As a contractor, figuring out your market rate is crucial. Set your rate too high and you won't get any interviews. Ironically, set it too low and you may have the same problem, because it looks like you don't actually have the right skills - otherwise you'd know what to charge.
You’ll develop negotiation skills throughout your contracting career, but make sure you’re already incorporating these tips…
(1) Do peer research
Talk to at least five other contractors with a similar skillset. Ask around and get a feel for what other people are charging before you start coming up with your own figures.
This isn’t the rate you need to tell recruiters, but you should still know the lowest your rates can go. Work out how much you need to earn, and then reverse engineer it into a rate. How much do you need to pay your mortgage? How much will you pay in tax and fees on top of that? Divide the total by the days you expect to work per year, and that’s your minimum daily rate.
Remember: If you’re just starting out, these numbers could be a little off. You’ll dramatically improve their accuracy after a year or two of contracting.
(3) Appear as flexible as you can
When you’re talking to recruiters on the phone, try to be non-committal. If you stand firmly on a high rate, you might not get an interview; if you go too low, you almost certainly won’t maximise your rate.
Instead, ask questions like:
- “What is the client offering?”
- “What’s the rate?”
- “How much is the client expecting to pay?”
If you can’t get out of a recruiter’s direct question, offer a range of rates, making sure that the top rate is higher than you’d expect and that the low rate is a little higher than your actual minimum rate. Then, let them know that these rates depend on what the client wants and is willing to pay. Appear flexible so you don’t shut yourself out of a job or a higher rate.
(4) Do recruiter research
Talk to at least ten recruiters advertising roles and find out how much they’re offering. If you can get them to name a figure, say you expected more (add 50-100 to the figure) and gauge their reactions. If they’re okay with it, try the same trick with another recruiter, only start with the higher figure this time.
(5) Don’t overcommit
If you think you might undercharging, take a shorter contract term and renegotiate after three months. Once you’re a few months into the job, you’ll be in a better position to use achievements with that client to argue a higher rate.
(6) Tailor your rate to the circumstances
You might get a higher rate for working as a "technical consultant," as opposed to "developer.” Or for working in London versus Surrey. Or a bank as opposed to an advertising agency. Or for a job that you match exactly versus one where your experience isn't as relevant.
Appearing flexible to recruiters isn’t the only important part of rate negotiation; actually being flexible will ensure that you aren’t put out of pocket by holding out for unlikely rates or jobs.
(7) Look at the overall economy
Tailoring your rate to the circumstances also means you need to be aware of the demand for your skills, which will vary based on economic ebbs, location, and more.
You can keep a pulse on market, demand and going rates by looking at job postings and talking to recruiters. You can also check sites (such as www.itjobswatch.co.uk) that amalgamate data from online sources.
Keep in mind that rates can vary dramatically, even for the same role within the same company. It depends on a bunch of factors, like your negotiation skill, the recruitment agent’s margin, the clients state of mind, and the level of competition at that particular moment.
Savvy contractors also keep in mind the big picture. How much money are you missing out on if you turn down a £50ph job today, in order to get a £55ph job in 3 weeks? Hint: a lot!
The most important thing at the beginning of your contract career is to get jobs. You’ll find rate discussions become a lot easier once you've got a few projects under your belt.