How to work out recruitment margin and charge rates
Every staffing placement comes down to three numbers: what you pay the worker, what it actually costs you once on-costs are added, and what you charge the client. The gap between cost and charge is your gross profit — and getting it wrong by even 2–3% across a temp desk can wipe out a year's profit.
The formula
Add your on-costs to the pay rate to get the true cost per hour, then divide by (1 − margin) to get the charge rate:
| Step | Calculation | Example |
|---|---|---|
| True cost / hour | pay × (1 + on-costs%) | £12.00 × 1.18 = £14.16 |
| Charge rate | cost ÷ (1 − margin%) | £14.16 ÷ 0.75 = £18.88 |
| Gross profit / hour | charge − cost | £18.88 − £14.16 = £4.72 |
Margin vs markup — they are not the same
This trips up agencies constantly. Margin is profit as a share of the charge rate; markup is profit as a share of cost. A 25% margin is the same money as a 33.3% markup. When a client says "we only pay 15% margin", that is a very different number from a 15% markup — always confirm which one is meant before you quote.
Don't forget on-costs
The pay rate is never your real cost. For UK temporary workers you must add:
| On-cost | Typical level |
|---|---|
| Employer's National Insurance | On earnings above the secondary threshold |
| Holiday pay (statutory) | 12.07% of pay (28-day entitlement) |
| Workplace pension | From 3% employer contribution |
| Apprenticeship Levy | 0.5% for larger payrolls (over £3m) |
Frequently asked questions
What is a good margin for a recruitment agency? Temp/contract desks commonly run 15–30% margins depending on sector and volume; permanent placements are usually charged as a percentage of starting salary instead. High-volume, low-skill sectors run thinner; specialist contract desks run higher.
How do I increase margin without losing the client? Reduce hidden cost leakage (unbilled hours, payroll errors, compliance fines) rather than just raising rates. Agencies using management software to capture every billable hour and on-cost typically recover 1–3% margin that was previously lost.