Agency Markup

Agency markup refers to the additional amount agencies charge clients above the actual cost of vendor services, products, or third-party expenses incurred on the client's behalf. When an agency purchases media placements, software licenses, stock photography, printing services, or other vendor deliverables for a client, they typically add a markup—usually 15-20% but sometimes higher—to cover their procurement overhead, vendor management, payment processing, and the risk of carrying costs until client payment. Markup serves several important purposes. It compensates agencies for the administrative work of sourcing vendors, negotiating contracts, managing relationships, processing payments, and handling any issues that arise. It also covers the financial risk agencies take when they pay vendors upfront and wait for client reimbursement. If a client doesn't pay, the agency is still responsible for vendor costs. Markup also reflects the value agencies provide through their vendor relationships, negotiated rates, and quality assurance processes. The markup percentage varies based on several factors. Standard markups range from 15-20% for most vendor services, but can be higher for specialized services, lower for high-volume purchases, or structured as flat fees for small expenses. Some agencies use tiered markups—higher percentages on smaller purchases to cover minimum processing costs, lower percentages on large purchases. The key is transparency: clients should understand that markup is standard practice and reflects real costs and value. Many agencies struggle with markup because they're uncomfortable charging above cost or worry clients will see it as unfair. But markup is standard industry practice, and clients who work with multiple agencies expect it. The key is being transparent about markup policies upfront rather than hiding it in invoices. Some agencies include markup in their client agreements, while others add it as a line item on invoices so clients understand what they're paying for. Markup policies should be consistent and documented. Decide whether you'll mark up all vendor costs, only certain categories, or only costs above a certain threshold. Consider whether markup applies to subcontractors versus true vendors. Some agencies don't markup subcontractor costs if they're already billing at full rates, while others apply reduced markups. The important thing is having a clear policy and applying it consistently. Common mistakes include not charging markup at all (leaving money on the table and not covering real costs), being inconsistent with markup (creating confusion and potential client complaints), and not being transparent about markup policies (leading to awkward conversations when clients discover it). The most successful agencies treat markup as a standard business practice, clearly communicate their policies, and ensure markup reflects the real value and costs they provide.