Negotiating your contract rate is vital in your life as an IT contractor. In this guide, we look at the main factors which determine your bargaining power at any given time.
Supply & Demand
Your ability to negotiate an initial or renewal IT contract rate is influenced by several factors, including:
- The state of the contracting market
- The demand for your specific skills in your location.
- The level of experience you have.
- Your ability to negotiate successfully.
- Your keenness to take the role.
In the years following the credit crunch, strong downward pressures on IT department budgets and nationwide pay rates reduced the bargaining power of many contractors significantly.
Since then, however, the demand for contractors has recovered, although average rates now (2024) remain unchanged from a decade ago.
In recent years, with the rise of remote work and hybrid models, contractors can sometimes cast a wider net geographically. This may enhance their bargaining position, especially if their skills are in demand in areas with higher pay rates.
Conversely, local economic factors, such as regional industry demands or emerging technology hubs, can also affect the maximum rates you can expect to achieve.
If you are realistic about your rate expectations and keep these fundamental rate negotiation factors in mind, you will be in a good position to maximise your rate when the time comes.
Find out more about working out your contract rate, as well as our dedicated IT contractor rates section, which will provide you with a good snapshot of the current state of the market.
Can you afford to say “no”?
If your bargaining power is strong (for several reasons), and you are willing to stand your ground, then this will positively impact your negotiating position.
If the agent (or client) believes that you are happy to walk away if you don’t get the rate you want, then either party may be more willing to
a) increase the budget for your role or
b) reduce the commission taken on your contract rate.
A key question to consider here is how financially stable you are and how long you are prepared to hold out for the right rate.
If you’re in a solid financial position and have a war chest, you can afford to wait for a role that aligns with your expectations. However, if funds are low, it might make sense to accept a lower rate in the short term while actively pursuing higher-paying opportunities.
Remember also that declining a lower-paid role to hold out for your desired rate can help you avoid getting “typecast” at that lower rate.
The agent’s perspective
Remember that recruitment agents are seeking to maximise their commission income, and satisfy their clients. However well you might get on with a recruiter, negotiating your contract rate is purely a business exercise.
Although an agent may be prepared to reduce their commission to secure you for a given role (or renewal), this may not always be the case—especially with larger clients who may already have squeezed the margins on the preferred supplier agreement.
Agents are also often limited by client budgets or pre-agreed pay bands within which they can negotiate, so it’s essential to understand the client’s end of the deal.
If you’re working via a recruitment agency, ask them for transparency about these constraints. Knowing where the wiggle room is or isn’t can help you work out the realistic boundaries of any negotiation.
Read more about the contractor recruitment process.
Opportunity Cost
When deciding whether or not to accept an hourly or daily rate, you should always weigh up the ‘opportunity cost’ of not taking a contract role. Like a residential landlord, you’ll have to pay the bills without income for every tenant you decline until the next one turns up.
You might decline one role, hoping that another higher-paid one comes along shortly, only to find out that you’d have been better off accepting the initial role if you spent several more weeks out of contract. The strength of the contract market will affect how bullish you are.
It’s also worth evaluating your opportunity cost by factoring in “soft” benefits, such as valuable new skills, networking opportunities, or project prestige.
Sometimes, taking a slightly lower rate can pay off if the role enhances your marketability or opens doors to high-value clients down the line.
Your negotiation skills
If anyone ever needed proof that being an IT contractor involves more than technical ability, then the negotiation process is it.
Your personality and sales ability will undoubtedly influence your likelihood of successfully negotiating with your recruitment agency or end client.
You need to appear professional but firm when negotiating, but you should try not to appear overly keen or desperate.
Preparation is key here. Before negotiation, know your minimum acceptable rate and research typical rates for your role, location, and expertise level. Showing that you’re informed and confident can make a strong impression on agents or clients, signalling that you know your worth.
Consider using tactics like “anchoring” (initially suggesting a higher rate to frame the negotiation) or presenting examples of past successes demonstrating your value.
The goal is to make your rate seem justifiable and reasonable, based on the skills and outcomes you bring.
Conclusion
Your ability to negotiate is based on factors you can’t control (particularly market conditions), and factors you can influence (such as your personal skills, and how ‘in demand’ you are as a contractor).
Whether you’re looking for your first contract role or you’re a veteran contractor, calculating your bargaining power at any given time for any role is perhaps the most important non-technical skill to develop.
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