One of the more difficult parts of being a consultant is determining and negotiating your rate with a customer. Consulting is a lot different than product based sales because you can generally charge whatever you think you can get away with. The first few months of my consulting career, I was charging $67.50/hour. It took several iterations for me to find out what my time and expertise was worth, but eventually I did. My rate increased to $70 for my second client, $90 for the third, $120 for the fourth, and eventually peaked at $275/hour.

The key to making good money as a consultant is to know how to negotiate your rates. This is not a skill you generally learn in college. It takes time, practice, and even if you’re good at it, you don’t always get what you want.

A Recent Experience

Recently, I had the distinct “pleasure” of competing against another company for a relatively short contract. The initial engagement was only intended to be a week, but the potential for more work existed. How much more work had yet to be determined, and it was by no means guaranteed.

My competitor bidding for the same work was another consulting company based out of the Midwest. This particular customer is in downtown Boston and given that I’m only a short 45 minutes away (with no traffic, which NEVER happens), I figured that given the standard rates, I should have won hands down due to travel expenses for my competitor. It didn’t quite turn out that way.

My competitor lowballed the deal by nearly 1/3 and went so far as to include travel expenses. I knew for a fact that they were in trouble. They had been cutting employees left and right and earlier this year they let a consultant go just two weeks into an eight week engagement for a client. I understand the customer was pissed, but that’s not my business. The point is that I knew my competitor was desperate, but I couldn’t fathom how far they’d go to win a single week of work.

I was notified by the customer that I would need to match their low-ball rate via a 2 minute phone call in order to be selected to perform the work. I knew the customer had a preference for a local resource and that aside from my company (Moon River Consulting), there aren’t any other options in New England. Before I finish this story, let’s get into a few rules of negotiating.

Tip #1: Never be the first to mention a price

Standard practice for negotiating anything is to let the other person state a price point first. This establishes the minimum or maximum price. It also tells you whether or not you are in the right ballpark for whatever it is that you are negotiating over. For example, if you are going for a job interview and they ask you what the salary is that you are looking for, then you’re in a difficult position to be able to play this game. If you state a number that is too high, you’ll be disqualified. If your desired salary is too low, then again you’ll be disqualified because they will think you don’t have the required skills, regardless of whether you do or not.

Your goal is to land somewhere in the middle, and preferably at the high end of their price range. Unfortunately, they’re simply not going to tell you what that is unless you ask. If they were willing to pay $70k-$90k for the position and you only asked for $70k, chances are that you’ll end up with less because you set the maximum price by saying $70k.

In every case, someone has to mention the price first or everyone goes home. Companies will generally tell you what their expected range is up front in order to save time, but if they’re looking to save money, a lot of times they’ll simply say something like “salary commensurate with experience”. It’s garbage, but you have to live with it.

When negotiating a consulting rate, you will probably be asked flat out to name your price and there’s no way around it. When this happens, you are setting the maximum bar at which you will get paid and need to negotiate down from there. You might want to pad your number a bit to give you some room to negotiate. Don’t be afraid to pad this number if you’re sitting at the table doing a negotiation. If the negotiation is taking place via email, dodge the question and push for a time to talk. “It depends” is a classic consulting answer and it never ceases to amaze me how well this phrase applies to any given situation.

Tip #2: Never negotiate against yourself

If you’re the first to name a price, never let the other person tell you that the price is too high and ask you offer a lower price. This is known as bidding against yourself. There are two problems here. First, you are giving up ground in the negotiation without the other party doing the same. I’ve seen this happen and I’m sure I’ve been guilty of it myself. Second, you will unintentionally give up more ground than you intended to.

For instance, if you are negotiating a consulting rate, most companies will ask you flat out “What is your hourly/weekly rate?” and the expectation is that you have to tell them. Again, you can’t always avoid naming the price first, so this is pretty common. Just make sure you are in the same ballpark as others who offer similar services. But when they tell you that your rate is too high, ask them what they would be willing to pay or what they see as reasonable. If you say $100/hour, and then drop it to $90/hour, you’ve just given away $400/week and received nothing in return. You haven’t even established the bottom yet, so you have no idea if they’re willing to pay $50/hour or $10/hour.

The point is, don’t immediately counter a resistance to your rate with a lower rate, even if you’re desperate for work. In fact, especially if you’re desperate for work. People like a consultant who is confident in their rates, but able to justify them with a list of happy customers who paid that much. Just don’t cross the line into cocky. Prospective customers will walk you out the door and eventually, out of business.

Tip #3: Don’t negotiate your price until you are ready to

Through a long-time friend, I met a guy in Philadelphia several years ago who was interested in having some programming work done for his business. He didn’t want much more than 10-15 hours per week and was looking for what I thought was pretty basic PHP and mySQL work. My thinking was that it was just a meet-and-greet to establish a relationship and then we’d go from there to discuss the work that needed to be done and the rates for that work.

Maybe 5 minutes into the conversation, he asked me flat out what my rate was. Now, in keeping with Tip #1, I tried to dodge the question and was a bit vague, saying that it depended on what he needed done. He pushed hard telling me exactly what programming languages were to be used and how many hours of work each week he was willing to pay for, so I had little choice but to name a number and it was pretty close to our standard consulting rates in the small enterprise space. Immediately he jumped all over it and said it was too high and waited for my response. I certainly wasn’t going to negotiate against myself, so I asked him what he felt was reasonable. Of course he low-balled it at $25/hour, which we both knew was way too low.

I never knew what hit me. It couldn’t have been more than 5 minutes later when we “agreed” on $50/hour and he ended the meeting quickly, saying he had to get going. As I walked away with my friend, I shook my head wondering what the heck just happened. We hadn’t even reached the bar when I realized that $50/hour didn’t even cover my costs, let alone make me any money. In fact, in all my years of consulting I’d never charged as low as $50/hour. What was I thinking?

