As a First Time Contractor how much money should I ask for

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First Time Contractor
First Time Contractor and contract rates

First Time Contractor

We received this from a first time contractor.

Bernie

I‘ve been a permie for five years and now I‘ve decided to take the contractor route.

I didn‘t fancy all the office politics and would rather make my money as a young man than have to suck up to my bosses to gradually rise up the tree and start making real money in my forties.

However, as I‘ve never done this sort of thing before I‘m sure that I could be easy meat for some clients and agencies.

How should I work out how much to ask for?

Dr McLaughlin’s IT Surgery

The first thing you should do is go to ITJobsWatch which has a list of the current advertised rates for various skills and roles.

You will see, for instance, that the average developer now gets £425 a day.

However, that is just indicative.

It can be more or less for particular skills.

Watch the Contract Agency

I wouldn‘t worry too much about the client ripping you off.

The agency will always work out what the client will pay and will ask for that rate accordingly.

They are experts in this as they do it every day of their lives and often many times a day.

Your big worry is the agency.

Maximising Returns from Agency Margins

The agency will seek to maximise the amount of money they can get.

They want to get as high a rate as the client will pay and they will want to pay you the least amount they can.

Their bonus systems are set up that way where an agent may receive monthly or quarterly bonuses of perhaps 10% on a certain amount that they get in commission rising through 20% and 30% to up to 50% of all commission that they bring in for that month or quarter.

With those incentives they are bound to try and take as much of the client‘s money as they can and give you as little as possible.

IT Agency Morals

Of course morally there should be some kind of limit on what they should take.

There have been instances in the past when agents have taken 50% of what a contractor earns.

As the contractor does all the work that is morally unjustifiable.

However, agencies‘ bonus systems don‘t encourage moral behaviour amongst them.

Agency Your Friend / Enemy

Therefore you need to look after yourself.

When you are looking for work then the agency is your friend.

When you are negotiating a rate the agency is your enemy – or competitor if you like.

Choose a Contract Rate

Now that you know from ITJobswatch the average advertised rate for your skills you should consider what rate to ask for.

Let‘s say it is £400 a day.

As a first time contractor you might want to incentivise the agency by asking for a slightly lower rate, i.e. in the £350 to £380 a day range.

The more you want in the less you should ask for.

First Time Contractors Beloved of Agencies

Agencies love a first time contractor as they can normally cream them for a good margin – which will help their bonuses.

Let them take a bit extra as the will try harder to place you than another contractor who would want a higher rate and for whom they would get less margin.

Once you break into the contractor market you can start asking for the market rate or more if you are good.

Good Luck!

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