Markup and Spread Calculator for Staffing: Bill Rate, Margin and Gross Profit

What are markup and spread in staffing?

Markup is the percentage a staffing firm adds on top of a worker's pay rate to set the bill rate. Pay a contractor $30 an hour with a 50% markup and you bill the client $45. Spread is the dollar gap between those two rates, here $15 an hour.

Neither number is profit. The spread has to cover burden first: the employer share of Social Security and Medicare, federal and state unemployment taxes, workers compensation insurance, and any benefits or paid leave you provide. What is left is gross profit, and gross profit divided by the bill rate is gross margin.

Markup and gross margin are easy to mix up in a negotiation. A 50% markup is not a 50% margin. On a $45 bill rate, $15 of spread is 33% of the bill before burden, and less after it.

Spread is how most contract recruiters talk about a deal on the desk, because it is easy to compare across roles. Gross margin is how owners and lenders judge the business. Learn to move between the two quickly and you will price better and negotiate with more confidence.

How do you calculate bill rate, spread and gross margin step by step?

Burden varies by state, industry and worker classification. Get your real percentage from payroll or your back office provider, and update it each January when tax rates and wage bases change.

1. Start with the pay rate the worker will accept for this role in this market.
2. Multiply the pay rate by one plus the markup. At $30 and 50%, the bill rate is $45.
3. Subtract pay from bill to get spread per hour: $15.
4. Work out burden in dollars. At 20% of pay, burden on $30 is $6 an hour, so the loaded cost is $36.
5. Subtract the loaded cost from the bill rate for gross profit per hour: $9.
6. Divide gross profit per hour by the bill rate for gross margin: 20%.
7. Multiply gross profit per hour by hours per week and weeks billed for the total gross profit on the assignment.

What does a worked markup and spread example look like?

A contract desk places a worker at $30 an hour with a 50% markup and a 20% burden, 40 hours a week, for a full year of 52 weeks.

The bill rate is $45, the spread is $15 an hour and gross profit after burden is $9 an hour. That is $360 a week and $18,720 over 52 weeks. Gross margin is 20%. Small changes matter: the table shows what happens at other markups with pay and burden held the same.

What is a typical staffing gross margin?

Staffing Industry Analysts tracks gross margin at publicly traded staffing companies. In a 2023 update it reported an average gross margin of 27.9% in 2022 across 15 firms, and said margins had stayed around 25% between 2006 and 2020. An earlier SIA piece found an average of 25.3% in 2018 across 16 firms, with individual firms ranging from about 14.8% to 41.6%.

Read those figures with care. They are company wide margins for large public firms, and SIA noted the 2022 rise came mostly from more permanent placement revenue, which carries close to full margin. Pure temp and contract margins on a single desk are usually lower, and they vary a great deal by segment.

There is no reliable published average markup, because markup depends on pay level, burden and how a client buys. Price from your own burden and target margin instead.

Your own target margin should cover branch costs, recruiter commission, bad debt and profit. Set it from your profit and loss statement, then price every new order against it.

How do you protect your spread?

• Quote clients a bill rate built from your target gross margin, not a markup you have always used.
• Know your real burden by state and job class before you price. Workers comp rates differ sharply between office and industrial work.
• Write overtime, holiday and conversion terms into the contract.
• Review rates each year and pass on tax and wage increases.
• Watch for pay rate creep during an assignment when the bill rate stays fixed.
• Push back on volume discounts that cut gross profit per hour below what the desk needs.

How do you price from a target margin instead of a markup?

Start with the margin you need, not a markup you are used to. Add pay and burden to get your loaded cost per hour. Then divide the loaded cost by one minus your target margin as a decimal. That gives the bill rate that delivers the margin.

Take $30 pay and 20% burden again, so the loaded cost is $36. For a 25% gross margin, divide $36 by 0.75 to get a $48 bill rate. Divide $48 by $30 and the implied markup is 60%. If you had quoted your usual 50% markup, you would have earned 20% margin instead of 25%.

Pricing this way protects you when burden changes. Workers compensation for warehouse roles costs far more than for office roles, and unemployment tax rates differ by state. A fixed markup across both would give very different margins. A target margin keeps profit steady while the bill rate moves.

Do the same math when a client asks for a rate cut. Work out the new gross profit per hour and per year at their requested bill rate before you answer. A cut that looks small per hour can remove a large share of the annual gross profit on a long assignment.

What markup and spread mistakes should you avoid?

• Confusing markup with margin, and agreeing to a client's request for a 40% margin when you meant 40% markup.
• Treating spread as profit and ignoring burden.
• Using one burden percentage for every state and role.
• Forgetting that unbilled hours, such as paid sick leave, still cost you burden and pay.