This is a nice lead in to the next tip, but I haven’t finished with this one so here’s the lesson. If you’re not ready to negotiate a price, don’t. This is really hard to do when someone jumps into negotiating your rate or calls on the phone unexpectedly because you get excited about landing more work and new business. Play it cool. You need to tell them that it’s not a good time and that you will need to reschedule the conversation. Sit down and give it some serious thought, then reschedule. Otherwise, you’re just not prepared or in the right state of mind to negotiate properly.

Tip #4: Establish the lowest rate you can accept and don’t budge

From the previous paragraph, I obviously made two mistakes at the same time. First, I wasn’t ready to negotiate. I had intended to feel out his personality and find his hot buttons, but when he immediately launched into negotiating, I got too jumpy and played the game. Bad idea. Second, I had given absolutely no thought to the minimum rate at which my developers could work for to break even. It didn’t even occur to me until after we’d concluded negotiations. By then, it was too late.

Decide for yourself what the lowest rate you can work for is, and don’t accept a penny less. Losing money is no way to stay in business.

Tip #5: Be ready to walk away if it’s not going to work out

Too many consultants make the mistake of reducing their rate further and further until their prospective customer accepts. You’ll never get ahead this way. If you do good work, people will hire you. You want your rate to increase over time, not decrease. If a customer only has a budget of $2,000 and can’t get a penny more for a week of work, you’d better be willing to work for just $50/hour. If not, you need to walk away and find another customer.

Any retailer will tell you that when you sell at a loss, you can’t make it up on volume. At least not without cross selling other items. It’s “Ok” to do something very short term to lose less money on a particular week or to land a longer term arrangement for more money, but don’t make a habit of it. If a job isn’t going to make ends meet for you, then you need to walk away and find one that does.

In the previous case of my abysmal Philadelphia negotiation, I eventually ended up walking away. There was no reasonable way to renegotiate the rate. For the money and anticipated length of the engagement, it just wasn’t worth the effort.

Back to my story…

After receiving my unexpected phone call regarding dropping my rate, I decided to delay things a bit. I could have agreed to the rate decrease immediately, as it was simply an offer to “match this one, and you win”. However, I wanted to think it over. The last thing I wanted to do was commit to the lower rate, only to end up in a bidding war and have my competitor cut his rate again, forcing me to match him at another lower rate.

I also thought about whether or not the customer was bluffing. After all, I had no proof that my competitor had indeed slashed his rates to the bone. Most retail stores operate with a policy of “guaranteed lowest price” by asking the consumer to show them a competitive advertisement listing a lower price for any product. A store will virtually never sell a product at a significant loss, for fear that customers will take them up on it. But the onus is on the customer to provide the proof that the competitor is offering a lower price.

This brings me to the last tip.

Tip #6: Take what a customer says about your competitors’ rates at face value

Was my customer bluffing about the rate of my competitor or no? Maybe, but I’ll never know. I basically had two options. I could either accept/deny the rate decrease, or I could ask for proof, trying to call his bluff.

Had I called his bluff, there were only two possible outcomes and neither was going to be good.

1) If he was unable to produce proof of the competitive rate, then I could probably have maintained the same rate. However, I would have also been calling him a liar. I somehow doubt that calling a customer a liar is going to encourage them to hire me.

2) If he was able to produce proof, then I still called him a liar because I didn’t believe what he originally told me.

This was a lose-lose situation if I were to attempt to call the bluff and I think he’d have gone with my competitor in either case. Ultimately, I accepted the lower rate because I wasn’t going to lose money on it and I knew it would hurt my competitor a lot more than it would hurt me.

Summary

Before you start any negotiation, make sure you know what you want, know what the minimum is that you’re going to accept, and be ready to walk away if you need to. If you’re not ready to negotiate, don’t. Ask for more time or to reschedule, citing a need to do some research or give some thought. Simply saying that you’re not prepared to discuss it is an honest way to handle the scenario. It tells the customer that you’re not brash and are willing to think things through. They may not want to wait, but this does a lot for your credibility as someone who understands how businesses operate.

Last of all, remember that negotiating your rate isn’t about you winning or losing. You need to ensure that you and your customer both get what you need. The key is to establish a long term relationship with your customers so they keep coming back for more consulting services when they need them. If you nail them to the wall during every negotiation, eventually they’re going to walk away and find someone else to work with

Good luck, and happy negotiating.

59 Comments

  1. Michael on October 14, 2009 at 9:36 am

    Ah, this is a fantastic read — I wish I had this article handy when I started my design practice 3 years ago. Much appreciated.



  2. STEPcoach on October 14, 2009 at 11:47 am

    Very good job addressing a very tough topic. Pricing seems to always be the hardest issue for me. I finally “cheated” by calling around for rates, finding other writers who Hadn’t ready your advice (i.e. they gave me rates over the phone), and setting mine roughly the same.
    I’ll remember your tips for the future.
    thank you!



  3. alldevnet.com on October 14, 2009 at 12:32 pm

    Tips on negotiating a great consulting rate – Musings on software and startups from a single founder…

    The key to making good money as a consultant is to know how to negotiate your rates. This is not a skill you generally learn in college. It takes time, practice, and even if youโ€™re good at it, you donโ€™t always get what you want….



  4. Mike Taber on October 14, 2009 at 10:27 pm

    Thanks. I’m glad you liked it. Good negotiation skills are essential in the world of consulting services because rates can vary dramatically depending on the budget of the customer involved and the relationship you have with them.



  5. Polprav on October 16, 2009 at 5:30 pm

    Hello from Russia!
    Can I quote a post in your blog with the link to you?



  6. Mike Taber on October 18, 2009 at 11:04 am

    @Polprav: You most certainly can. A few sentences is fine, or even a paragraph. Just don’t copy the entire post. ๐Ÿ˜‰ Let me know when you link back. I’d love to read your opinion on it.



  7. Raphael on October 22, 2009 at 4:34 pm

    Thank you for this excellent post.

