How to set and negotiate rates as an independent contractor

For independent contractors, setting and negotiating pay rates is crucial for financial success and professional development. In the State of Contracting report, published annually by Oncore, contractors consistently consider pay rates the most important factor when evaluating roles. Whether you're setting them for the first time, or you're overdue for a review, let's look at how to determine, negotiate, and achieve your earning potential. 

Assess Your skills, experience, and value

Evaluate your unique skill set, professional experience, and the value you bring to your clients. Consider factors such as your qualifications, certifications, expertise, and track record of successful projects. Assessing your value will help you position yourself as a highly skilled professional and justify your desired rate during negotiations.

Put this in your calendar regularly so you add more information from each contract you work on. Update both LinkedIn and your full CV

Determine your expenses and desired income

As an independent contractor, it’s important to account for both your business and personal expenses when setting your rates. Calculate your overhead costs regularly, as they might change from one contract to another.

Consider:

• office space
• equipment
• software and subscriptions
• insurances
• tax commitments
• retirement savings and investments

Balancing your expenses and desired income will guide you in setting a sustainable and profitable rate.

Consider the complexity and scope of projects

The complexity and scope of the projects you undertake should also factor into your rate-setting process. Determine the level of expertise required, the time commitment, and the potential risks associated with each project. More complex and high-stakes projects should command higher rates, reflecting the additional value you provide and the potential impact on your reputation.

Highlight your unique selling points

During rate negotiations, it’s crucial to emphasise your USP and the advantages you offer as an independent contractor. This could include your specialised skills, expert industry knowledge, efficiency, reliability, or ability to deliver exceptional results (and have the evidence to showcase it). Demonstrate how you will benefit the client’s project and differentiate you from competitors, justifying your desired rate.

Be confident and assertive in negotiations

Be prepared to negotiate and find a mutually beneficial agreement that aligns with both your financial goals and the client’s budget. Remember that negotiation is a process, a conversation, and compromise may be necessary to secure the project while maintaining your desired rate.

Establish long-term relationships

Building strong, long-term relationships with clients can lead to repeat business, repeat business and referrals. As you negotiate rates, consider the potential for ongoing collaboration and future projects with the client. Offering competitive rates coupled with exceptional service can strengthen these relationships and provide a foundation for sustainable success in your independent contracting career.

Look at the bigger picture of what a role offers in addition to the pay rate

Negotiating the rate that you deserve to be paid is important. But there is a delicate balance between pay rates, experience, lifestyle and opportunity when considering roles as a contractor.  It’s important to make sure you understand your priorities and get the balance right.

• Opportunity for personal growth and development:  The opportunity for growth should also be a crucial consideration when assessing the value of a contracting role. A position that offers career advancement, exposure to new technologies or industries, or the chance to work with influential clients can be worth more to you than a higher-paying but stagnant role. Evaluate the long-term potential and how the opportunity aligns with your aspirations.  The beauty of contracting is that it isn’t forever so it might just be worth the temporary lower pay rate for the opportunity – such experiences can enhance your long-term career prospects, increase your future earning potential and make you more marketable in the future.
• Personal circumstances and needs:  Everyone has different priorities and circumstances that influence their decisions as a contractor. Factors such as location, family commitments, work-life balance, or personal interests might hold significant weight in the decision-making process. Consider how the role aligns with your personal preferences and long-term lifestyle goals. A role that offers a balanced lifestyle and aligns with your personal values may be worth considering, whilst weighing up the rate of pay you would accept.