I hear many times when executives or business owners of staffing companies use these terms interchangeably, and especially, clients of staffing companies use them interchangeably. But really, they have vastly different affects on your profitability. So let's take mark up first. Let's be sure we know exactly what term we're talking about.
Mark up, is the factor by which you're increasing the rate of employee hourly wages and you're going to charge your in-client. Let's take an example. Let's say you're paying your employee $10 per hour. Let's say that you've decided to use a mark up of 40%. So, what would you be billing your client? Well, it would be 1.4 X $10 per hour or $14 per hour. So, is your gross profit margin, however, going to be 40%? It is not. Because you have employee benefits to pay, Worker's Comp insurance to pay, and of course, employer taxes to pay. So, your gross profit is not 40%. In fact, it can vary dramatically. A 40% mark up, could be profitable or not profitable depending on how your Worker's Comp cost is for that specific employee.
To help out with this, we've developed a mark up calculator that easily allows assumptions, multiple assumptions to be put in to the calculator and come up with exactly what profit you're going to make, per employee. This is a great tool for executives and sales professionals. If you'd like this, please contact us, we'd be happy to share. Until then, we hope that you will have the most success, and we look forward to speaking to you and enjoying these informational videos at a further time.