    I wanted to ask your opinion about negotiating rate increases for long term clients?

    I’ve been working with my primary client (90% + of my income) for two years with a new contract every 6 months. I work entirely remotely, and only communicate with im / email / occasional phone call.

    I think I’m doing very good work for them – based on their feedback in day to day workings and in the fact that my contract has been renewed 4 or 5 times in the last two years.

    What is the best way to negotiate a rate increase in this situation? I know I should be charging more just to cover cost of living adjustment and my own improvements in productivity (not even including experience in their business and systems)

    To be honest I feel a little anxious about it as they are my primary source of income.



  8. Mike Taber on October 22, 2009 at 10:19 pm

    I’ve been in your situation before and it’s a really difficult balancing act. In my case, I simply chose to move on because I found other opportunities which were paying more than double my consulting rate at the time. It’s relatively easy to justify a small percentage rate hike. Not so much when your rates double overnight.

    I think what I would do is to speak with whomever is in charge of approving your contract and discuss this with them. Don’t do this via email, as it would be too easy to be misinterpreted, possibly causing your contract to not be renewed. Also, be sure that you do this at least 6 weeks before your contract with them ends. If you wait until the last minute, it’s like any normal raise with a full time job. By the time you go through your yearly review, your pay increase has been predetermined and nothing you say in the meeting is going to change that. They already decided to pay you $X, so it would be too late to argue for $X+anything.

    All you need to do on this phone call is ask two questions:
    1) “With the economy the way it is, stability for both you and I is important and I wanted to get some insight on what my future relationship with you looked like. I wanted to find out if you were planning on renewing the contract in X weeks.”
    It’s perfectly acceptable for you to ask this question. After all, if they decide to cancel, you’re going to need to find something else. Given the economy, you need to protect yourself a bit. Also, this is a bit of an icebreaker question that doesn’t dive into the meat of what you wanted to talk about.

    2) Assuming they say yes, your next question should be “Do you think that you could justify a rate increase of $X/hour/week/month/pay period/etc, to $Y?” Then list 1-2 of your accomplishments and contributions, while making sure to highlight what you’ve done for them. You’ve completed tasks on or in under the time allotted, cite the quality of the work, etc. Keep it short. You’re not selling here, you’re simply reminding them of what you have brought to the table. And as you pointed out, you’re more productive and efficient than someone new that they might bring in. You’re also a known factor, which works to your advantage.

    It’s very important to be honest with them and that your rate increase is something reasonable. In my case, there was just no way that the customer was going to double my rate. But had I asked for an extra $2.50/hour, I very likely would have received it because I worked hard, was smart, and dependable. The exact number depends on what your current rate is, and what expenses you are responsible for. Since it sounds like you’re an independent contractor, you might want to cite things like rising health care costs, especially if you pay for them yourself. This isn’t about you being greedy. And although you do want more money, it’s about being fairly compensated. You’re more experienced than you were two years ago, and they should know and understand that.

    It’s unfortunately not a great time in the economy, so you might be told no. Obviously, you shouldn’t press your luck and you definitely shouldn’t threaten to leave. Realistically, you’re just asking if they could justify a rate increase or not. If they can’t justify your number, ask what they could justify. Make sure you have one or two more things that you can point to at this point. Make sure to use examples of how you’ve helped them to cut costs. If they still can’t justify an increase, then at least you asked, which is a lot more than most people do.

    The largest pay increase I ever received from switching jobs was 54%. Obviously, changing jobs is a much faster path to advancement, but I still managed an 18.5% increase plus a promotion at a full time job I previously held. Highlight your strengths, point to places where you’ve proven valuable and saved them money, and above all else, start the dialogue long before your contract is up for renewal. Good luck, and let me know how you make out.



  9. Raphael on October 23, 2009 at 2:39 pm

    Wow, thank you for the super detailed reply!

    I will definitely get back to you on how I do with it.

    Thanks again!



  10. Joseph on May 14, 2010 at 3:16 pm

    I am a business operations consultant working in Latin America. I have been local consultant working mainly in Mexico. Recently I was asked to join forces with an American Consulting Business to do a project in Mexico where I live now. Any advise on a weekly basis rate for a full time commitment to do a project of about half a year or less? This compared to an hourly-basis rate, and with rates within the US.



  11. Mike Taber on May 14, 2010 at 3:39 pm

    When you are consulting on short projects, your consulting rate should be at least 2-3x your base salary rate. Maybe even more, depending on what you do. This covers employment related expenses (like salary, employment taxes, etc) and helps to cover the time between one job and the next.

    When you take on a long term project, you typically need to cut that rate by anywhere from 20-40% in order to land a deal. In exchange for a lower rate, you’re getting guaranteed work. What I would be cautious of are things like:

    1) When do you get paid?
    2) Under what circumstances do you not get paid?
    3) Can you walk at any time?
    4) Can they walk away at any time?
    5) How much of the contract and work is really guaranteed?

    If they want to lock you up for 6 months, then you need certain assurances that you will be kept busy for those 6 months. The problems usually surface when parts of the project are delayed and you’re sitting around not doing anything.

    They’re not going to want to pay you to do nothing, but you shouldn’t suffer the financial burden because of problems that are outside of your control.

    Here’s what I would do:
    If you can, find out what the American company is making from the deal, determine what it would cost to send in another consultant from the US, and price yourself lower than that. At the same time, price yourself just a bit above what they would find someone else in your area to work for, but not so much that they’re going to go looking for someone else. Most of the time, a relationship is good enough that a bit more money isn’t going to kill a deal.

    If you’re willing to take a risk, price yourself much closer to what it would cost to bring someone in from the US and justify the price based on your extensive experience as a local consultant. They might say yes, but chances are that they’re going to try to talk you down to a more reasonable number, or simply look elsewhere for someone to fill the position.

