May 30, 2022

How to determine your mark-up for your outstaffing company

Annie Garland

Why is mark-up important?

The mark-up pricing model – one of the cost-based pricing strategies – is a popular pricing strategy.

Both cost-based pricing strategies — cost-plus and break-even — are appealing to companies because they are straightforward strategies that are simple to implement and simple for your sales team to calculate. 

This is one of the few pricing strategies that ensures that the company generates a profit if you set the mark-up correctly – but you’ll need to determine the mark-up that will cover all indirect/fixed costs.

How to determine your mark-up 

 You’ll need to make some estimations and assumptions about

  • the number of developers you expect to place
  • the charge out rate for each developer
  • the cost/salary of each developer 

and 

  • your expected fixed costs/overheads. 

Here’s an example of sales and cost estimations for a hypothetical outstaffing company who expect to hire out 4 developers per month at £4800 per month (based on £240/day x 20 working days). Their average developer’s salary is £3,125 per month and all the fixed costs are £7,150 per month

Below (the first column), the mark-up of 54% (£6700/£12500 x 100) is not sufficient to cover the fixed costs/overheads and will result in a loss of £450.

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However, if the mark-up is increased to 60% (see second column) – so to £5000 per developer per month (salary of £3125 x 160%) – the company will be generating a profit. The profit of £350 is obviously a modest profit, but you can see how setting the correct mark-up has an effect on your net profit.

4 developers4 developers
Approx value of one developer/month£4,800.00£5,000.00
Number of developers44
Revenue£19,200.00£20,000.00
Total Income£19,200.00£20,000.00
Less Cost of Sales
Developer costs£12,500.00£12,500.00
Total Cost of Sales£12,500.00£12,500.00
Gross Profit£6,700.00£7,500.00
GP margin35%37.50%
Mark-up54%60.00%
Less Overheads
Advertising & Marketing£750.00£750.00
Administrative Salaries£5,000.00£5,000.00
Insurance£100.00£100.00
IT Software and Consumables£600.00£600.00
Printing, Postage & Stationery£50.00£50.00
Rent£400.00£400.00
Telephone & Internet£250.00£250.00
Total Expenses£7,150.00£7,150.00
Net Profit/(Loss)(£450.00)£350.00
NP %-2%2%

You can access our mark-up calculator template here to try various estimations and mark-ups.

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