Tips for Successfully Negotiating a Rate Increase as a Contractor

4 minutes

Life as a contractor is all about maintaining a balance between being a business entity and ...

Life as a contractor is all about maintaining a balance between being a business entity and promoting yourself as an individual worker. While businesses are expected to maintain the same rates for the same services, individual contractors are paid according to their skill level. As the skill level of an individual increases, their pay rate will also increase.

Contractors who work as both a business and an individual often wonder when and how to request a rate increase. While negotiating a rate increase may seem daunting, with the right evidence and tactics, it is certainly achievable. Here are some top tips on what to put together to secure a rate increase:

Why do you deserve an increase?

Having a solid reason, or reasons, why you deserve a rate increase is crucial. Without one, any increase request that you make is likely to be rejected. Some good reasons to use for an increase request include:

1.    Change in the scope of your role

Are you providing different, or extra, services compared to what was originally specified? Or have you taken on extra responsibilities or additional projects. If your role has expanded then this is good evidence to use to negotiate a rate increase.

2.    Increase in demand

You may have done some research into your job market and noticed that there has been an increase in demand for individuals with your skills. If this is the case, it is only sensible that you should charge higher rates, it’s the laws of supply and demand.

3.    Change to your working arrangements

Have you been required to travel more frequently than expected, or have you had to be more office-based and reduce the number of days that you work from home? If your working arrangements have changed you may be able to negotiate a rate increase to compensate for the loss of benefits.

When should you request it?

The best time to propose a rate increase is when your contract is up for renewal. This is when the client is likely to be most open to negotiation. Make sure that you have been in your current contract role for at least 12 months before discussing a rate increase as by this time you will have gained knowledge of the business, forged internal relationships and gained the clients trust.

How should it be done?

1.    Present your evidence

You need to know what you are asking for and have evidence for why you are asking for it. Typical rate increases are around 3-5%, but whatever you are asking for you need to be able to explain the number. For example, if you are asking for an increase as you have taken on more responsibilities, you need to prove this. Make a list of your current responsibilities and compare these to the original scope that was agreed.

Qualitative information can also be useful to help persuade the client of your worth, so if you have any emails containing positive feedback about you and your work you can use this as part of your negotiations.

2.    Use an intermediary

If you are uncomfortable negotiating rates with your client, you may want to think about using an intermediary such as your recruitment agent. This could help to protect your relationship with the client, but the recruiter is likely to have the negotiation skills and knowledge of the market to increase the chance of success.

If you do use an intermediary, make sure that you give them enough time to put the evidence together, negotiate with the client and obtain sign-off. It is a good idea to start discussing your needs with them around 2 months before your contract renewal date.

3.    Be sensitive with leverage

If you are using another potential role as part of your negotiations make sure that you do this with some sensitivity. Threatening to leave can damage your relationship with the client and can also create negativity. You need to show that you are making a simple business decision rather than getting personal. This is also where an intermediary like a recruiter can guide you on how best to use your leverage to secure your rate increase.

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