    Negotiations are usually delicate, but there are things that trump most others, such as experience, abilities, and relationships. Leverage your relationships to negotiate for a better rate. That’s the only way to come out ahead. And if they’re looking for something that’s just too low, don’t be afraid to walk away. You’ve got to make a living, after all.



  12. Joseph on May 16, 2010 at 12:15 pm

    Thanks a lot for your prompt answer.

    One last question: a results based (% of savings, productivity, sales, labor, etc.) full time engagement mostly means that you will require at least a 40 hr/week to get the job done, most likely sometimes you will go up to 50 to 60 hr/week, with the inconvenience for you of having set an income ceiling of a weekly rate, it might end up to be a tricky way for getting lower rates per hour. Any advise you can share about it? Thanks again.

    By the way, I just discovered your site, I am impressed and I appreciate very much your sharing advise and knowledge.



  13. Mike Taber on May 16, 2010 at 12:29 pm

    I’ve never been involved in a contract where I was compensated based on the savings the customer was able to achieve. 90% of the time, most of that is simply out of your hands and it wouldn’t be fair to pay you based on their savings when they don’t invest the resources they need to make it work. A lot of these ROI calculations are based on fuzzy numbers that don’t take everything into account. Then a year later when it doesn’t add up, they somehow can’t figure out why or how.

    I would structure the rate as a weekly rate based on 40 hours/week and if you work overtime, it cuts into the total budget for the job. It’s really not your fault if they’re poor planners or if you advise them on what to do and they ignore you or can’t follow your advice for “business reasons”. In those cases, you’re absolutely right. You could easily work 50-60 hours/week and only get paid for 40.

    If that happens, either you screwed up, it was poor planning on your part, or poor negotiating on your part. If given the choice, always do a fixed time engagement, rather than a fixed price. If they burn through the hours making you do something stupid, that’s on them, not you. The only thing I would caution is that you need to advise them of the risks of taking different actions.

    ie: I know you want me to do X instead of Y, but if I do X, then I’m going to spend twice as much time as if I did Y instead and you’re going to be short on hours at the end of the project.

    Doing a fixed time engagement offloads the risks associated with delays (or blatant stupidity) onto the customer. There’s no good way to account for everything that can happen. So long as you know what you’re doing on any given project, this will work well. The time it becomes a problem is when you genuinely screw something really big up and need to spend a lot of extra time on a project to meet the deadlines. An hour here or there isn’t a big deal. Burning an extra 40 hours of customer time because you did something that crashed their production database is.

    I’ve never had that happen to me, but if it did, I’d probably eat the hours and tell the customer “Look, I screwed up. It’s going to take me X hours to fix and I won’t charge you for those hours.” So long as X is some number under a reasonable amount and it was something where I should have known better.



  14. Joseph on May 17, 2010 at 10:56 am

    Thanks again. Your experience and insight have been very helpful to me.



  15. Mike Taber on May 18, 2010 at 11:45 pm

    You are very welcome. Thanks for reading, and good luck.



  16. Thomas on May 24, 2010 at 1:20 pm

    I really wish I’d read this article before accepting my current gig. I was placed through a consulting agency and I accepted an amount far lower than what I really need. This is my first time not working as an employee, so I didn’t realize how much I’d end up paying for SE Taxes and medical insurance, etc.

    I’ve been trying to find a way to re-negotiate a higher rate now that I’m 1 year into this contract position. Renewals were supposed to be every 6 months, but my ‘agent’ called me in February to let me know that the client had extended my contract through December, so now I’m stuck. I think I should be making about 20% more than I am, though I’m unable to find any other contracts out there to compare it to. Basically, I’m getting paid $30/hour and the client is being billed $58/hour (someone left an invoice on a copier – couldn’t believe it!).

    Do I just wait until 6 weeks before the end of December, as you suggested to Raphael above? I have brought significant value to the client in a couple of projects by reducing man hours through automation, but I feel like I’ll probably be more successful getting an increase through the Agency rather than the client.

    Any suggestions?



  17. Mike Taber on May 24, 2010 at 6:44 pm

    Personally, I wouldn’t wait. I’d use this as an opportunity to say “Hey, if the client finds me to be so valuable, then I think I deserve a raise for sticking around through December because nobody consulted with me about whether or not I even wanted to stay.”

    If you don’t address the situation now, you’re going to be a less than stellar employee for the next 6 months and feel as though you’ve been taken advantage of for the entire time.

    I would come up with some solid facts about why you deserve the raise. Cite things like your work ethic, the fact that you’re a known quantity now, as opposed to a risk of hiring someone new, etc. Obviously, having another job opportunity certainly gives you additional leverage.

    But I think I’d definitely bring up the fact that you hadn’t taken into consideration the additional expenses of SE Taxes, medical insurance, etc. As an independent contractor, generally you should be able to walk whenever you feel like it. Make sure you have a definitive number in mind when you ask and just say “$36/hour would make me happy.”

    If they do it (and I suspect that they will), then great. If not, find something else. You’re not doing yourself any favors by sticking around.

    As a last ditch effort, you could simply ask the customer if they would consider hiring you full time. Typically, with contract agencies, there’s a policy in place that states the customer is required to pay $X if they hire a contract worker directly. Sometimes it’s a fixed dollar amount, other times it’s based on the rate, and occasionally it’s based on the cost of finding a replacement. However, it might be barred completely.

    Given the discrepancy between what your salary is and what the contract agency is making from you, it might be worth it for the customer to break that contract and hire you directly. They’re not likely aware that you’re being paid so little, and if they were, they probably don’t realize that you’re paying your employment and medical insurance yourself.

    The numbers you threw out (at least to me) seem too far out of whack to justify. Someone is making a killing and for you to ask for an extra $6/hour is very little for a sales rep to give up as opposed to going completely without while they find a replacement, and then risking the inability to find someone the customer likes at a similar price as what you are being paid.

    It’s not unusual to pay 2X salary for a consultant. What is unusual is to pay 2X salary for an independent contractor for a 6 month basis. Really, it should only be 1.5x at the most because the money and income is basically guaranteed to the agency.

