Dear Contractor Doctor,
I am a contractor working for a much lower rate than I would normally have worked for in the past, but which my agent told me was the going rate because of the recession. However, the client is doing really well, and recruiting more contractors to cope with the upturn in business.
My agency claims that they are ‘working on’ getting my rate increased, which they have allegedly been doing for a fortnight now with no results. I suspect they are taking a very large chunk of what the client is paying for my hourly rate and when I ask them, they avoid the issue. And I can’t afford to walk away from the contract.
How can I convince my agent to cut their margin and pay me more?
Contractor Doctor says:
Agencies are in business to make healthy profits and sometimes can get the better of an unwary or first-time contractor by negotiating a high margin for themselves. Contractors who develop their contracting skills, which include negotiation techniques, by reading material on this website and in the Contractors’ Handbook, will be less likely to get caught out and more likely to negotiate themselves a good rate from the start.
Although it’s not unheard of, it is very unlikely that an agent will be working on getting a contractor a rate rise. That’s not how contracting works, as a rate is agreed and the contract signed and delivered.
There are also the commercial realities for the agency to be aware of – once a deal is done and the contract signed, agencies generate very little additional financial gain from tinkering with the rates. Their revenue comes from an ongoing stream of new deals; a rate rise for the contractor of £1 per hour might only gain the agent another £20 per month, but a new deal with a fresh contractor and client earns considerably more. Which would you choose to spend your time on?
Get some negotiation leverage
Successful negotiation skills are all about the contractor developing a strong bargaining position and then convincing the agency that the contractor not only holds the power in the relationship, but is also not afraid to use it.
The agency will try and establish how weak the contractor’s position is, and the contractor will be fishing for information by asking questions like, ‘How long have you been looking for someone?’, ‘How is business going?’, ‘Signed any new deals recently?’, ‘Are you new to the agency?’, and so on.
Successful negotiation skills are all about the contractor developing a strong bargaining position and then convincing the agency that the contractor not only holds the power in the relationship, but is also not afraid to use it
Ideally, the contractor should have some other interviews scheduled and contract offers on the table in case the agency calls their bluff, because mid-way through the contract the contractor has no other option but to play their ace card and say: ‘Pay me more or I will leave’.
Contracting direct with the client
An alternative option is to talk to the client and find out what they are paying the agency. If this conversation with the client reveals that the agency is taking a high margin, then the contractor can suggest to the client that they might have to look for other work if the agency does not take a lower cut.
If the client is doing well and hiring more contractors to manage the workload and using the same agency, then it might be possible to convince the client to put pressure on the agency: ‘I want this contract re-negotiated with a fixed margin of X%, otherwise you’ll get no more new business from us.’
A contractor could also threaten the agency that they will contract directly with the client. The agency may respond saying there is a restrictive covenant in place that prevents this, but (and this is where a contractor needs to take legal advice), the clause might not mean what the agency thinks it does and it might be possible to circumvent it.
Under certain circumstances, when the contractor has a strong bargaining position, they can convince the agency to reduce their margin and increase the contractor’s rates. However, if this fails, the contractor should learn the lessons, up their contracting game and be well prepared when they negotiate their next contract.
Good luck with your contracting!