What the calculator does
Everything below is in one tool.
- Three starting points: markup on pay, target gross margin, or an existing bill rate.
- W2 burden itemized as employer FICA, unemployment, workers’ compensation, benefits and admin fees, or no burden for C2C and 1099.
- MSP or VMS fee taken from the bill rate, so margin is measured on the net bill rate you actually receive.
- Cost of funds for the days until the client pays.
- Hours, headcount and assignment length for weekly, monthly, yearly and assignment totals.
- A breakdown of where each billed dollar goes, a fee converter and a markup-to-margin table.
The formulas
Cost is pay plus burden plus other costs. Net bill is the bill rate after the MSP or VMS fee.
- Gross profit = net bill − cost − cost of funds.
- Gross margin % = gross profit ÷ net bill × 100.
- Markup on pay % = (bill − pay) ÷ pay × 100.
- Bill rate for a target margin = cost ÷ (1 − margin − funding share) ÷ (1 − MSP fee).
Markup and margin are not the same
A 30% markup is a margin of about 23%. Quote them consistently with clients, since a margin target and a markup target of the same number produce different bill rates.
Worked example
Choose C2C, a $65 pay rate and an $85 bill rate. Gross profit is $20 an hour, or $800 over a 40-hour week. Margin is 20 ÷ 85 = 23.53% and markup on pay is 20 ÷ 65 = 30.77%.
Frequently asked questions
What is a good gross margin in IT staffing?
It varies by client, volume and engagement type. Compare your own cost structure with each client’s rate cap instead of a generic number.
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). A 30% markup equals a margin of 0.30 ÷ 1.30, about 23.08%, before burden and fees.
Why does an MSP or VMS fee lower my margin?
It is deducted from the bill rate before you are paid, so the same bill rate leaves less to cover cost and profit.