    I think if I were the customer, I’d be really upset if I learned I was paying 2x what the person working for me actually costs. There’s something to be said from their standpoint for flexibility on a short term basis, but for a lengthy contract, that’s just not right.



  18. Thomas on May 25, 2010 at 11:46 am

    Thank you for the informative response. I failed to mention that they paid for some client-requested training, based on my agreement to repay them if I didn’t stay 6 months after the training. I know. Bad move on my part. I’m learning the hard way, here…

    I will have to wait until July to ask for the raise in order to actually have the leverage of possibly leaving. I’m not sure I could stick to my principles and be willing to pay back the $3k for leaving before the 6 months are up.

    Thanks again, Mike. Your insight and openness have been invaluable to me.



  19. Greta on August 11, 2010 at 5:01 pm

    Thanks for the invaluable information! I am selling my business (a food processing establishment). The new buyers want to hire me to consult with on a short term basis to set up their new facility and train them on the equipment/processes etc. An engineer by trade, I have never consulted and feel a lot more confident now in making demands rather than selling myself short.



  20. Luke on September 22, 2011 at 11:41 pm

    Excellent read. I recently started negotiating a long term contract with a new client. I’m nearing the end a trial project with the client and so far the client is happy with the work. However, the final outcome will of course play heavily on the clients overall outlook. Do you believe it would behove me to hold off negotiating a long term contract until the end of the trial run, if I believe it will end on a positive note? Or should I attempt to sign before the final results of the “trial agreement”, knowing the client is obviously interested in retaining my services at this juncture since they’re already sitting down to talk a longer term relationship.



  21. Mike Taber on September 23, 2011 at 3:09 pm

    You might ask some leading questions as to whether they’re interested in renewing the contract. The fact is that good people are hard to find. If you’re decent at what you do, they will be reluctant to let you go for a few dollars more to take a chance on the next guy, who could be all over the map. You also have experience working with whatever it is at this point, so asking for more money isn’t out of the question. It might be out of their budget, but you won’t know unless you ask. The thing to be careful of is making sure you’re not trying to be greedy. Some simple justifications may be in order, such as looking around a bit to find other things that are either more interesting, or if you’ve talked to some recruiters and they’ve told you that you can make more money doing other things.

    So long as you broach the subject with respect for their position and yours, they generally can’t complain. If they want to renew, the worst outcome you could expect from asking for more is that you don’t get it. If you do, then you’re making more money, plain and simple. If not, then you’re making the same as before. But I would certainly keep my options open if you think you can command more based on your experience. As I said, just don’t get greedy. People sense greed and it will rub them the wrong way.



  22. Dave on October 14, 2011 at 4:46 pm

    Thanks for the tips. Still relevant two years later!



  23. Jamie on December 4, 2011 at 10:38 am

    Dave,
    I am just starting my business as a medical narkrting consultant. I am very excited about my decision and am now beginning to nail down all the ins and outs of the business. Although I have been in medical sales for nearly 20 years this is my first step into consulting. I have no doubt I have the knowledge, but I am concerned about self-employment. It takes on a full set off issues I’ve never had to deal with, self employment, health care, etc. I am seriously considering speaking to a physician who has an enormous amount of ability and drive for growth and asking to become a permanent member of his staff as basically his marketing department. I could see it lasting a s long as five years pretty easily, and possibly morphing into something even more challenging down the road. Mark my words someday the entire medical community will know of this guy. I guess my question is I am taking a leap of faith, but have you found that through it all it’s been something you would never change. If you could go back and change something what would it be?



  24. Mike Taber on December 4, 2011 at 12:05 pm

    I think my situation is a bit different in that I went into software consulting, even though I’m a person who can build my own software. If I had to do it all over again, I wouldn’t do it at all. Consulting can be great money but at the same time, the fact that I have the ability to build products which I can then sell to people. With software, I can put in the effort once and reap the rewards from what I’ve built for a long time.

    I don’t know anything about medical marketing, but it sounds like a business where you would always find work. Personally, I would have wanted more passive revenue streams, but consulting isn’t like that. As a consultant, either you are making money or losing it. You can’t even go on vacation without knowing that you’re losing money. There’s always the risk that some of your clients don’t pan out.

    If I had to think of some things I’d do differently, I can name a couple. First, I wouldn’t hire people until I had a very repeatable business model. Second, I would stockpile a lot more cash as quickly as I could while consulting. Third, I would try to do a better job of getting repeatable clients with smaller sales levels rather than a few large sales. The latter model means you’re constantly trying to find new work because your old clients don’t need you anymore.



  25. ‘Cos I’m worth it’ « KindredHQ on January 14, 2012 at 1:37 pm

    […] The Single Founder – general advice […]



  26. seo on January 31, 2012 at 12:54 pm

    Thank you, I’ve recently been hunting for info about this topic for ages and yours is the best I’ve found so far.



  27. Chris Meidinger on February 21, 2012 at 7:13 pm

    I have read a number of articles on negotiations, but rarely has one been so concise, to the point, and accurate.

    Kudos!



  28. Jim on August 10, 2012 at 9:40 am

    Hello. I am an independent, highly specialized Technical Consultant working in NYC area on Corp to Corp contract. I would like my client to consider marketing my services to their Latin America Clients however I am concerned that there will be considerably less income margin to my client considering my NYC rate. Does anyone have any Consulting Fees charts that, on average, Latin America Companies are willing to pay for IT related work. My field is in Finance however average benchmark rates would suffice.



  29. Mike Taber on August 10, 2012 at 9:48 am

    Hi Jim,
    I don’t think you’re going to get a specific answer to that question here. This is a blog, not a forum. Why don’t you ask your customer if it’s worth it to them to market your services to their Latin American counterparts? Companies in other countries know that when they come to the US for services, it’s going to cost more. Enterprise customers will pay it, smaller businesses will not. I don’t think it’s your problem what their profit margin is. Just be aware if it’s not worth it for them, they’re going to stop doing it.



