If he's the one managing the relationship, doing the end-customer billing, it's perfectly normal to have a markup, especially if it's for a short-term engagemen

If he's the one managing the relationship, doing the end-customer billing, it's perfectly normal to have a markup, especially if it's for a short-term engagement. He owns the relationship and is subcontracting you to perform your service. A referral fee would be appropriate if he was handing the customer off to you for direct billing and leaving you to manage your relationship directly. In essence, he's also warranting your work (which means he's bearing risk). Don't be so quick to say that this means you should raise your rates. If you did, he might not sub work out to you anymore and you'd lose the advantage of having people like him finding you work (which is a cost you'd need to bear). We have worked with subcontractors like this where they see us marking up their service and think they should raise their rates to what we're billing. That's the wrong response, because I can't then mark that up further. It just means we're going to find someone else to do the work for the rate we need. Ultimately, maybe it would be good to consider a higher bill rate for direct engagements and a lower bill rate for subcontracting jobs, and in the meantime try and move more of your business into direct engagements. But again, this takes work and will cost you, but at least you derisk the approach by continuing to get business (and build reputation) through subcontracting.