Recruitment Agency Remuneration

Love them or hate them recruitment agencies can be of use.

Commercially, agencies are often remunerated based on the following:

• Permanent roles as a % of the salary
• Temporary roles as a % of the day rate

However, when it comes to buyers of their services we often see a common mistake when it comes to the fees and it comes down to the use of Margin and Mark Up when aligned to the % of the salary or % of the day rate.

A key concern when agreeing rates is to choose the correct commercial relationship, because calculation methods are different and mistakes made here can be costly over time. Be careful to ask which relationship you are entering into.

Mark-Up vs Margin

Mark-up and margin are the two main forms of calculation used to determine fee allocations to both the contactors and the agent.  The difference in the calculation methods can be the cause of much confusion.

Doing The Maths

The best way to understand the difference between the mark-up and margin method of calculating rates is by working through some examples.

Mark-Up

Starting with the contractor daily fee, mark-up is the percentage added to that fee payable to the recruitment company.

By way of example, if the contractor fee is £100 per day and the recruitment company mark-up is 15%:

Contractor fee:      £100
Agent mark-up:       £15 [Mark-up rate of 15% x Contractor rate of £100]
Total daily fee:       £115 [Contractor rate of £100 plus Agent mark-up of £15]

Margin

Total the contractor fee plus the agent fee. Margin is the percentage of total fee that will be paid to the recruitment company.

By way of example, let’s use the contractor fee of £100 from the earlier mark-up calculation, but now use a margin rate of 15% to calculate the Agent margin and the total fee:

Contractor fee:    £100.00

Agent margin:       £17.65 [Subtract Contractor fee from the Total Fee]

Total daily fee:     £117.65 [Contractor fee £100 / 0.85]

Advice

As can be seen, a margin relationship will cost you more for than a mark-up relationship for each pound spent on the contractor.  Be sure to stipulate with your agent which method is being used at the time you agree terms.