Key takeaways:
- A 50% markup produces a 33% gross margin before burden. And employer benefit costs rose 3.8% in the year ending June 2026, according to the Bureau of Labor Statistics.
- Robert Half’s gross margin fell from 42.7% in 2022 to 35.5% in the second quarter of 2026, and its net margin dropped from 9.1% to under 2% over the same period.
- Rather than applying a blanket rate adjustment across all accounts, evaluate the fully loaded costs of your top five contracts. Identify any generating a net margin below 4%, and either negotiate higher rates or offload the business.
Most staffing owners assess a placement’s profitability by focusing on markup. But it’s easy to confuse a 50% markup with a 50% margin, so much so that you may not notice the discrepancy until tax season.
Calculating your true pre-cost share of the bill rate requires dividing the markup percentage by one plus that markup. So that margin is really 33% rather than 50%. Overhead and additional expenses are rarely accounted for with the same care as recruiter salaries.
The markup you quote isn’t the margin you keep
If a recruiter earns $20 hourly and you apply a 50% markup, you bill the client $30. This leaves a $10 spread, which represents a 33% gross margin relative to the bill rate.
However, that $20 pay rate doesn’t reflect the true expense of an hour worked. Before the client sees the invoice, additional overhead, including payroll taxes, workers’ compensation, unemployment insurance, and employee benefits, adds an extra 10% to 15%. This extra burden directly reduces your spread before you ever record a dollar of gross margin.
The Bureau of Labor Statistics tracks that burden each quarter. Employer benefit costs for private industry workers rose 3.8% in the 12 months ending June 2026, above the 3.1% wage growth over the same period. Both these costs of filling an assignment are increasing, but only one is reflected in your pay rate.
Financial data from two public staffing companies illustrates how much spreads have narrowed
Robert Half reported a 42.7% gross margin for full-year 2022, a figure stated directly in its filing. Net income that year was $658 million on $7.238 billion in revenue, which comes to a net margin of about 9.1%. By the second quarter of 2026, reported gross margin had dropped to 35.5%, and net income of $26 million on $1.336 billion in revenue puts net margin at roughly 1.97%, down from about 2.99% a year earlier on $41 million in net income.
Kforce experienced a similar, but milder decline. A 2022 gross profit of $501 million on $1.71 billion in revenue works out to a 29.3% gross margin, and net income of $75 million puts net margin at about 4.4%. By the second quarter of 2026, Kforce reported a 28.5% gross margin, while net income of $12.3 million on $349.3 million in revenue puts net margin at roughly 3.53%.
These are two of the largest, best-capitalized firms in the industry, with pricing leverage most agencies under $50 million don’t have. When their net margins settle at 2% to 4%, the old 3% to 8% net range needs an asterisk.
Your bill rate never caught up to 2021
Pay rates never really came back down after 2021 and 2022. Wages and salaries for private industry workers jumped 5.0% in the 12 months ending March 2022, and they’re still growing 3.1% a year now, on top of everything added since. Commodity segment bill rates failed to compound at the same pace. Many agencies simply stopped requesting rate adjustments, while clients who resisted increases back in 2022 continue to push back in 2026.
The placement that looked healthy three years ago is now a break-even placement. No single event eroded your margin. Instead, steadily escalating costs combined with stagnant invoicing left you to absorb the shortfall.
Re-price by segment, not across the book
Ask for a flat rate increase across your whole book, and most clients will say no. A segment-by-segment review gets you paid for the assignments that truly deserve it.
Start with your five largest accounts. For each one, calculate the real net: bill rate minus pay rate, burden, and overhead allocation, not just the headline spread. You’ll likely find a range, not a single number. Commodity light industrial and administrative placements tend to run thinnest, while specialized healthcare, skilled trades, and technical roles usually still carry room.
Anywhere you’re netting under 4%, you have two choices. You can bring the client a specific rate conversation, backed by your own cost data rather than a generic increase. Or you can decide the account isn’t worth the working capital and staffing hours it consumes, and redirect that capacity toward assignments that actually fund growth.
Have that conversation anyway. The alternative is finding out next year that a third of your book has settled into Robert Half’s current margin, and no one chose that on purpose.