  30. Joey Smith on December 20, 2012 at 2:08 pm

    Hi Mike

    I am looking for advice as to how to proceed. I have been contracting at this company for a year now and the contract is getting renewed by another 3 months. My contracting company is paying me $60 per hour on w2, while they are billing the client $90 per hour. I am looking for a raise to say $65 per hour. The client is not going to increase the rate and I don’t want my contracting company to approach the client for a raise. As a matter of fact the client wants me to be a full time employee, but I don’t want to since the salary is lesser.

    I have been asking my agent for a lunch meeting but off course that is not happening. So we are going to be on phone tomorrow. There is only one other contractor from my company here and he is now in the process of becoming an employee. Any advice as to how to proceed would be highly appreciated.

    Thanks
    Joey



  31. Mike Taber on December 20, 2012 at 9:01 pm

    Sounds like you’re in a tough spot. I’m not sure why you are hesitant to ask your contracting company to go to the client and ask for more money. The reality is they might do that anyway without your approval or say-so. It also sounds like the client sees this is a longer-term issue and want to hire you full-time to cut costs.

    It’s probably not ethical (or maybe even legal, depending on the contracts), but you could freelance for them directly. You’d kill a relationship with the current contracting company though, so I don’t think I would advise that unless the payoff is worth the reward. I’ve done it before, but it was for a $30/hour increase, not a $5/hour increase.

    It’s possible that your current company might want to be getting out of the business of working with contractors if they’re bringing on the other contractor as an employee. You might be able to use that as a way of working directly with the customer and instead of a $5/hour raise, get something closer to $20. ie: Contracting company loses the revenue, but don’t have to deal with PM issues. They may not go for it.

    Ultimately, you need to figure out what both sides are really looking for, and find a solution to the problem. If you’re not getting the meetings you need to foster those discussions, then you need to somehow force the issue or let it ride. Both paths have their risks. But you won’t get your raise unless you ask for it. The contract company is making a killing on this deal (especially if it’s full time) for simply pushing paperwork. I don’t think you’re out of line for asking for $5/hour more.

    Good luck!



  32. Joey Smith on December 21, 2012 at 10:42 am

    Thanks Mike ! I can’t work for the client directly because non-compete in the contract :(. I work 40 hours per week at $60 per hour. They are making a killing. And I know that the client is going to say No to the rate increase as they did for the other contractors. I will certainly ask. At the most they will say NO.

    Thanks again !



  33. Mike Taber on December 21, 2012 at 10:57 am

    Well, you have to ask because you won’t get it if you don’t ask.

    If you have other employment options, then you can walk. Which means you leave them with zero revenue on the books and zero profit.

    The last thing I’d mention that as a contractor, I’d be EXTREMELY picky about what non-compete agreements you sign. The fact is that as a contractor, they don’t have any real responsibility for your future. What happens if they fire you? Are you not allowed to get a job? What if they go out of business or liquidate? During that time, you’re left out in the cold.

    I use arguments like that to completely avoid official non-compete agreements and rely more on a “gentleman’s agreement”. If things really go south, then you’re free to do what you need to do to make a living. The other thing I do to shield myself from that is sign the agreement as the agent of my corporation and make absolutely sure that the agreement is with my company, not with me. So theoretically, I can quit working for my company, start a new one, and do whatever I want anyway.

    It’s my company that signed the agreement, not me. And because I don’t enforce a non-compete between myself and my own company, I can do that kind of thing. It’s not necessary if you’re able to maintain good relationships, but I’ve been in situations where it was necessary, and having that option is extremely good negotiating leverage. Most companies are not going to want to go to court over something like that, even if it might be enforceable.

    In any case, you’re far better off working within a relationship and maintaining it than walking away. I’ve found that even years later, you tend to run into the same people in business and you want to maintain a good reputation. If someone really pushes you over the line, then chances are good they do the same thing to others and people wouldn’t fault you for pushing back. I’ve only ever had to do that once in my entire career and everyone I spoke with completely understood what happened because that former “partner” was less than “partner-ey”, if you will.



  34. Sally H. on February 1, 2013 at 3:33 pm

    I just made the move to independent consulting after 14 years of working as a full-time employee. I am getting a potential consulting assignment – but they are offering me an hourly rate that is 25% less than my asking rate and offering only 1000 hours of work spread over 2 years. Something doesn’t feel right here – should I be concerned? Or should I accept it since its my first contract?



  35. Mike Taber on February 2, 2013 at 3:59 pm

    Sounds like they don’t know what they’re really looking for if they’re asking for it over the course of 2 years. Another possibility is that they really don’t expect to keep you busy more than 25% of the time, which is what they’re offering. My concern would be that not only is it less than you’re asking by a significant amount, that they’re not offering a lot of work. Depending on what you asked for as your consulting rate, they might be lowballing you, or you might have asked for something that’s unreasonable to begin with. When you’re starting out, sometimes it can be difficult to get what you’re looking for because you don’t have a consulting track record. Without knowing specifics, it’s hard to offer advice. Were I in your position, it would depend a bit on circumstances. I don’t think I’d sign a contract that guarantees you’ll deliver the time. I’d go for something a bit looser that allowed you to continue looking elsewhere such that you’re filling your time with their work, as your time allows. If I were already busy, I’d decline and say you’re too far apart to even bother negotiating.



  36. Craig on June 15, 2013 at 12:36 pm

    Hi, Mike, thank you for the valuable info. It gives great insights into the impact of calling client’s bluffs about rates directly on the face. tip # 6 saved my relation with client. Thank you.. Best wishes.
    -Craig



  37. Sattigadu on October 19, 2013 at 9:40 pm

    Thanks Mike for this detailed explanation. I just took up a new contract and lost couple of $$ due to lack of proper negotiation. Will use today’s learning’s in my future contract negotiations. Keep up your good work.



