Contractors: how do you set your day rate?

I’ve been contracting for 3 years in a company which had lots of money so my day rate was healthy. I’m now looking for my next assignment, first time on the open market and unsure how to set my day rate so it’s not so low that I lose out on income the client would have been happy to pay and not so high that I don’t get the work in the first place.
I’ve had one client say I was ‘too experienced’ for the role, which may or may not have been a euphemism for ‘too expensive’.

I’ve heard some people talk about the 1% rule – if job is £50k perm then your day rate would be 1% of that – £500.

Other than asking recruitment agencies what my day rate should be (they’re likely to be biased towards a lower rate, I would expect), can you think of any other way. A friend of mine in HR thinks the 1% rule sounds high – that the day rate should be lower than 1%.

We had a CEO who rated people by how much they charged, he wanted the best, so paid top whack. You’d be amazed at how utterly useless some very expensive contractors were (£1-2k per day)….

http://www.itjobswatch.co.uk/ is a reasonable start point. You can also look on places like Jobserve for a gauge as to what the roles are being advertised at.

I never met a contractor who didn’t try and up their rate at every single renewal even if they were only 3 months apart. Very annoying and is guaranteed to demotivate me to want to renew them.

As a guide though, I would have a trawl of the job sites to develop a good idea. Agencies will be realistic and won’t always go for lower rates. If they’re seeing trending in certain skill sets (and obviously I’m being very generous in suggesting agencies do anything as intelligent as establishing trends), then they’ll be quite happy to push for higher rates.

We had a CEO who rated people by how much they charged, he wanted the best, so paid top whack. You’d be amazed at how utterly useless some very expensive contractors were (£1-2k per day)….

And how utterly useless some CEO’s are. 😉

Most rates are set by agencies. With good ones (of which there are only a few in my experience) you can have a discussion around what you believe the rate should be. Sometimes they’ll even drop their % if they know you’ll do a good job and they may get more work from the client.

Samuri is right, most contractors I know want an increase every new contract. That’s a bit silly. I’d much rather be charging x a day, getting the job done and nobody questioning if I’ve being overpaid, rahter than taking the p!ss for $50 a day or something.

My last contract ended up being 18 months. I didn’t ask for a rate increase as I loved the job, the client was great to work for and I was happy with the rate.

If all other methods elude you, there’s always the tried and tested number generator:

Agent usually guides me – I go in a bit high then ask what he thinks. Never heard of the 1% rule, seems a bit high to me but depends on skill area I suppose. My rate now is lower than it was in 2001.

And how utterly useless some CEO’s are.

he was utter crap, and thus was rewarded with an absolutely huge pay off and a vast number of share options!

That 1% sounds nonsense. Working on 260 days per year of paid employment, you would be earning 260% of a permanent staff member. Why would anybody agree to that ?

Sounds about right for a contractor vs permie comparison*

* earning i.e. “take home” is not equal to day rate though.

I would demand and supply would dictate the rate more than some percentage rule. If there are not many people with your skills and a high demand perhaps, but I wouldn’t go in asking for that !

Industry expert in Telecoms is about £750/day*, but for that you’re buying a recognised expert who can operate at C level, speak at conferences on behalf of you etc.

* that’s retained eg 5-10 days a month. On a one off basis it would be more.

Working on 260 days per year of paid employment

Who works 260 days?

Anyway, longer contracts, or ongoing ones, are likely to pay less than short-term ones.

I would say 200 days is about right to take into account gaps between contracts and holidays. But anyway, the market determines the rates – mine now is quite a bit less than the 1% rule and everyone I know in my area is the same – a lot of this is due to giving the work to offshore to do – mostly Indians – many come onshore to do it which the Government allows.

That 1% sounds nonsense. Working on 260 days per year of paid employment, you would be earning 260% of a permanent staff member. Why would anybody agree to that ?

Because a: When you hire a contractor you aren’t just paying a person, you and paying a small company, which is then supplying a person. The fact that the company is one person is neither here nor there, they still need to pay corporation tax out of that 20% and then wages, expenses, pension etc. The contractor ends up better paid than perm staff but not by as much as it appears. And b: because the cost to the company of having that £50k person there is more like £100k, so the contractor doesn’t look that dear.
Plus, as above, no paid holidays, so you be working 230 days max usually.

If we have to call in an expert on a day basis short term we can pay up wards of £1000/day but longer term contracts are generally £40-50/hr this is engineering though not IT Supply and demand rules apply

Plus, as above, no paid holidays, so you be working 230 days max usually.

and you can terminate them at short notice if the situation changes etc…

I’ve never heard of the 1% rule before, but it sounds like a reasonable starting point to me. If anything, it sounds low to me, but that’s probably a reflection on the shitty permanent wages I’ve earned over the years rather than an overestimated contract rate.

One of the mental blocks I had as a contractor was thinking that I was asking for unreasonable money; the truth in hindsight was that I woefully undervalued myself. You need to shift mindsets, your Auntie Mabel isn’t going to pay you 40p/mile to pop round and fix her computer, but a multinational will send a private jet for you if you’re the only one who can return them to service when they’re losing thousands of pounds a minute.

