Should a placement firm tell you what they are billing the client?

As a 1099 consultant, I usually use a placement firm to find a contract job.  I always ask the placement firm what rate they are billing the client.  They usually tell me.  When they don’t, it’s a sure sign that their markup is excessive (but note sometimes they have an agreement with the client not to disclose the bill rate to the consultant).  And in every case when I eventually found out the bill rate, it was excessive.  My question to you is, do you think the placement firm should disclose their bill rate to the client?  I have heard some say to just worry about your rate, and if they match it, who cares what they bill the client.  But the reasons I want them to disclose the rate is: 1) I lose trust with the placement first as I feel they are hiding something from me, 2) Based on my rate I may be thinking I’m at a “mid-level” expert and that is what the client is expecting, but if the markup is very high then the client may be expecting a “super” expert, and that is not fair to me, 3) I don’t want to be taken advantage of.  The placement firm certainly deserves a cut for finding the project, but as a 1099 I’m not getting any benefits from them and they are not having to pay employer tax, so their overhead is negligible.  A $25/hr markup would be fine but a $50/hr markup is just plain out of line.

Also, should the markup percentage (client bill rate divided by consultant rate minus 1) be the same no matter what the hourly rate is (assuming 1099)?  If I’m asking $50/hr and they markup 30%, they are making $15/hr.  If they keep the same markup and I’m asking $150/hr, they are making $45/hr.  It makes sense to me that the markup should be lower the more hourly rate you are asking.  I don’t see why the placement firm should make so much more money on a senior person compared to a junior person.

As for the markup, I found the larger placement firms do a higher market than small shops, since the large firms have more overhead (advertising, more staff, franchise fee, levels of management that take a cut, etc).

Some good Dice discussions on this topic:

hw much commission do contracting companies keep. Mine wants 30% of BR?

w2 rate through staffing companies ?

Recruiters’ Percentage of Bill Rate

Contract Billing Rate: Am I supposed to be STUPID?

How to Get a Better Rate from Consulting Firms

About James Serra

James is a big data and data warehousing solution architect at Microsoft. Previously he was an independent consultant working as a Data Warehouse/Business Intelligence architect and developer. He is a prior SQL Server MVP with over 25 years of IT experience.
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10 Responses to Should a placement firm tell you what they are billing the client?

  1. Interesting question. I have always asked myself that question. I consult for the pharmaceutical industry and they have pretty good rates but the 3rd party or agency usually gets more than 30% from the billing rate. They normally do not disclose their rate with anyone. I believe it is fair and should be mandatory to know what they are getting for my work since, as you mentioned in the article, they don’t provide any benefits nor pay any employer taxes.

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  3. @dataogre says:

    I’m a 1099, and insist on knowing the bill rate for one simple reason: risk. Even if I’m happy with $50/hr (which I’m not), if they are able to get $200/hr for me because I’m senior or have niche skills, guess who’s the first contractor to go when the client needs to cut costs? Extreme example, but I need to know that they have done this, because it has likely limited how long I will be at that client.

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  8. Elma says:

    Speaking as the CEO of a small placement firm: A consultant often does not know what effort has gone, or costs incurred, into procuring a contract. I’ve just spent TWO YEARS competing and jumping through countless hoops for a contract. Days and days of unpaid effort (networking, phone calls, follow-up phone calls, scrounging for information, asking favors) and then the costs of the lawyers and the dinners and all the licenses, registrations and certifications, not to even mention the stress and the emotional toll on me and my family. I did manage to get this contract, but there have been others I’ve lost, which I didn’t get a penny for.

    Another factor is that rates are sometimes negotiated as a whole for a team of consultants; not individually. That means that the placement firm will sometimes pay more for one person and less for another, lesser experienced person, even though the client may have the same rate card for both. So while he may be over margin on you, he might be on margin for the team as a whole.

    Even if there isn’t a “team” as such, placement firms may have more than one person at a client, and as a whole it has to work out for them. That’s how it works. If the client is looking for a superstar, you give them a superstar and get less on them, because when the client is happy with you they will ask for more people, not necessarily superstars, which is where you may reap the benefits of the margin you gave up.

    Imagine the IRS taxing you on your gross income and not being interested in what your (substantial) expenses were. That’s akin to what you’re doing.

  9. Dylan says:

    Interesting take Elma.

    Would you be willing to share what your mark up is that you take on contracts you’ve procured?

    I am working in my second contract with a small firm and as I am working in a project management role, I work in the project plans and the project budget. My firm did not tell me my bill rate when I started, but I not know that they are marking me up over 100%. I really do appreciate what they do to line up work, etc. for me and I don’t want to take advantage of them, but I also don’t want to be taken advantage of. I really would be interested to hear what a small firm’s overhead is on me, so I can add a percentage of “profit” for them on top, and see where a fair number/% would fall.

    • James Serra says:

      When I was 1099, I only took contracts where the markup was between 15%-25%. For W2, it was 30%-40% (Depending on the benefits). Of course it depends on what your hourly rate is as 40% of $50/hr is much less than 40% of $150/hr. Ask them why the markup is so high. When I would do that, the recruiter either would not know why, or we just give me the standard corporate line of their expenses which they could not justify.