RE(2): Agency Response - margins

["Ridder, Fred" <F -dot- Ridder -at- DIALOGIC -dot- COM>]

I am not a contractor, and I was determined to keep out of this thread.
But one thing that has been unclear throughout is whether the outrage
has been about 50% markups or 50% profit margins, which are *not*
the same thing in normal business usage.  In every business context
in which I've worked (which includes manufacturing as well as both
retail and wholesale sales) "markup" refers to a percentage that is
added onto a cost to yield a profitable selling price, while "margin" is
an expression of the gross profit as a percentage of the selling price.
To give a few common examples:
     100% markup equals 50% profit margin (equal parts cost & profit)
     50% markup equals 33-1/3% margin (2 parts cost, 1 part profit)
     33-1/3% markup equals 25% margin
     25% markup equals 20% margin

The various postings on this thread have used both terms, which
suggests that this has been an "apples and oranges" discussion.
But David Demyan's posting uses the terms totally interchangeably
in the paragraphs I've quoted ("50% of billing" equals 50% margin
which equals a 100% markup, *not* a 50% markup), and this
leads me to ask whether consulting businesses simply uses a
different vocabulary than the rest of the business world?  If so,
this seems to be a formula for guaranteed miscommunication!

Fred Ridder
f -dot- ridder -at- dialogic -dot- com
Senior Technical Writer
Dialogic Corporation
Parsippany, NJ

And to keep our marketing people happy:
Get the Dialogic Edge at: http://www.dialogic.com

>-----Original Message-----
>From:  David B. Demyan [SMTP:dbdemyan -at- WORLDNET -dot- ATT -dot- NET]
>Sent:  Sunday, May 18, 1997 9:03 PM
>Subject:       Re: Agency Response - margins
>
>DBD: I agree that mark-ups are nowhere near 50 percent. We at
>Mendem Concord went into the business to combat high markups
>and pass as much of the billing to the consultant as possible. While
>our clients are happy to set rigid upper bounds on the rates they
>will pay, and granted, the willingness to pay has increased some-
>what lately, we never get the opportunity (nor would we use the
>opportunity) to take half the billing. That's a guaranteed disaster in
>waiting. (Both client and consultant miffed.)
>
>[snip]
>
>DBD: I *don't* agree. Cutting the consultants rates down to
>50 percent of billing to cover normal costs of doing business
>is unfair. We know the cost structure as well as other firms;
>it is nowhere near high enough to justify 50 percent mark-up.
>

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