If you decide to start contracting, one of the hardest things to work out is what daily rate to charge. Many of the readers on this site are looking at ways to escape the 9-5 and moving into contracting is one way to start this process.
How much should I really charge?
I’ve heard people use different approaches to determine what to charge. Some make sense, others are a bit flaky.
Divide your annual salary by 52 weeks and then add on 20 percent. If you’re on 52k, and divide by 52 weeks, you’d get 1k per week.
Add 20 percent and you’re up to 1200 per week.
Divide this by 5 days and you get 240 per day.
I’m not so sure about this. It doesn’t take into consideration the real world, so to speak, or at least why your peers are charging for their work.
How to Work Out Daily Rates
Here’s an approach that I’d take:
- Look at the recruitment websites and find the type of job you want. Make a list of the daily rates across several sites. The ideal is to get an average daily rate and not rely just on one site. If you’re a total beginner to the field, say just out of college, your rates will be more towards the lower end.
- Contact the local Recruitment companies, explain the type of positions that you’re after. Ask them what daily rates you can expect to get based on your experience. Let’s say they believe you can get 200 per day. Now, as a rule of thumb, Recruiters add 20 percent to the rates they charge clients. In other words, if they offer you 200 per day, they’ll probably charge the client 240 per day. The extra 40 per day (i.e. 20 percent) is their fee.
- Once you know the average daily rates, you can go directly to a company and offer your services from 200 – 240 per day. If you charge 220 per day, then they stand to save 20 per day, 100 per week, and 400 per month. Try to highlight this when talking to them. Otherwise, they may assume that you’re rates are the same as the recruiters.
- Contact the HR Dept of the IT companies. Ask if they hire ‘direct’ rather than through recruitment companies. Some companies, especially large multi-nationals, have a policy of using recruitment firms only. It’s mostly for legal reasons and no reflection on your abilities. Smaller companies tend to be more flexible.
Tip: if you’re new to contracting, target local companies with less than 50 employees. These are usually more receptive to independent contractors and, even if they don’t have large 3+ month contracts, may have many smaller pieces of work. This can be a good way to build your portfolio while paying the bills.
Succeeding as a Freelance Contractor
Your success as a freelance contractor depends not only on your ability to do the job but to sell your services to prospective clients.
I can’t emphasize this enough.
Companies won’t come to you offering you work. You have to go to them. Before you do this, prepare everything in advance, from your sales pitch, writing samples, business cards, and of course the answer to their last question: how much do you charge?
If you have done your homework, you’ll feel confident when discussing the rates. If the person refuses you, at least you know its not because of your prices but something else.
Try to find out what that is before you hang up!
Let me know how you increase your daily rates.