Percentage margins versus a fixed fee, in money

Most construction agencies charge a percentage. It sounds reasonable, it is easy to quote, and at the bottom of the market it costs you very little.

The trouble starts when you need somebody good.

The arithmetic

A percentage margin scales with the pay rate. A fixed fee does not. On a low rate the difference is small enough to ignore. On a skilled rate it stops being small.

Operative day rate	At 15%	At 20%	Fixed £25
£120	£18	£24	£25
£160	£24	£32	£25
£200	£30	£40	£25
£260	£39	£52	£25

At £120 a day a percentage agency is cheaper than we are. We are not going to pretend otherwise. At £160 it is level. Above that the gap widens every time you ask for somebody better.

Across ten operatives at £200 a day for twelve weeks, a twenty per cent margin costs you £24,000. A fixed £25 costs £15,000. The operatives are the same people.

The part that is not on the spreadsheet

The direct cost is only half of it. The other half is what a percentage does to the conversation.

An agency earning a percentage makes more money when the pay rate is higher and less when it is lower. That means two things at once. It has a reason to talk you up when you are buying, and a reason to talk the operative down when it is paying. Neither of those is fraud. It is just what the arithmetic rewards, and after a few years nobody in the business notices it any more.

The practical effect shows up when you ask for a keener price. The agency cannot reduce its own margin without losing money, so it reduces the pay rate instead. You get a cheaper number and a worse operative, and the causal link between those two things is invisible to you.

What a fixed fee changes

Our margin is the same at £120 a day as it is at £260. That has one useful consequence: we gain nothing from moving the pay rate in either direction.

So when we tell you that a role is not going to fill at the rate you have in mind, that is information rather than a sales technique. And when you decide to raise the rate to attract somebody better, every pound of the increase reaches the person on your site.

Where a percentage still wins

Be honest about this. If you are booking general labour at the bottom of the market and the calibre genuinely does not matter to you, a percentage agency will be cheaper than we are. A fifteen per cent margin on £120 is £18 against our £25.

What you are buying with that £7 is the ability to see what you are paying for, which matters exactly as much as the quality of the work matters to you. On a site where it does not, take the £18.