  38. Anna on May 17, 2014 at 9:27 pm

    Hi Mike,
    This is a very concise blog that offers very realistic and practical advice and scenarios. I am considering entering the world of ‘trainer/consultant (independent’ after working for employers on a full-time employee basis for the last 17 years. I am a Canadian who is in talks with a Lady who is embarking on a ‘start-up’ franchise venture and would require me to come in to train the franchisee (it’s an educational franchise) and subsequent, the franchisee’s team (on-site delivery). She has estimated that this would span two weeks a month based on a tentative 30 hour/week schedule. They will cover my travel, accommodation, meals, etc (travel from Canada to states and potentially overseas in Asia (long term outlook). They are asking me to provide them with my per diem rate and while I continue to do on-line research to assist me with this, I’m still in the dark. They can’t tell me when the venture will take off, sooner rather than later, but that it will start part-time and eventually move to full-time as interest grows. As a Canadian, I would want to incorporate myself and then work on a TN1 Visa to provide services for a USA based ‘client’. Is it best to provide a daily rate for them (as while I work virtually from Canada when I’m not traveling, I would be billng them so to speak) or a daily rate. What would be the best formula for me to use to arrive at such rates. Expected yearly salary divide by 52 weeks? or 26 weeks? divided by 30 hours? Many thanks in advance for your help here.



  39. Mike Taber on May 20, 2014 at 8:14 am

    I’ve never been a fan of per-diem rates because it gives people the opportunity to do the math quickly and start comparing your hourly rate against others. Then they’ll ask you to work for a day or two, but not the whole week. Meanwhile, your income is derived off of this formula where you’re working the entire week, but you’re only getting paid for a couple of days of that week. So even though when you’re working, you make substantially more, the fact that you work less than half time is what kills you in the end.

    If you’re looking for a reasonable consulting fee, here’s what I would do. Take whatever you currently make and add somewhere between 50-80%. So if you make $100k right now as a salaried employee, your rate should come out to around $150k-$180k/year. I typically calculate it based on 50 weeks/year. Otherwise, you’re shortchanging yourself. So at $150k/year, your rate should be no less than $3k/week which will give you a $100k salary.

    I wouldn’t worry about the 30 hours thing. I know some consulting companies automatically build in a 25% overhead and state that they only bill for 32 hours/week, but I don’t think that’s a wise decision. Good from a PR standpoint, but you’re in business to make money, not to win PR points with prospective customers. Money pays the bills, not PR points. If they want you for 30-ish hours/week, then they pay you for 4 days/week and you have Fridays off.

    Now I know the above numbers sound high, but most people getting started into consulting really have no idea how much overhead there is in running a business. Here in the US ( to use an example), here’s the breakdown:
    $100k/year in salary
    $12% of $100k=$12k for employment taxes
    $14k/year in health/dental
    Right there, you’re already at $126k and you haven’t even considered insurance, travel, office, equipment, downtime, or any of a dozen other things that will ultimately eat into the $150k/year. In your case, applying for the TN1 Visa could be a lengthy and/or expensive process but I don’t really know. If you don’t work for a week that you had planned on working, there’s another $3k “cost”. If there are business or personal things you need to take care of, you typically have to take unpaid time off.

    When it comes to consulting, either you’re making money or losing it. There are no vacations. Hope that helps, and good luck.



  40. Anna on May 21, 2014 at 6:09 pm

    Many thanks, Mike! Fingers crossed ๐Ÿ™‚ Have a great long weekend out there in the USA ๐Ÿ™‚



  41. Paul on May 22, 2014 at 12:34 pm

    Thanks for such excellent advice, Mike.

    I have dabbled in a few short contract jobs after leaving my full time finance job and have been able to charge the 2x salary rate you mentioned. (They were large profitable organizations.) But I am now seriously thinking about developing my consulting work to target smaller organizations (non profit or start-ups) which I know typically may not be able to afford my previously high rates.

    Such a possible gig has now materialized – good reputable small non-profit, good networking possibility but the rate is 1/3 of my previous hourly rate. It’s a long-term gig for about 12 hours/week. I would like to eventually get back close to my higher rate with new clients – will taking this lower-paying gig hurt? I’m lucky that I’m not waiting for the money to pay the bills so trying to take the long-view but I’m worried about starting down this road. Any advice is appreciated.



  42. Mike Taber on May 22, 2014 at 12:39 pm

    I probably wouldn’t do it because 1/3 of your normal rate is a huge cut. However… Most people don’t put a lot of value on flexible hours. It’s entirely possible that being able to schedule that 12 hours anytime you like is a big bonus to you. You have to decide whether that flexibility is worth the rate cut. If you want it to help get you by, then that’s fine. Nobody is going to know what you’re charging them, but don’t expect them to refer any other business to you that is close to the rate you’re trying to get. Small companies simply don’t have the budgets that large companies have. They can justify having their own employees beat their heads against the wall to solve a problem over the course of months. Large companies have the budget and understand that there are opportunity costs for letting their employees do that, so they bring in experts.

    I wouldn’t think that if your rates are relatively high, that you’ll be able to go into smaller organizations and charge similar rates. It just doesn’t work that way. I don’t see this as a path to get where you want to be.



  43. Paul on May 22, 2014 at 12:46 pm

    Thanks very much!! This is exactly the insight I needed.



  44. Shellguru on August 28, 2014 at 4:37 pm

    Hi Mike,

    As a former consultant for a specific software the company I worked with billed at 200-225 an hour and paid 67 hour on w2. Other similar companies I have spoke with in the past have said their bill rate is $150. My experience with the software is 8 + years. I speak to staffing agencies that only want to pay 50 an hour for 6 month contracts on w2 the corp-corp rate is 5-10 higher, which doesn’t cover the WRAP rate. I avoid rate discussions until I know what the scope of work entails but all I receive from them is a job description. When it gets into rate I mention $150. Most staffing companies I speak with a working with a contracting company supporting an end client.

