Contractor Guides

How to increase rates as a contractor

It’s the debate every contractor needs to have with themselves periodically: whether or not to increase your rates and how to do…

Author Photo by Kingsbridge

It’s the debate every contractor needs to have with themselves periodically: whether or not to increase your rates and how to do it without alienating clients. Right now, it’s more important for many contractors than ever. With a potential lack of work during 2020, and a keenness to secure clients in 2021, you may not have increased your rates since before the first lockdown. In addition to this, you may now be working inside IR35 and therefore be making less money due to being taxed at source as an employee.  

But how do you decide what to raise your rates by, and how do you pitch it to clients without losing them? At Kingsbridge, we have extensive experience working with contractors and we have a few ideas. 

Do your research on the contractor industry 

First of all, check the industry average for what you do and then consider your own experience level and decide where you sit on that scale. Be sure to consider location as well. A contractor could charge a rate in London that would be baulked at in Manchester, so rates in the North may be lower than the equivalent down South. If you work across the country, you may even want to consider different rates depending on where your clients are based. 

Another thing to consider in your research is the demand for your role. Currently, demand for IT contractors is historically high so if that’s your field, for example, then you could probably even charge a little above the going rate. 

Test the waters 

Once you’ve settled on your new rates it could be a good idea to test reactions to them before you roll them out to your existing clients. Use your new rates when providing a quote to a new client, that way you’re not losing anything if they decide not to work with you. If you are worried that you might scare them off, you could always say that your rates are negotiable, but be aware that the potential client may then try to bargain down simply because you’ve suggested they can when really they would have been happy to pay your quoted rates. 

If, of course, you get feedback that the rates are unaffordable then you know that perhaps you’ve raised them too much. 

Give clients plenty of notice 

Given that you don’t want to alienate your current clients, it’s best not to blindside them. Avoid saying that your rates are rising with immediate effect but, rather tell them the rise will happen from a particular date in the near future. Depending on the way you work with your client that may be in a month’s time, on the commencement of your next contract, or after a particular project milestone – whatever makes the most sense to you. 

Additionally, it can always be a good idea to remind them of when you last reviewed your rates (if, indeed you have). Employees get annual pay increases so if you haven’t raised your rates since April 2019, say so as it will highlight exactly why it’s necessary to you. Perhaps write something along the lines of, “I last reviewed my rates two-and-a-half years ago and increases in expenditure during that time, as well as my own increased experience, has prompted me to look at them afresh and raise them in line with the cost of living and my expertise.” Something like that gives them a reason behind the raise, as well as justification. 

Consider IR35 

If you are now working inside IR35 for a client when, previously, you were outside, you are now going to be worse off as you will be being taxed as an employee. Your clients will most likely be aware of this, but it can’t hurt to politely remind them by listing it as one of your reasons for the rates raise.  

Elaborating on the example in the above section, this might look like, “I last reviewed my rates two-and-a-half years ago and increases in expenditure during that time, a reduction in take-home pay due to my altered IR35 status, and my own increased experience during that time has prompted me to look at them afresh and raise them to address my lost earnings and put them in line with my level of expertise.” 

Take individual clients into account 

Rather than rolling out your new rates to all clients en masse, it can be worth considering each client’s individual circumstances. Some of the questions you could ask yourself include: 

– Are they a new client? If yes and you have quoted your lower rates, it might be worth consiering waiting until you proof your worth before mentioning an increase.  

– Has the client struggled particularly badly during the pandemic? If they have, then it could be worth allowing them to remain with your old rates a bit longer if that prevents you from losing them completely. 

– Is the client a charity? Again, you may wish to stick with your old rates or give them a discount on the new rates.

– Are they based in London? If so, they are likely to be less surprised by higher rates and so may be an ideal starting point for roll-out. 

Of course, raising your rates is entirely a personal issue. After some research, you should know what the expected rates for your role are, but you also know what your experience and services are worth so you should always be charging what you feel is appropriate. It’s also up to you whether you want to charge some clients more or less based on factors such as location, or whether you want to offer some clients a discount based on factors such as their size or charitable status. They’re tough decisions but ones you need to work out. All you need to make sure is that you feel confident in the rates you’re charging. 

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