A mathematical explanation

Non-agency staff talk about the "mark up" of an agency. It is natural to think that way, particularly the contractor - as that is what she "sees". However, the agency world thinks and calculates in "gross margin" terms, not "mark up".

The agency's cost of sale - the product - has a "warehouse" value. Let's say that is 1000 baht an hour (a very well paid CRM Consultant). This is the cost of the goods. In other words, it is the contractor's pay rate.

Agencies need to think in terms of "sale price" that's the "charge rate". If they achieved a sale of say 2000 baht per hour, they would have achieved a 50% gross margin. Let's say though for the sake of argument, that they wished to operate at 30% gross margin with a charge rate at the 1000 baht per hour level. Let's work that one out:

1000 baht x 30% = 300 baht (the margin)
1000 baht – 300 baht (the margin) = 700baht.

The fast way to work out the example above is to take the 1000 baht and calculate 70% (1000 times 0.7)
To calculate any % margin divide the pay rate by the charge rate:

1 - (70 / 100) * 100 = 30% (Old hands don't bother with the "1 -" bit, they read the answer (.7) as "30")