Given recent increases in the cost of living, inflation forecasts predicting further sharp price rises and interest rates adding to mortgage costs, contractors might need to consider increasing their rates. In this article we’ll look at how the current economic environment might affect you, and how you can go about negotiating increased rates.
The rising cost of living
As a contractor you’d expect to raise your rates periodically to keep up with wages in your sector. This means keeping yourself informed about the specific market you work in, but for reference the average wage growth for the UK as a whole, in a normal non-pandemic year, is around 2-2.5%.
In the year to July 2022 inflation surged to 10.1%, which was its highest level in 40 years. Wages are not necessarily keeping up with inflation, but they have seen growth, with average growth in the private sector standing at 7.6%.
Contractors who have not increased their rates since last year may be earning considerably less in real terms, and you should take these changing conditions into account when negotiating rates with your clients.
Working out what you should charge for your services
As we said earlier, it’s important to be well informed about the value of your services in the specific market you work in. This will prevent you from losing business by either over or under pricing, as well as ensuring that you’re paid fairly for the work you do. This requires ongoing research, which should form a normal part of running your contracting business. For example:
Talk to colleagues and contacts in your industry
Check websites like Glassdoor, LinkedIn and Indeed for benchmark figures
Attend networking events, either in person or online
Join social media forums and groups
Join a union if your industry has one. This can be useful for other reasons too.
The more research you can do and the more accurate the information you’re working with, the stronger your position will be when it comes to setting your price and negotiating rates.
Negotiating an increase to your contract rate
As a contractor you might be charging a daily rate, based on billing for the time you spend working for your clients, or you might be charging a project fee. In the case of a project fee, we suggest asking your clients for their budget first, as their answer may surprise you.
When increasing the rates you charge existing clients:
Give them plenty of notice that you’re increasing your rates
Explain clearly why you’re raising your rates
Be prepared for pushback with information from your market research
Treat all negotiations rationally and keep a cool, calm head
With new clients, get as much information as possible about the job and then take the time to calculate your costs, so you can make sure you’re pricing correctly from the start.
What if your clients are not willing to pay more?
No-one wants to pay more than they need to for anything, and it’s possible that your client will not be able meet your requirements. It will help your negotiations if you already know what you will do in this situation.
It’s up to you to decide how flexible you’re willing to be, and if you do decide to accept less, for example to protect an important client relationship, you should be clear on the reasons for that decision, and the expected benefit to your contracting business.
Ultimately, if a client decides not to go with you for a contract, don’t be afraid to ask them why. You might find that it wasn’t about the price, and any information will help you win work in the future.
If you have questions or if we can help in any way, please call our expect team on 01296 468483 or email info@orangegenie.com.