How to set your rates as a contractor


If you’re making the leap from being a permanent employee to a contractor, you’ll need to set a day rate for your skills. Quoting a reasonable figure when putting yourself forward for positions will give the hiring manager confidence in your abilities, and cut out the constant back-and-forth before you’re offered a contract.

But how do you set a contractor rate that’s competitive and rewarding? Below, we’ve rounded up some advice to help you get started…


Asking for too little will discredit you

Before we delve into tips on setting a rate, a quick word of warning on asking for too little. If you quote less than the market rate, you might appear less skilled than you are, and struggle to secure contractor interviews of interest from hiring managers. Perception is everything – if you’re too cheap, most businesses will assume that you’re not very good at what you do.

Asking for too little also means you’ll miss out on a higher income, which is perhaps the reason why you decided to become a contractor in the first place. Having confidence in your abilities and salary expectations will make it easier to identify opportunities in your sector.


Asking for too much can work against you

Asking for too much will also work against you. Not only will you appear more experienced and skilled than you are, but you might miss out on interviews because your rate is not as competitive as other contractors. If you’re pitching high to offer room for negotiation, you should remember that not all hiring managers engage in back-and-forths on contractor fees.

In the world of contracting, most companies expect to get what they pay for. If you’re pitching too high, they might expect more from you when you’re hired, and you might fail to live up to their expectations, causing your contract to be cut short or your reputation to be damaged.


Speak to a contractor

The most obvious way to find out how much you should charge is to speak to a time-served contractor in your industry. If they’re comfortable in telling all, you can find out exactly what they earn, how much they spend on travel and supplies, and where they find their contracts.

Be sensitive when you’re asking a friend or fellow contractor for personal information about their finances. And remember that every contractor is different, so don’t take their figures as gospel. Use it as a guide and pitch at the lower end of their pay scale to stay competitive.


Look at market surveys

Head to the internet to work out the average hourly or day rate for your industry. Although you should be able to figure out a ballpark (for example, a software developer will earn £40,000 per year in a full-time position, but up to £90,000 if they’re working as a contractor).

Be cautious when looking at these figures, though – they don’t necessarily take into account experience levels, sectors, location, or combination of skills. Err on the side of caution.


Let your agency do it for you

If you’re working with a recruitment agency, you might find that they’re vague when you ask about a day rate. That’s because they take a commission or percentage of the contract for their work, and they naturally want to earn as much as possible. You could play them at their own game and tell them that you charge the market rate, leaving it in their court, or go in on the high side and let them haggle with you until you get to a figure both sides are happy with.

Remember that an agent should be working for you. Sure, they want happy clients, but if they are unwilling to discuss average rates, you might want to look for an agency that’s more transparent and on the side of the little guy. Also, be sure to ask them how much they’ll earn from referrals – if it’s a high percentage, you might earn more working with another agency.


Don’t spend too long in one role

If you’re new to the world of contracting, it can be tough to know exactly how much to ask for. If you go in too high as an inexperienced contractor, you’ll be knocked back. But if you go in too low, they might bite your hand off and ask you to stay on for many months. After all, if you’re good at what you do and you’re competitively priced, you’ll never struggle for work.

We recommend keeping your first contract short. Spending 3 to 6 months with a business will give you the experience you need to bolster your CV, the confidence you need to apply for more lucrative positions, and help you to work out exactly how much you’re worth. You can speak to other contractors to see what they’re earning, or calculate your ideal salary and work out whether you’re able to comfortably ask for it. Don’t pigeon-hole yourself early on.


New to the world of contracting? If you don’t want to worry about bookkeeping and accounts, you might want to consider our umbrella services for contractors. We take the pressure out of working as a contractor, effectively “hiring” you and paying you via PAYE after tax and National Insurance contributions. Give us a call on 0203 744 1229 to see how it works today.