New contractors are often upset to discover that an agency is billing them to a client at a much higher rate than they are paying the contractor. They wonder why the broker should make all that money when all the broker had to do was make a few phone calls.
While some brokers occasionally make indecent profits, contractors underestimate the costs that the agency must cover to stay in business. For starters, if the contractor is working as an hourly employee, as many do, the agency must pay the employer's share of Social Security for the contractor (roughly 8% of gross), plus the costs of workman's compensation insurance, and State unemployment insurance.
If the contractor is getting paid on a regular schedule, often months before the client pays the agency--as if often the case with corporate clients--the agency must also cover the interest on the bank loans it must take out to cover payroll.
Agencies also must pay salaries for their recruiters, the costs of maintaining an office, and the costs of local and national print and Internet advertising campaigns. And these must be paid for month in and month out whether or not the agency has contractors working.
Further downward pressure is exerted on rates because the placement business has become a highly competitive one that has attracted many companies from other industries, all eager to get a piece of the action. This makes it increasingly harder for smaller agencies to compete with subsidiaries of large, well-known companies on any basis but their contractors low rates, or rare skills.
So if you do work with an agency, accept that you will have to pay, and pay well for their ability to place you on a few days notice --and to pay you on payday, whether or not their clients pay up.
If you are dealing with a full-service agency--one that markets you and pays you on a regular schedule. Expect the agency to take 25-35% of the rate the client is paying. If you work as a W-2 employee expect them to take a cut towards the higher end of this spectrum to cover the Social Security payment and other payroll expenses. However, avoid companies that take more than 40% if possible.
If you are doing the marketing yourself and are still forced by your client to work through an agency--negotiate! Accept that the broker will need to earn something for its overhead, but you may be able to get the agency cut down to 20% or less. Refuse to work with agents who are not flexible about work you bring in.
Finally, rather than obsessing about the agent's cut, do your research and determine what you should be making for your skills, and negotiate for that figure. If $75 dollars/hr is the high end of what people with your skills get as brokered consultants in your region, and if you negotiate $80/hr for a job you want to do, it should be irrelevant what the agent is getting!
And if you do discover that the broker has marked up your services by some ridiculous amount, accept that you didn't do your homework and failed to find out what local rates were before you began the negotiating process. Then do your best to do a better job next time.