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What is the standard profit margin of an agency on a project outsourced to a freelancer?
Thread poster: Lagom
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Minimum agency margins Aug 3, 2020

I've managed an agency for nearly 25 years. 30 percent gross margin is the bare minimum an agency needs just to charge just to be break even. 40% is standard. Anything above that is a good margin for the agency, and the agency MUST occasionally charge more than that 40% if it is to thrive (it must pay the owners or investors a profit, don't forget, otherwise they are wasting their time).
Let me give you a worked example, as there appears to be a misunderstanding in this thread about what a... See more
I've managed an agency for nearly 25 years. 30 percent gross margin is the bare minimum an agency needs just to charge just to be break even. 40% is standard. Anything above that is a good margin for the agency, and the agency MUST occasionally charge more than that 40% if it is to thrive (it must pay the owners or investors a profit, don't forget, otherwise they are wasting their time).
Let me give you a worked example, as there appears to be a misunderstanding in this thread about what a 40% margin means. What it does NOT mean is multiplying the cost by 1.4!! That is a serious mathematical error that will not give you your 40%. 40% means 40% of the total charged amount. To use the incorrectly specified example given by someone above: say your costs are 10. Multiplying that by 1.4 gives you 14. But 4 is not 40% of 14, it is 40% of 10! Therefore that's wrong and a critical error that can lead an agency to make a loss for years. To calculate the 40% correctly, you need to use the formula 10/6 x cost. That means 16.67, and when rounded up, it means the agency should charge 17! So, the translator charges 7, the proofreader charges 3, the agency charges 17, and MUST charge 10/7 x 10 = 14.3 if it is to survive, and if it is to thrive and really make a decent profit, it must charge 18+ at least sometimes!
It is also the agency's responsibility, as it is for any other business, to always seek ways of reducing its costs, but NOT its margins! It must use technology (both machine translation and translation memories) to do that, as well as constantly renegotiating with translators, not letting the translators' prices creep up over time. ▲ Collapse


Jorge Payan
 
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What is the standard profit margin of an agency on a project outsourced to a freelancer?







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