also called: GM, staffing gross margin.
Definition
The share of the bill rate left after paying the contractor and their employment burden. It is the money the agency actually runs on.
Applies to: US and UK · Reviewed by James Doyle
In practice
Gross margin is measured against the bill rate, not the pay rate. Bill $45.00, pay $30.00, burden $3.75, and you keep $11.25 — a 25% gross margin. Everything else in the business comes out of that $11.25: consultant salaries, funding cost, software, office, profit.
Contract staffing typically runs 18% to 30%. Below 20% the model rarely funds its own working capital, because the cash tied up in the payroll cycle grows faster than the margin covering it. Above 30% usually means a genuinely scarce skill set rather than a better negotiator.
Worked example
Bill $45.00 − pay $30.00 − burden $3.75 = $11.25 → 25% gross margin.
Common mistake
Quoting margin to a client who is thinking in markup. A 25% margin is roughly a 50% markup — the same deal sounds twice as expensive if you pick the wrong word.
Related terms
Markup
The percentage added to a contractor's pay rate to reach the bill rate. Clients negotiate in markup; funders and investors think in margin.
ReadBill rate
The hourly rate an agency charges its client for a contractor. It has to cover the pay rate, employment burden, funding cost and the agency's margin.
ReadEmployment burden
Every employer cost on top of the pay rate: payroll taxes, workers' compensation, holiday accrual and benefits. Typically 12% to 16% in the US.
ReadSpread
The cash difference between bill rate and burdened pay rate, quoted in currency per hour rather than as a percentage.
Read
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