It’s amazing what companies will pay for things. A company hiring a contractor will expect to pay (say) £500 a day plus travelling expenses, it’s just normal practice.

I need to up my day rate…

I assume we’re talking IT contractor rates here?
I’m more of a consultant / freelancer in marketing services but would struggle to get anywhere near those rates and with not contact behind it either.
I don’t do much freelance but I have no idea how they make any money from the rates that most companies are willing to pay – £25 or less ph
🙁

Well, I am working in a job at the moment that pays £30-35k for a permie. If I asked for £350 a day they wouldn’t so much say No as fall over laughing. I guess it depends on the industry, length of contract etc. I earn plenty more then a permanent member of staff, but not that much ! Public sector IT, for the record.

And 260 is the maximum potential work days, 52 weeks x five. I know you poms like your holidays and all.

Not even a teeny weenie bank holiday?

Agencies (in oil and gas) either work on a fixed commission per hire from the end company or get a percentage of the rate x hours worked.
The former means that the agent is not likely to push for a good rate, rather they will just get a rate that gets you in the door, no matter what that is.
The latter means that the agent will be pushing for the maximum rate possible for you as it means more money for them too.
The negotiation phase goes something like this for us… We tell the agent what we were getting in our last job (artistic licence, within reason, is allowed as long as it can’t come back and bite you on the arse) and say we’d be looking to better that as a starting point (all other things being equal). Things tend to go from there….
That obviously only works if you are in work and not desperate….

I never met a contractor who didn’t try and up their rate at every single renewal even if they were only 3 months apart. Very annoying and is guaranteed to demotivate me to want to renew them.

I don’t!

me neither! With all the useless permies let go from their cushy stable roles now freelancing, I’ve found it harder to get work. They either charge a fortune and do a shitty job leaving a bad taste in the clients mouth that poisons the well for other contractors or are happy to work so cheaply because its interim work until they find another stable job they don’t really care. Either way, times are getting harder for contractors and I wouldn’t assume a small amount of time between contracts as I once did.

For a permie they (the employer) also have to pay employers NI, (possibly) pension contributions, holiday pay, sick pay, (possibly) training + any other benefits. And permies are harder to let go, either because they don’t end up being any good or because demand reduces == redundancy payments.

Vikingboy, what industry you in? For my sins I’m in Marketing in London and it’s really quiet out there.
One recruitment agency today told me they’re not getting as many contracts as they used to and even then they’re Fixed Term rather than Day Rate, which basically means I might as well get a perm job as there’s no financial benefit in taking Fixed Term roles paying pro rata… just lots of job insecurity

You aren’t wrong. Around here for a permie to get fired, they would have to shoot somebody, twice, because the first shot could have been an accident.

I’m not Viking but I work on contracts in business change roles in the Midlands Brooess. It’s a bit quiet at the moment role wise – but it is the end of the summer and I expect roles will become more available in September as they usually do. A lot of roles I see available that suit me (Head of Projects, Portfolio Manager, PMO Manager, Programme Manager etc…) are linked to technology change or are actually sitting in IT teams.

And 260 is the maximum potential work days, 52 weeks x five. I know you poms like your holidays and all.

We do like to live as well as work… 😉

Aye, the grass is always greener…

I find that Contractors rarely set rates, the hiring company/Manager has a budget in mind (higher for FS, lower for the rest) – and go from there.

I believe that whatever your rent/mortgage is every month that’s what you need to be clearing every week,for example iff your rent mortgage is £600 a month then you need to be making £600 a week after tax,always worked for me and I’ve just worked my day rate off that.

What ever the market will bear……………..

Sorry.

Agree with neilwheel – but how to work out what that is without losing the offer? As a contractor, in the past I’ve gone in too high, the company has declined the offer, then no real chance to submit a counter offer without losing face / looking a bit daft.

My current contract is approaching three years – I went in far lower than my previous contract, got the work, worked my a** off and built some trust, then out of the blue was offered something far higher and the company matched it. Not the most honed/efficient method as I’m sure I was too low to begin with.

A buddy of mine started a recruitment company about a year back and now I finally have a reliable source of day rates by position / country / experience (oil & gas only). This is a blessing and what I know from him now could have saved me thousands in lost earnings if I’d had this knowledge three years back.

So if you were in oil & gas then I would be in a good position to help you!

Regarding the 1% theory – a buddy of mine was a photographer for a car mag on a salary of £26k. His day rate to them is now £240 hence I guess that theory holds some water?

Glassdoor website is another semi-decent reference for rates.

Currently on the other side of the fence (hiring it contractors) I use a mixture of itjobswatch, talking to agencies and previous rates to establish what I think is an acceptable range. I also take into account where the contractor is based. If they are local typically they will accept a lower rate due to convenience.

Some roles are in super high demand at the moment. I’m struggling finding really good Devops, puppet, iOS. Though to be fair these days I seem to be struggling finding people who can speak understandable fluent English…..

Oil and gas here. 1% sounds about top end of right. I’ve been on both sides of the fence, first employing contractors and now running a contracting company. There’s cost/benefits/risks to both sides.