    How do I bypass the staffing agencies taking a cut and do corp-corp and get more of a WRAP rate?



  45. Mike Taber on August 28, 2014 at 9:41 pm

    One thing I’ve found that works well is to position yourself as a company, not just an individual. With individuals, they have leverage and they know that most people don’t know what’s being charged to the end customer. But companies who are in that line of work generally do know. So they will treat the negotiation completely differently if they think they’re dealing with a company that acts as a subcontractor rather than an individual who is representing himself. Technically, that’s what you’re doing, but it’s all about how you position it to them. Avoid discussions of specific people and when you get down to actually staffing the engagement, then the only one available is you… so you have to do the work. Obviously, this is a lot easier if you have other people you can try to put on the job to begin with. Then you’re not dodging questions like how many people do you have, where are they based, who is the specific person who will work on the job, etc. Businesses expect to pay other businesses higher rates for subcontractors. That’s just the way it works. They hate paying individuals far above and beyond the norm because once word gets out that it’s possible, then it becomes a lot harder for them to get anyone to accept the low rates. That’s why you don’t hear it happening often.



  46. Tro on November 18, 2014 at 6:12 am

    Excellent Blog!! Thank you!

    I transitioned to be an independent it consultant recently and would like to get your thoughts on non- disclosure terms on a contract with a recruitment firm.

    I have been consulting over 15 years as an employee of one of the know management consulting firms. As a result, I have met and established contacts.

    On my first independent engagement, there was a non compete clause for the client I was engaged on. I worked in a division with 50 people in an organizTion of 40000. I realized that with the non compete, it prevents me from working any anywhere the orgNization or considerin full time offers even when I know several opportunities from my previous contacts or found the opportunities myself. I.e opportunities were not related to my current contract.

    I am in the process of signing a new contract with another large corporation and would like to exclude the non-compete clause. This is another organization whom I worked for over 6 years in the past and would have many contacts internally.
    It this possible? I did not like feeling handcuffed by the agency for future opportunities because of the non-compete clause.

    Do you have suggestions on how I approach this? Do I need to talk to a legal person?



  47. Mike Taber on November 18, 2014 at 9:09 am

    Standard disclaimer applies: I’m not an attorney, this isn’t legal advice, etc.
    I don’t know where you are but in the US, it’s difficult to completely enforce a non-compete clause because you can’t prevent someone from finding gainful employment unless you’re willing to pay them a severance that takes them out through the length of the non-compete. Something that bothers me is that it sounds like you’re a contractor. I’d be pretty adamant about not signing a non-compete as a contractor. Imagine signing a non-compete with Microsoft, for example. You could almost never work again. I would make sure you’re in a strong position to negotiate and speak with someone whom you have a good relationship with. Say you can’t agree to that part, but everything else is fine. Play on a variation of the story “we’re friends, but what happens if the company lets you go tomorrow? That doesn’t protect me.” I would also make sure that any new contracts supersede old ones so that if the new one doesn’t contain a non-compete, then it overrides any old non-compete you may have signed.

    At the end of the day, non-competes aren’t usually enforced anyway. They’re typically reserved for top tier VP’s and executives. Think Apple, HP, IBM, Samsung, Google, etc. I’m not going to say it doesn’t happen, because it does. But not unless there’s a huge amount of money on the line. Chances are good the type of work you’re doing isn’t worth more than a $500k/year. Most large companies wouldn’t even blink about that. It’s not worth the effort to enforce a non-compete at that point.

    I would definitely talk to an attorney in your area to get their take on it. They may have some specific strategies to deal with it based on local laws.



  48. Merrit on January 29, 2015 at 10:59 am

    If you have a client that wants you to work as independent contractor full-time (vs the 20 hours you had been providing for a couple of years), should you provide a discounted hourly rate because they are committing to provide you with 2,000 billable hours for the year? The hourly rate x 40 hrs per week is too steep for them and they want to negotiate a lower hourly rate in exchange for 40 hours of guaranteed work.



  49. Mike Taber on January 30, 2015 at 12:58 pm

    In general, when you’re negotiating on an hourly basis you don’t come out nearly as well. What happens is that you are tracking individual hours and charging them for the time you do work, but it tends to throw off your schedule and cut into productive time elsewhere. So you’re giving them your “best” hours at the same time you’re providing them infinite flexibility in the billing. I would lean towards working out a weekly rate with a set schedule whether you’re working 20 hours or 40. I might also negotiate on a set of deliverables instead of based on time.

    I think the issue you’re running into is that everyone currently involved is looking at the negotiation on a strict dollars per hour rate right now. If you can get them to agree to a set of deliverables, then it doesn’t matter whether it took you 20 hours or 10. You get paid the same and they get what they wanted. Now if this is more of a “butt in chair” type deal, I might pass entirely. Trading dollars for time is one of the worst exchanges in the world, but it’s what many of us get stuck with.

    That said, I have gone down the road of exchanging time in the manner that you suggested. It can be really nice to have guaranteed work over a long period of time, especially if it gives you flexibility that you might otherwise not have because you spend 20 hours working, another 10 finding new customers, and then 10 hours doing other work. Even if that 10 hours of other work is 2x your normal rate, you’re coming out even because of the extra time it took to find the customer. So it’s always a tradeoff when you decide to do that.

    Sometimes the tradeoff is worth it. Sometimes it isn’t. It depends on your specific situation and you’re the one who needs to be able to answer that. If this has been going on for a long time, you might want to look for better clients in the meantime while you work it out. You always want to be moving up the ladder and this sounds like a sidestep. There are good reasons to take a sidestep, but you didn’t mention any, so I’m not sure what the answer is for your situation.



  50. Vladimir on March 15, 2015 at 4:20 am

    Great list – I’d like to add that it’s important to know what the client is really looking for, i.e.wanting new markets, but really wants to build a new factory to improve the product quality – can change the feeling and the success of the negotiation.