Negotiating your contract rate is a vital stage 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 influence 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, with strong downward pressures on IT department budgets and nationwide pay rates, the bargaining power of many contractors was reduced significantly. Since then, however, the demand for contractors has recovered, although average rates remain unchanged from a decade ago.
If you are realistic about your rate expectations, and bear in mind these fundamental rate negotiation factors, you will be in a good position to maximise your rate when the time comes.
Can you afford to say “no”?
If your bargaining power is strong (this could be for a number of reasons), and you are willing to stand your ground, then this will have a positive impact on 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.
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 in order 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.
When deciding whether or not to accept a hourly or daily rate, you should always weight up the ‘opportunity cost’ of not taking a contract role. Like a residential landlord, for every tenant you decline, you’ll have to pay the bills without income 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 accepting the initial role if you spend several more weeks out of contract in the meantime. Clearly, the strength of the contract market will affect how bullish you are.
Your negotiation skills
If anyone ever needed proof that being an IT contractor involves more than technical ability, then the negotiation process is it. You personality and sales ability will certainly influence the likelihood of negotiating successfully 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 and certainly not desperate.
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.