Being able to negotiate is an essential skill for aspiring contractors. Like any other small business, your aim is to secure the best price you can for your skills, whilst being aware of how strong (or weak) your position is in the market place at that current time.
Using some tips provided by Claire Johnson, MD of SJD Accountancy, as a starting point, here are some things to bear in mind when negotiating rates with prospective clients (and recruitment agents).
What are you worth?
Clearly, the rate you can achieve will depend on your skills, experience and industry knowledge. Make sure you know where you stand compared to other contractors in a similar position, but don’t overplay your hand.
If you feel that you’re in a strong position, showing that you’re willing to walk away if the client doesn’t provide you with an acceptable rate could have “a positive impact on your negotiating position and reputation.
It is worth having a benchmark rate in your head, below which you are not prepared to go.
“One of the golden rules is to aim high and expect to compromise.”
Every role is different
At Contract Eye, we’ve always urged contractors to tailor their job applications to the specific role, rather than using a generic CV / covering letter. With rate negotiations, the same is true. You can’t expect to secure the same rate from all the roles you apply for.
Claire says that this is particularly true if you’re applying for a new contract role within the same organisation, where the client will often expect you to continue with the same rate as before.
“Many will expect a similar rate, regardless of the work involved. If it involves different skills or is more labour extensive, explain why and quote more.”
Choose your roles with care
When you start out as a contractor, you may not have the necessary experience or contacts to secure your ‘ideal’ contract role right away, so you may well need to get a few contracts under your belt which aren’t necessarily the most challenging, or most suited to your skill set.
However, this isn’t always the case. Claire suggests that, with the economy in mind, “would it be more beneficial working for clients with a larger, more flexible budget, that might help with long-term revenue?”
Unlike a permanent employee, as a contractor you are responsible for keeping up-to-date with the latest technological advances, and by doing so, your value to potential clients can only increase.
Make the most out of any training opportunities you may be presented with on client sites, and invest in your future by taking relevant courses / gaining certifications.
Experienced contractors will always be on the look-out for opportunities to train and certify. For end-clients, certifications provide a benchmark of knowledge; for contractors, certifications are a route to new skills and higher earnings. But with thousands of certifications available, do your research first and ensure you’re aiming to achieve one that’s worth the investment.
Claire also points out that you can write off relevant training costs against your tax bill, as long as the training itself is related ‘wholly and exclusively’ to the contract work you’re carrying out.
“Likewise, look for jobs that might broaden your experience. Nothing beats on-the-job experience as a training ground.”
Watch the market
Use the web to work out how strong the demand is for your skills at the time. Rates fluctuate over time, and by skill and location, so you need to be realistic when applying for contract work.
Claire completes her tips by urging contractors to be fair to themselves and their clients. Make sure you can justify your rate demands based on your own abilities, and remember that “if you charge too much, you can be undercut and your reputation questioned.”
“Ultimately, your reputation is still one of the most important revenue-generating assets you have.”