Negotiation is the name of the game: How to get the best rates as an IT contractor

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Claire Johnson, managing director of contractor accountancy firm, SJD Accountancy, gives her top tips on negotiating the best rates for you and your business.

Working for yourself isn't just about being good at what you do, it is also persuading people that you are good at what you do.Thumbnail image for SJD claire johnson.jpg

Negotiating higher rates is often the more challenging part of contracting and the thing which some IT contractors can find difficult.

However, being good at negotiation can mean getting better rates, far higher than you would enjoy as a permanent member of an IT team. SJD's latest contractor attitude survey found that daily rates have increased by 20% in the last two years to between £ 500-£ 749.

Is this all due to how you sell yourself towards the end client? Or is the economy realising the value of contractors?

               1. Know what you're worth

Rates can vary depending on your skill set.  It's natural as humans for us all to want more money. However, no one is irreplaceable. Ensure you know the value of your skill sets and negotiate your price based on what you can bring to the company. Also have a set rate in the back of your mind, know where to draw the line and how far you can negotiate your rate. One of the golden rules is to aim high and expect to compromise.

 Negotiation is key whether going for larger, or smaller roles. If you know your own worth and know that you are in a strong position for a job - eg.  you have the experience and the ability  - and are willing to stand your ground, this can have a positive impact on your negotiating position and reputation.  If the client believes you are happy to walk away if you don't get the rate you want, then they might be willing to increase the budget.

2.              Value each job on its own merit

A trap which many fall into when working for themselves is to agree a rate and then stick to it. Often many come to a day rate that they believe their skills or experience are worth, regardless of the job remit.  Individually quote for each project based on the time and effort involved. This is particularly relevant if it is another contract within the same company. Many will expect a similar rate, regardless of the work involved. If it involves different skills or is more labour extensive, explain why and quote more.

3.              Can you afford to say no to smaller roles?

When people first start out on their own, they often go for as much work as they possibly can, assuming quantity is better than quality.  However, this isn't always the case. In the beginning, people often say yes to every role within their niche to help with their short turn revenue.  However, consider the economy, would it be more beneficial working for clients with a larger, more flexible budget, that might help with long-term revenue.

4.              Keep on top of trends

Knowing about the latest technologies, trends, systems and processes are essential when you work for yourself. Keeping in the loop with these can help you negotiate greater rates but also offer something that those who work within an organisation may not have. The training and new knowledge you have ascertained from one contract to the next is a great asset and make sure when you are pitching for work companies know about any new technologies, latest trends or processes you have worked on.

 Likewise, look for jobs that might broaden your experience. Nothing beats on-the-job experience as a training ground.

And the good news is that you can write off some training costs when you pay for them yourself. The rule is that they must "wholly and exclusively" relate to the contracts that you're generating income from at the time, meaning that a three-year part-time MSc in Computer Science probably wouldn't qualify if you are working on an IT contract. However, there is a little leeway from HMRC for cross-training.

5.              Look at the market closely

Likewise, ensure you keep a close eye on the market, even when you are securely in a contract.  Knowing what the market value is of a job, whether there is a shortage of skills and experience in what you do will help you negotiate higher rates for specific jobs.

Often this is forgotten when you have been working for the same company or one in a similar industry for a while. However, market rates change over time and within regions so make sure you know the current day value of your role within the area you are looking to work.

Finally, be fair. To yourself and to your clients. Remember to justify your higher rate based on your skills, experience and knowledge, yet remember that if you charge too much, you can be undercut and your reputation questioned. And ultimately, your reputation is still one of the most important revenue-generating assets you have.

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