Recently, we onboarded a new recruitment agency to RecBOS.
After completing their first month-end, we presented their management accounts in our usual format clear, detailed and designed specifically for recruitment businesses.
The client was impressed with the level of information available, but one figure immediately caught their attention.
Their contract desk was showing a 16.67% margin.
Their response?
“That can’t be right. We always work to a 20% margin.”
After digging into the numbers, it quickly became clear what had happened.
The business wasn’t working to a 20% margin at all.
It was working to a 20% mark-up.
It’s a surprisingly common misunderstanding, and one that can have a significant impact on profitability if it goes unnoticed.
Mark-Up and Margin Aren’t the Same Thing
Although the terms are often used interchangeably, they’re calculated very differently.
Mark-up is based on the cost.
Margin is based on the selling price.
A small difference in terminology can result in a much bigger difference in profit than many agency owners realise.
Let’s Look at an Example
Imagine you’re supplying a contractor at a £300 daily pay rate.
If You Charge a 20% Mark-Up
The calculation is:
- Contractor pay rate: £300.
- 20% mark-up: £60.
- Charge rate to the client: £360.
Your gross profit is £60.
However, your margin isn’t 20%.
It’s:
£60 ÷ £360 = 16.67%
If You Want a True 20% Margin
To achieve a genuine 20% margin, your charge rate needs to be calculated differently.
The calculation becomes:
£300 ÷ 80% = £375
So:
- Contractor pay rate: £300.
- Charge rate: £375.
- Gross profit: £75.
Your margin is now:
£75 ÷ £375 = 20%
That’s a difference of £15 per contractor, per day.
Small Differences Become Big Numbers
Looking at £15 per day might not sound particularly significant.
But recruitment is a volume business.
Let’s say you have:
10 contractors.
Working 5 days a week.
For 52 weeks of the year.
That additional £15 per day becomes:
£150 extra gross profit every day.
£750 every week.
£39,000 over a year.
And that’s with just 10 contractors.
Scale that across 25, 50 or even 100 contractors, and the difference quickly becomes substantial.
Why Accurate Management Information Matters
The reason our client spotted the issue was simple.
For the first time, they had management accounts built specifically for a recruitment business.
Rather than simply producing statutory accounts at year-end, they could clearly see:
- Gross profit percentages.
- Contract performance.
- Permanent recruitment performance.
- Margins by division.
- Financial trends across the business.
Good management information doesn’t just tell you what happened, it helps you identify opportunities to improve profitability.
In this case, it highlighted a misunderstanding that had likely been costing the business money for years.
Recruitment Is Different
Recruitment has its own language, commercial models and financial challenges.
Whether it’s understanding contractor margins, payroll funding, gross profit calculations or Back Office processes, industry knowledge makes a real difference.
An accountant who works across multiple industries may not immediately recognise the difference between mark-up and margin in a recruitment setting.
A recruitment specialist will.
Terminology Matters
Mark-up and margin may sound similar, but they produce very different financial outcomes.
If you’re pricing your contract book using the wrong calculation, you could be earning considerably less than you think.
That’s why it’s so important to have accountants and Back Office specialists who understand the recruitment industry inside out.
At RecBOS, our Senior Management team has spent more than 65 years working exclusively with recruitment businesses. We understand the numbers that matter, provide management information designed specifically for recruitment agencies, and help our clients make informed commercial decisions that support long-term growth.
Sometimes, one small calculation really can make a £39,000 difference.