What are the best ways to negotiate higher contractor rates from clients so that you make more money from the work that you’re doing?
Read on as Umbrella Supermarket take a closer look...
There are a number of different approaches you can take to earn higher fees, but as a starting point it’s important to know how much the wider market is charging for your skill set. To that end, Umbrella Supermarket examines the very latest data from three trusted sources on contractor daily rates and their relationship to the wages paid to full-time staff. In this post we also look at:
The contracting market in the UK has grown exponentially in size over the last twenty years and there are now tens of thousands of people providing their services via contracts in the IT, tax, legal, banking, healthcare, accountancy, construction, and tech sectors.
The more specialised and commercially valuable your skillset, the higher you can charge but, as we found on the TechnoJobs website, what you do can sometimes affect what you get paid more than how you do it. Here’s their breakdown of what you can expect to be paid by job role, with a little bit extra on the right hand side too.
| Java Developer | £52,000 | £500 | 1.0% |
| IT Consultant | £50,000 | £450 | 0.9% |
| Web Developer | £39,000 | £350 | 0.9% |
| Software Developer | £40,000 | £350 | 0.9% |
| Project Manager | £52,000 | £440 | 0.8% |
| IT Security Administrator | £48,000 | £400 | 0.8% |
| Database Analyst | £47,000 | £380 | 0.8% |
| IT Support | £25,000 | £170 | 0.7% |
| Average daily rate | 0.9% |
And here’s the picture in London…
| Average London salary | Average London daily rate | %age | |
| Java Developer | £47,000 | £425 | 0.9% |
| IT Consultant | £50,000 | £425 | 0.9% |
| Web Developer | £46,000 | £400 | 0.9% |
| Software Developer | £52,000 | £475 | 0.9% |
| Project Manager | £57,000 | £400 | 0.7% |
| IT Security Administrator | £60,000 | £520 | 0.9% |
| Database Analyst | £28,000 | £180 | 0.6% |
| IT Support | £60,000 | £480 | 0.8% |
| Average daily rate | 0.8% |
So what exactly is the little bit we added on the right?
Well there used to be something called the “1%” rule among many contractors that helped them gauge how much they should charge in a day. It was a pretty simple formula for working out your day rate. Whatever a full-time employee would be paid for doing a role over the course of a year, then a contractor should charge 1% of it.
Although most of the daily rates above work out at just under 1% of the corresponding annual salary, there is a remarkable consistency in this method when comparing the average salary to the average day rate.
Also it’s interesting to note that the percentage actually charged varies more on contractor specialities rather than the full-time wage equivalent. These figures would suggest that there is more competition (or more supply) for database analysts, IT security administrators, and project managers than there is among Java developers, IT consultants, and web developers.
Contractors in London also charge a slightly lower percentage than contractors outside in the wider UK – this may be again a reflection of competition for contracts.
While as a general rule of thumb the 1% rule is a nice base line, it certainly isn’t an exact science, with some daily rates increasing faster than others.
For example, ITJobsWatch recently reported that the average inflation in the contractor daily rates for IT consultants with was 5.56%, much higher than their corresponding employed salary rises.
To compliment your research you should also check out the ContractorUK page on contractor daily rates too – click here.
When in correspondence with a potential client and at the interview stage, try to understand as much about the value the project, and your contribution to it, will bring to the client. Better still, do as much research as you can about similar projects in the same industry to share your understanding and insights with the client to enhance their belief that they need your services.
To demonstrate your value to a client and the importance of what you can offer them, demonstrate clearly that you understand the impact of the project to the business and that you fully appreciate the imperative to get the project delivered on time and within budget.
Clients really appreciate it when you appreciate the pressures they’re under to get something done. Plus, if applicable to the contract you’re negotiating, it’s best to be able to get a higher rate using the “big number-small number” approach.
The “big number-small number” approach is being able to juxtapose your daily rate against either the additional revenue your client will generate from your work and/or the savings they will make as a result of your contribution. Although your client will have a budget in mind, making your day rate seem small in relation to the potential gains is a good negotiating tactic to take.
Many contractors rely on one or more recruiters to find clients for them. When you find a recruiter who really understands you and the type of work you enjoy, you and your recruiter can develop a friendly, mutually-beneficial relationship lasting many years.
However, never forget that you’re a cash cow for your recruiter. As much as you depend on him or her, he or she depends on you being available to do the best work for their clients at possible, usually at a time that more suits them than you. Before you receive payment on the work you carry out for clients, your recruiter will take a cut.
And that’s only right – they have to be paid for the work they do but remember that, during any business relationship, it’s OK to occasionally go back and re-examine the terms of your engagement.
There’s nothing wrong with asking your recruiter for more money in return for the professionalism and expertise you deliver to their clients. But the balancing act is to ensure that any new deal means that finding work for you is still financially worthwhile for your recruiter. The better you know your recruiter, the more honest and transparent conversations you’re likely to be able to have on the subject.
This is not strictly about getting better contractor daily rates but it will allow you to keep more of your own money…
Within each contract you negotiate, there will be a clause contained within your agreement with your client on “rechargeable expenses”. Rechargeable expenses are the expenses that you incur when you’re performing contract work for your client which you have both agreed you will be reimbursed for by that client.
It’s in your interest to make sure that you can recharge as many expenses as possible to your client – within reason, of course. Then, whether you’re billing the client directly or via the timesheet for your umbrella company, reclaim these costs as quickly as you can so that you’re not out of pocket yourself for too long.
It’s a frustrating fact of life but you always seem to have far more choices available to you when you don’t need them. Perhaps it’s because we somehow transmit a different message about ourselves through our body language and through our verbal and written communication – a message that “while it would be nice to have what you offer, I have other options if it doesn’t work out”.
Salespeople call it the “takeaway close” – someone will always want what you have more if they somehow have to qualify themselves, in the nicest possible way, to have it.
Never rely on one method of approaching potential clients, never rely on one recruiter to find work for you, and never stop marketing yourself and your skills. If you put yourself in a position where you have more than one attractive option on the table at most points, you’ll take the pressure off yourself when negotiating with client. This might mean that you not only have a better chance of winning the business but you also have a better chance of getting a more advantageous contractor daily rate.
There are hundreds of umbrella companies in the UK right now competing for your business but how do you sift through all of the offers to find the best suited for you and your career? The answer is to start your search through Umbrella Supermarket.
To start your search, please click here.
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To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
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