One of the essential skills for contractors is the ability to successfully negotiate their contract rates. Your rates reflect your value in the marketplace, as well as your ability to present that value to your client.
Contract negotiation is really the first step in the relationship with your client, and it goes far beyond just your rates. How you negotiate and communicate your professional worth will form a lasting impression with your client and can pave the way for ongoing well-paid projects.
Some contractors may not like the negotiation process as it can seem contentious or just time-consuming. They may just prefer to set their rates with a take it or leave it attitude. That can work if you have unique skills and experience that are in high demand, but it does lack the cooperative spirit of an articulate negotiation.
So why not take the approach that negotiation is really a part of your contracting role, where you have a chance to solidify your market value? This guide will outline the steps in negotiation and how you can approach your clients with a level of confidence to reach an agreement. Because you are dealing with international clients, your negotiation method has to bridge cultural and economic differences as well.
What is negotiation?
Negotiation is the process where two parties to a contract arrive at mutually agreeable terms. Negotiation for contractors includes the rate of payment (hourly or project), but will also cover contract terms on performance, timing, invoicing and non-disclosure. It may not cover the exact projects you will work on, but will confirm the skills that you bring and your anticipated role. Those items will pertain directly to the contract rate you can secure.
Why is negotiation important?
Negotiation is important because at the start, rarely will you and your client have the same expectations and willingness to accept each other’s terms. In the course of negotiation, you will both learn what is important to the other, and where there is flexibility. The goal is to arrive at mutual terms that accommodate both sets of needs, which outline the entire work relationship.
Who is involved in the negotiation for contractors?
You may deal with more than one person in the course of a negotiation, depending on the client. While HR may be involved in the recruitment process, the contract negotiation may be handed off to a director/manager in tandem with the legal department. Sometimes the individual or department that you will eventually work with will not be a part of the negotiation. If you use an agency, they could also assist with the negotiation process.
How to negotiate rates
Negotiating rates is the primary focus as you enter the client relationship. If you are an experienced contractor, you will know your value to previous clients, which can help you establish a minimum rate range. Other factors that can affect the rate include:
Industry Contract Standards
Your field of expertise will naturally affect your rates. An IT specialist or senior level accountant will command higher rates than other less-skilled professions. It is good to have a sense of what similar professional contractors are charging before you begin negotiating.
Skill Level and Experience
If you have a lot of experience or unique skills, that will allow you to command a higher rate. This would have come out during the recruitment process, but now is the time to underscore your special talents during negotiation.
Your location can also affect the rates if you are working remotely from your home country. (In employment, this is known as ‘localization’ when setting salaries.) In effect, the client may offer you a rate that is the standard in your own country, rather than in their location. This may be higher or lower than what you expected.
If you will be working on-site for the client, then their local standard rates would apply, regardless of your home country.
Some clients may not be able to offer the high end of the rate range, due to a number of factors. They may be a startup that needs to contain costs or has other staffing/financial constraints due to their size.
Tips for effective negotiation for contractors
- Ask the client for an acceptable rate range (minimum and maximum): This will give you an idea of their budget and expectations prior to negotiating.
- Start negotiating at the high end of the range: Most clients will expect you to do this, and they will then attempt to find a middle ground. If you start too low, it’s much more difficult to negotiate your rate ‘up’. If the client tries to go to the low end of the range, be prepared with responses as to why you deserve a higher rate.
- Consider project-based rates: For some contractors, it can be an advantage to use project rather than hourly rates. This is a better approach if you know you are efficient with your time, and typically work quickly.
- The goal is a mutually agreeable contract: Rarely will you or the client get everything you want in rate negotiation. By each party giving up some ground, you can arrive at acceptable terms for both.
- Focus on the relationship rather than the bottom-line rate: The process of negotiation is the beginning of a working relationship if it succeeds. Start with the attitude that the relationship is the priority, and the negotiation will go much more smoothly.
How Contractor Taxation can help you on your contracting journey
If you are new to international contracting, Contractor Taxation can assist you through our network of umbrella companies. Our umbrella companies are in place and ready to act as a third-party intermediary to your contract. They will facilitate client payments, withhold taxes and handle any disputes. In some cases, they can help you in setting your rates with a new client.
An umbrella company is a valuable ally if you are working in a new country, or simply want administrative help with one or more clients. Please contact us if you want to learn more about international contracting through an umbrella company.