Offered new contract! Rate increase methodology

[boredsenseless]

17% leaves a lot of room for movement on their part. I refer you to my post on page 1 of this thread. Set your rate and be willing to walk...


addendum: I'd be after 5% of that margin personally.

I agree with the whore that I'd be after some of the margin, but 17% is about normal but its really up to you how much you let them keep

[kookachoo]

Interesting someone said Barclays is 4% through preferred agencies. I've been at Barclays for 18mths and my agency takes 8% in the first 12 months, then down to 4% thereafter.

Considering I got the contract and was forced to use the agency to process it, that's a hell of alot for them to be taking, and upon my impending renewal I will suggest they lower their cut and pass it on to me.

[malvolio]

If you got the work yourself, then they're just acting as a convenient invoicing point for Barclays (and, of course, getting you paid several weeks before the client pays them, which is worth a few bob to you I suspect) and 4% is more than fair. If you get bored, work out the bad-debt liability on an agency with 100 contractors at average rate - it's about £2m a month and someone has to pay the lost interest...

[kookachoo]

You're very right. Hadn't thought about that!! Too many bloody conference calls have hurt my brain today!

[XLMonkey]

It isn't margin!

I think I know the answer to this already, but....... I'm going through this process at the moment. My Agent is on 17% and having been offered an extension, I am trying to negotiate a reduction in that margin. One quote from the Agent is that "17% is about average". I would have said 10% was about average, am I right/wrong?

I know I'm being picky, but it seems very few contractors actually know what margin is. .

Since you don't know what the agent's fixed costs are, then you have NO idea what their margin is. You only know what the mark-up is. I've come across (admittedly not many) agents that are charging a mark-up of over 30% but are still losing money (i.e. negative margin).

Mark-up = difference between the price paid for services/unit and price obtained for the same services/unit
Margin = difference between total costs (fixed and variable) and total income/year

How can you negotiate with them if you don't understand the nature of their business?

[Fleetwood]

Mark-up = difference between the price paid for services/unit and price obtained for the same services/unit
Margin = difference between total costs (fixed and variable) and total income/year?

No, that's called profit.

Example : Contractor paid £300 from agent. Customer buys contractor's services through agent for £350.
The mark-up/margin, gross profit, whatever you want to call it, is £50. That's clear.
However, when expressed as a percentage, things change.
The mark-up is £50 on £300 which is 16.66%
The margin is £50 of £350, which is 14.29%.

[XLMonkey]

No, that's called profit.

Example : Contractor paid £300 from agent. Customer buys contractor's services through agent for £350.
The mark-up/margin, gross profit, whatever you want to call it, is £50. That's clear.
However, when expressed as a percentage, things change.
The mark-up is £50 on £300 which is 16.66%
The margin is £50 of £350, which is 14.29%.

Ooops, I should have added "expressed as a percentage of total sales" onto that definition.... (my thanks to Wikipedia for confirming that I wasn't totally losing my marbles)

However, the margin in your example is not 14.29%

Mark-up is £50 on £300 = 16.66%
Margin is 1 - (total costs (£300 plus the agent's own cost of business, say £30/day) / total revenue (£350)) = 5.7%

My point being that ... since you don't know what the agent's cost of business is, you can't calculate what the actual margin is. Could be any number lower than 14.29%, including a loss.