Getting The Best Rates as a Contractor

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I always want good rates, but sadly, I’m not a mechanic. We know how it works in the trades. A mechanic will bend down ponderously over a dirty engine, shake his head, and tell you that your forward-racked twizzle-lifted grommet needs replacing and it’ll cost at least £250 more than you thought. And you’ll pay, because you have no idea what they’re talking about, but you want your Merc back on the road.

Back in the late 1990s, when companies needed their creaking COBOL and PL-1 apps fixing to save us from Armageddon, IT contractors also examined oily old code. Whereas I looked like Bilbo Baggins, they all looked like Gandalf, and a few muttered sighs and a couple of well-placed ‘tuts’ could net them thousands a week. Sadly, I didn’t get that work, because I was 29 years old, and grew up on BBC assembly language. COBOL programmers all started out by manually chewing their own punchcards.

It turned out that it wasn’t the millennium bug that would end the world. The end times turned out to be financial, instead. The public sector and the banks have realized how much money they don’t have. So it’s harder than ever to get the best rates.

There are two broad approaches to this, and I follow them both. One involves chasing short-term revenue (because I need to eat), and the other focuses on long-term career building.

The first approach involves chasing the best-paying gigs on the market right now, and in six months’ time. This is why I don’t just surf the job boards like a cat chasing a laser pointer – I read the news, too. Watching the markets to track the best-earning positions are is a key part of any contractor’s job. I like knowing what trends are emerging, and getting myself up to speed on those skills areas and those industries, before they gain mainstream traction. Being smart and agile is good. Manic job-jumping is stressful and lacks focus.

I also look for strong industry sectors. Software houses and consultancies advertised the most contract IT jobs this quarter, at 47.8%. Financial organisations accounted for 35.2%. But it’s also important to see what’s growing fast, and explore why. IT contract jobs in UK manufacturing grew by nearly 18% in Q1 – the fastest growing sector, although with only a tiny share of the jobs overall.

I like to expand my skills while minimizing my training overhead. Learning specific programming languages comes easier when I’m already fluent in similar ones, while others have a high barrier to entry. Large, sideways hops to new skill sets will have steeper learning curves. I love to code, but I’m not about to configure a Cisco router anytime soon – and even if the world suddenly cries out for them, I’m unlikely to change. It’s too difficult to get the skills and experience in an entirely new area.

The great thing about complementary skills is that I find myself gaining them while working on existing contracts, which is another reason why it’s always worthwhile keeping your eye open for new opportunities. Working on Java development, but see some opportunity to learn Hadoop? Always fancied moving into the heady world of big data? Have at it, and work your way up to High Priest of Corporate Knowledge. There’s lots of money in that racket.

That on-the-job experience is all-important. I never chase certifications alone, without getting solid experience in a sector first, and neither should you. After all, Neville Chamberlain came back from Germany carrying only a piece of paper, and look what happened to him.

In any case, it might not always be necessary to chase after certification on the very latest edition of a product unless clients begin migrating en masse. Why would you bother, for example, getting your Windows Vista MCSA paper? Both of the customers who might want one are probably fully-staffed anyway.

Where I do have to train, the good news is that I can write off some of the training costs when paying for them myself. The rule is, that any expenses, must be “wholly and exclusively” related to the contracts that you’re generating income from at the time, meaning that a three-year part-time MSc in Computer Science probably wouldn’t qualify. HMRC will allow some leeway for cross-training.

For me, training is as an important part of my business budget as transport. I carve out a training budget that refreshes each year, and I make yourself use it. After all, my skills and expertise are my biggest asset, and it makes sense to keep them well-maintained, and focused.

And that focus is key. One other benefit of not chasing every single high-paying job on the boards is that I get to pick and choose, specialising in niche areas that interest me. I try to ensure that the skills you pick up all take me in one general direction. Not so much a cat chasing a laser pointer, then, as someone hopping from one stepping stone to the next, following a strategic path, and gathering experience along the way.

I’m not there yet, but as I continue down this path, I imagine that I’ll eventually get into rarified territory, moving from simple contracting into consultancy. What’s the difference between the two, other than bags more money? Well, right now, I’m paid very well to do a job, while a consultant is paid extremely well to solve a problem.

I might get £300 each day to do a specific thing (creating an entity relationship diagram from a database structure, for example) But a consultant is paid several times more than that to fix things that the client can’t, such as reworking information structures to stop an IT department getting burned for lack of security compliance.

Like dodgy mechanics, unethical consultants can charge on a per-headshake basis. The client desperately needs them. The more they shake their head in bemused dismay, the more the job could cost. Add in a sharp intake of breath or a knowing ‘tsk’ and you’re talking thousands. But it’s not in your best interest to make the client bleed.

Charge a higher rate, for sure. As a line item on your invoice, explain that the extra £300 per day was for your specific industry knowledge, which enabled you to get them out of a bind. But don’t skin them alive. Your skills and experience count for a lot, but your reputation is still one of the most important revenue-generating assets you have.

We hope you enjoyed this article.

You may also find our Take Home Pay Guide useful – this detailed guide covers the main savings when contracting through your own Limited company over an Umbrella company.

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