Independent Contractors: 5 Proven Tips for Negotiating Favorable Contracts

Becoming an independent contractor comes with its fair share of pros and cons. One of the biggest considerations is ensuring that you are able to negotiate favorable contracts for the work you perform for your clients.

Without a fixed, full-time salary, independent contractors have greater freedom to negotiate how much they are paid — as well as when and how they get paid. 

Depending on your negotiating abilities, this can become either a pro or a con. You may be able to get a much higher rate per hours worked than you would in a similar salaried position. Or you may find yourself struggling to earn a suitable amount for your efforts. It all comes down to how you negotiate your contracts.

With some key negotiating practices, you can ensure that you earn what you’re worth.

1. Know Your MAR

One important calculation to consider before you start negotiating is your minimum acceptable rate (MAR). This number represents the absolute lowest rate that you should be willing to work for — or basically, the amount you’ll need to earn to cover your business expenses, taxes and cost of living, and still make a profit.

For example, let’s say your monthly living expenses (including taxes) average $5,000 per month. This would total $60,000 per year. Obviously, you’d want to earn more to buffer your savings account and so on. So, let’s assume you want to earn $75,000 per year (or a 25 percent profit margin) in this scenario.

You would then take that $75,000 and divide it by the number of hours you plan to work during the year. If you planned to work a full 40-hour week for 48 weeks of the year, you’d get a total of 1,920 hours. Divide $75,000 by 1,920, and you would need to earn an average rate of just over $39 per hour.

2. Focus On Building Relationships

As an independent contractor, you are a business. And any successful business thrives by forming healthy, long-term relationships with its customers. As a result, when you approach the negotiating table, you really should be focused on forming authentic connections with your prospects.

As Andres Lares writes for the Harvard Business Review, “As a freelancer, then, when you enter into a negotiation, build the relationship as the reflection of your own brand and values. Do this by telling your own story, describing your unique qualifications and abilities, and finding common ground to build connections.”

He recommends that independent contractors do this by sharing what they believe (or what drives their approach to their work), what led them to become a freelancer and how these connect to the prospective client and their project to better position themselves to win contracts.

3. Offer Fixed Rates, Not Hourly Rates

While hourly rates may seem more straightforward, you’ll generally have more negotiating leverage when you offer fixed rate prices for your projects. When you charge per-hour rates, you essentially set a ceiling on what you can earn in a given day. Clients may also be wary of agreeing to an hourly contract if they are unsure how long it will take you to complete the work.

When you charge per project, the client only has to focus on the delivered value of your services. This makes it easier to define the scope of the project deliverables, while also keeping your MAR in mind. If you can complete a project quickly, you can rapidly accelerate your earning power.

For example, a client is more likely to accept paying a flat rate of $150 for a graphic design project, as opposed to you telling them you charge $150 per hour and expect the project will take an hour to complete. A client may confuse time with value with the hourly rate. Charging a flat rate ensures you don’t lose prospective clients simply because you work more efficiently than others.

4. Aim High

To increase your earning potential, never open a contract negotiation with your desired rate. Always aim a little higher — typically around 10 percent above a rate you are willing to accept is a good place to start. Be mindful of standard rates in your industry to help with this pitch.

This way, your “high” pitch won’t be so outrageous that the client will completely reject your bid. Instead, if they try to negotiate down, you’ll be more likely to end up at (or slightly above) the desired rate you initially had in mind for the project. Someone who completely rejects you after your initial offer likely would have rejected your lower “standard” price as well.

When you successfully negotiate a higher rate, you can then use this as an example of your standard rate when negotiating future contracts to increase your earning power.

5. Address Potential Issues In the Contract

As Megan Taylor writes for Bonsai, “You should also think about any issues that have come up in previous projects and come to your contract negotiations prepared on how you’re going to prevent them in this new project. For example, maybe you once had a client who requested 10 rounds of revisions on a writing project, costing you a lot more time than what you quoted for your freelance work. In that case, you’ll probably want to build a set number of revisions into your next contract.”

Be mindful of specific issues to the type of work you do that could waste your time and keep you from being able to take on additional projects. Setting clear expectations upfront will help you save time and establish a respectful relationship with each client.

Negotiating Your Way to Success

Contract negotiations can feel stressful — especially if a prospective client doesn’t accept your initial offer. However, there’s no value to be gained in selling yourself short.

Following these principles not only helps you negotiate favorable contracts, they can also help you identify which potential clients are worth devoting your energy to in the first place. If a prospect isn’t willing to pay what you know you’re worth, then it’s time to shift your efforts to someone else.

It may take some work to find reliable clients who meet your needs, but putting the appropriate effort in at the negotiating table will ensure that your work is truly worthwhile and gives you the flexibility and freedom you seek.

 

Author: Cesar Jimenez, myBasePay CEO
Cesar A. Jimenez is an entrepreneur, investor, and military veteran with over 25 years of staffing industry expertise successfully leading technology staffing organizations. His expertise in the IT industry allows him to use his experience as a thought leader for talent acquisition, staffing, IT, and recruitment technologies with a passion for contingent workforce solutions. Cesar has held various leadership roles for both a global staffing organization and technology solutions companies. This expertise has enabled him to develop alternative workforce models that provide the agility for organizations to be competitive in today’s marketplace. In his spare time, he enjoys spending time with hisfamily, working out, and coaching high school baseball players.