Negotiation Techniques Every Contractor Should Know

The first and most important part of being a successful contractor is bringing in enough money for your goals, whatever those happen to be. Maybe you’re looking to save up quickly and retire young; maybe you want to keep your working week short but earn enough to be comfortable, or maybe you’re looking for some other balance. Whatever the case, one of your goals in contract negotiations must be to price yourself so that you can sustain a healthy income. Start off too high and clients may feel the need to shop around and go elsewhere. Keep your starting prices too low and not only are you looking at the same work for little return, it’s also well known that clients will value your services much less. There’s no perfect, works-every-time guide to getting the best outcome in every negotiation, but there are still some useful tips to keep in mind while preparing and during negotiations. Here are a few of our favourites:

Break Your Negotiation into Specific Points

A contract is an agreement between two or more parties, and they exist to prevent conflict during the working arrangement. That being the case, it’s no surprise that contracts often cover several areas where conflict might arise:

• Fees (including bonuses and expenses, etc.)
• The work to be done
• Any constraints on how the work is done
• What support will be provided for the work
• The duration of the contract
• Anything else that might arise according to your industry or the specific relationship with the client

While a contract will only be agreed when both sides are happy enough with the whole thing, breaking it down like this allows you to establish where your red lines are. While we talked above about the income, in a given contract you might be more concerned about the support being offered or by specific restrictions on how it will be done. Make a list of your must-haves and nice-to-haves, and this gives you baselines to work from. Whatever is non-negotiable, make sure it’s clear isn’t up for negotiation.

Look At It from Their Point of View

Not exclusively, of course – but negotiations break down much less often when you understand what they’re going to want. Take some time beforehand to consider what they’re likely to want and what their own non-negotiables might be. Not only can this save you time – if you have conflicting non-negotiables and you know that going in, then it’s better to knock this on the head and go elsewhere. Clear and honest communication on this can preserve the relationship to let you come back later if circumstances change.

Make Sure Objectives Are Clearly Defined

This isn’t just about being able to say for certain when the contract is fulfilled; it’s also a useful tool for helping you to set your price. As a contractor, ‘scope creep’ can be a problem on a scale it just isn’t for employees, where it’s largely a challenge in terms of meeting deadlines. Scope creep can cost a contractor, and keeping everything clearly laid out from the start doesn’t just give you a clear way to confirm when the work is done; it can also help your client to identify where their initial requirements are not going to fit, meaning they have a clearer sense of what they’re asking for too.

Have Affinity for Your Client

A contract negotiation can feel adversarial, but that’s rarely the best way to get great results – and it can start your professional relationship out on the wrong footing. Make sure to keep things as friendly as possible, and connect with them where you can. If you can tailor the way you pitch to the client and their project (if you know it) that’s even more effective. Clients will be happier to pay the fees for someone they know ‘gets it’ and will be able to hit the ground running.

Calculate Costs First – Including Tax and Time

When you’re setting your price, always make sure to calculate what you’ll need once deductions are taken into account. If you’re operating under a PEO or umbrella solution, you don’t need to allot time to chase payment or factor in the hidden costs of late payment; instead, though, you will need to factor in fees for that solution. Don’t forget to take tax into account – this can be more complex if you’ll be undertaking multiple contracts over the course of the same tax year, but you will want to have an approximate idea of what each job will contribute to your tax obligations so you can set that aside. While you’re doing this, make sure there aren’t any other deductions to allow for in this specific case. Whatever’s left has to be enough to fulfil your goals for the contract – living expenses, etc, all taken into account – at a minimum. In some circumstances, calculating this may be a challenge. When that’s the case, we recommend you talk to us – as leading contractor accountants we’re sure we’ll have advised on similar calculations countless times.

Know Your Own Value

Lastly, don’t forget the hidden minimum price for your services – make sure you’re paid what you’re worth! If your skills are well above average, you may be able to ask higher than market rate, or move up into a better-priced market in some contractor industries. You can absolutely offer a discount if you really want to work with a specific client or in a particular cause, but otherwise make sure you’re getting your value’s worth from your client.