Shining a Light on the True Cost
Here's where it's easy to get confused. (Trust me, it took me years to really understand this.) The FSP may mark up the cost of certain items — usually printing, mail services, list rental, media airtime, ad space, online ad buys, etc. FSPs seldom add markup to travel, postage and other things that do not require an investment of their time.
The confusion is that frequently FSPs will tell you they mark up 15 percent (could be more or less; 15 percent is often the standard). But it's not always how you and I might think of 15 percent because the FSP wants to earn 15 percent of what it bills you. So it's actually a 17.65 percent markup. No, the FSP folks are not liars. It's just math. Here's how it works, using a hypothetical $100 invoice from a printer:
- $100 printer invoice + 15 percent markup = $115 billed to NPO.
- FSP pays $100 to printer, keeps $15. That means it earns $15 on a $115 invoice.
- $15 is 13 percent of $115, meaning the FSP's profit margin is only 13 percent, not 15 percent.
So, instead of adding 15 percent to the invoice, the FSP adds 17.65 percent. Here's why:
- $100 printer invoice + 17.65 percent markup = $117.65 billed to NPO.
- FSP pays $100 to printer, keeps $17.65, earning $17.65 on a $117.65 invoice.
- $17.65 is 15 percent of $117.65, meaning the FSP's profit margin is 15 percent.
While in this example the difference is only $2.65, when you're talking invoices in the thousands, this can add up to a significant amount.
Cost per thousand
For some work, the FSP will quote a price that is per thousand, as in, "The letter in the mail will be $ZZZ per thousand." Basically, you are not seeing the math that goes into figuring this calculation, but in that fee is the cost of raw materials (paper and ink, for example, with a mailing) plus the profit the FSP needs to make to remain in business.