A question we often get from clients is how our markup on third-party services works. Mostly, when it’s applied and exactly what it’s for. This short blog post provides a quick overview of when and why we typically apply a markup to third-party services.
Note: This blog post is for informational / educational purposes only. It does not constitute an agreement between nine10 Incorporated and yourself.
First, What Are Third-Party Services?
Third-party services are typically anything provided by an outside supplier. In most cases, this includes:
- Sign Companies
- Promotional Product Suppliers
- Advertising / Media Providers
The third-party fees may be to print the brochures we designed, or the cost to place the radio ads on the air from the radio station. This is most applicable to marketing services contracts where we are hired to manage a marketing portfolio for our client. Typically, we will have a fee for our services plus a budget for third-party expenses that we manage on their behalf.
When is a Markup Applied?
We apply a markup to any third-party services when we:
- Enter into a contract with the supplier under our name.
- Pay the supplier directly and then invoice the client for the amount.
What is the Markup For?
- Administrative Expenses – the cost of setting up accounts with suppliers, processing payables, and tracking the financials associated with the account.
- Cost of Interest – the cost of interest on the balance we carry.
- Loss of Investment Opportunity – cash that we use for our client’s expenses is cash that we can’t invest and earn interest on.
- Risk of Carrying Expenses – we take a risk that our client may not be able to pay on time or at all.
What is the Markup NOT For?
The markup is not for managing, placing and coordinating the third-party services. These services are included in our fee for service. This is the most common point of confusion for our clients… they often assume that without the markup, they will have to place the finished ads themselves. This is not the case!
How Can I Avoid Markup?
We don’t force our clients to purchase services through us, although sometimes it may be more convenient for us to handle it. If the contract for the third-party service is in your name, and the invoices come to you, then the markup doesn’t apply. Any client can request this as part of their contract or on individual jobs.