Working out an agency charge rate

[bigandclever]

Dead easy question this one I reckon.....

It's contract renewal time, and I just want to get my head around some figures before I get told by the pimp I can't get any more cash

If I know (a) my invoice charge and I know (b) the gross margin the agent says they work to, do I calculate their charge rate as...

Pay Rate / (1 - gross margin %) = Charge Rate

ie if I get £1000 per day / (1 - 15) = agent charges client £1176.50

And if so, what is the calculation that gives what the agents margin needs to go down to in order to give an increased Pay Rate of £1050 assuming the Charge Rate does not change.

Thanks.

[samn01]

It is approx 10.5%. Your earlier calculation was correct provided the agency is currently on 15%.
Without wanting to get into a debate on the matter I would just like to add I think anything under 15% for someone on £1000 p/d is asking a little much.

If you are expecting an increase and as you are probably more valuable to the end client as I am assuming you have now been there a while, why are you not asking them for an increase?

I am also assuming the agency have signed terms at 15%, so they many not be happy to reduce (why agencies sign terms at such low rates anyway is beyond me!)

Anyway I hope that helps (good luck with the negotiations!)

Sam

[flyingjase]

samn01 said:

It is approx 10.5%. Your earlier calculation was correct provided the agency is currently on 15%.
Without wanting to get into a debate on the matter I would just like to add I think anything under 15% for someone on £1000 p/d is asking a little much.

If you are expecting an increase and as you are probably more valuable to the end client as I am assuming you have now been there a while, why are you not asking them for an increase?

I am also assuming the agency have signed terms at 15%, so they many not be happy to reduce (why agencies sign terms at such low rates anyway is beyond me!)

Anyway I hope that helps (good luck with the negotiations!)

Sam

Ummm.... at last someone that speaks sense....

It's about the value that your 'pimp' brings to the table. If you're unhappy with being pimped out, then don't put yourself through it!

[bigandclever]

Thanks for the comments.

Ordinarily I go direct. Previous contracts where I have gone via agency ranged from margins of 5% to 8%, though these were subtly different to the current engagement in that there was a specific agency arm of the outsourcers I was contracted to. In this case, the agent is a necessary component because they are one of a list of preferred suppliers to the client with the appropriate accreditation. Except they aren't; they pay 5% margin to another company who then deals with the client. Had I known this, I wouldn't have gone with them. I would have used a preferred supplier who had their own accreditation. Accordingly, I feel pissed off that I am effectively paying from my bottom line, for the 'privilige' of using this agent. Further, the involvement of the agency for the next 12 months is limited to processing 12 monthly invoices. With the figures provided, and on a 240 day year, this equates to £45000, or £3750 per invoice, direct to the agent as 'fees'. I think they can support a reduction in that margin.

And yes, you're right, should've gone to the client first, but funds are capped and were finalised 3 months ago. And 'pimp' isn't a nice term granted, but it makes me a rate whore, so there you are

[flyingjase]

bigandclever said:

Thanks for the comments.

Ordinarily I go direct. Previous contracts where I have gone via agency ranged from margins of 5% to 8%, though these were subtly different to the current engagement in that there was a specific agency arm of the outsourcers I was contracted to. In this case, the agent is a necessary component because they are one of a list of preferred suppliers to the client with the appropriate accreditation. Except they aren't; they pay 5% margin to another company who then deals with the client. Had I known this, I wouldn't have gone with them. I would have used a preferred supplier who had their own accreditation. Accordingly, I feel pissed off that I am effectively paying from my bottom line, for the 'privilige' of using this agent. Further, the involvement of the agency for the next 12 months is limited to processing 12 monthly invoices. With the figures provided, and on a 240 day year, this equates to £45000, or £3750 per invoice, direct to the agent as 'fees'. I think they can support a reduction in that margin.

And yes, you're right, should've gone to the client first, but funds are capped and were finalised 3 months ago. And 'pimp' isn't a nice term granted, but it makes me a rate whore, so there you are

Been called worse than pimp!

I hear what you're saying on the rather convoluted route to the client - this can often happen with Government and large Corporates through no fault of the agency, but due to the demands of the relevant procurement function. Absolutely no value add, but it helps the client rationalise the number of suppliers they are dealing with. If they use a niche agency for specific roles, then amount of business may not warrant a direct relationship, hence they channel the contracts through a managed service (complete contradiction in terms!) or one of the preferred suppliers. In my view this doesn’t help anyone.

Once I had to contract someone to a High Street Bank via Accenture (the bank being charged Accenture rates for the contractor, us receiving a normal contract rate) because the bank had a contractor freeze on – absolutely ridiculous, but somebody somewhere made the decision that it was the right thing to do.

If you found this role yourself and the agent is purely charging that level of margin for what in effect is a bank rolling service, then I think that you've got a very strong case for a reduced margin.

Good luck