Contracting rates are under threat again, just at the point when they had almost recovered to the same levels as before the dotcom crash. Despite this strange feeling of déjà vu for those of us who were there the first time round, at least we can pass on our experience, which shows that contractors don’t just have to ‘take their medicine’ when times are tough for clients.
The fact is, that contractors who swiftly adopt a ‘push back’ strategy, preferably before the cut is actually imposed, may well stay on their previous rate, or even increase it.
In the late nineties, I went through the transition of permie to contractor and saw my take-home pay double overnight. Within two years, it had doubled again. The dotcom bubble led to almost anyone who could string a line of code together being awarded a contract.
Then the crash came.
It was eerily similar to the events of recent weeks, with all sorts of clients dropping rates like stones – mostly when it came to renewal times, but also during contracts. Rates were slashed immediately and refusals were met with terminations. I was fortunate to have invested my excess earnings during the good times, so was in a position to take a year off to travel. On my return, I was shocked to discover that, despite me investing in updating my skill set, rates were at around 55% of their peak before the dotcom crash. A year later they were back to around 70% of pre-crash levels.
It was not until fairly recently, with another market crash inspired by the credit crunch in between, that contracting rates were again approaching the levels experienced at the beginning of the noughties; and that’s not even in real terms, not including inflation.
As a result, our Contractor Doctor has had a flood of questions from concerned contractors. Typical queries at the moment start with an explanation that the client plans to cut rates, followed by a plea for advice on how to avoid this. Well, the good news is that there are a number of strategies that can help some contractors avoid rate cuts.
Ideally, contractors should spot potential rate cuts coming. But in case you don’t, the first step when receiving a rate cut notice from your client or agency is to take stock without taking immediate action – don’t panic, roll over and accept the change because you think there’s no alternative.
You are a business services supplier, so the client’s email informing your that your fees will be cut or your services terminated is simply the first stage in a business negotiation. There’s no loyalty in contracting, it’s just business. So start by pushing back, and adopt a rate cut avoidance strategy.
This means getting online and checking what the market is like for what you do – how many contracts are advertised and what are they paying. Update your CV in line with which of your skills are more in demand, and start applying for roles that pay the same as or more than your pre-rate-cut rate. Get a contract in the bag and then tell the client or agency that you have considered your position and decided that you are not prepared to reduce your rate. This might actually persuade them to increase your rate to retain your skills.
But if you can’t match your pre-cut rate anywhere else, you could try suggesting that costs are cut in another way. Offer to work a few less days a month; you would stay on the same rate and could use the extra time to improve your skills and market worth. There might be underperforming contractors on your project who should simply be terminated, or an area of the contract may be a ‘luxury’ that your client doesn’t really need to invest in.
I’ve seen plenty of examples when a single contractor has adopted a rate cut avoidance strategy and, as a result, has been the only contractor on a team not to suffer a rate cut. I’ve personally negotiated rises of 33% in circumstance when “there are no rises”. If the cost of you leaving a project will cost your client more than the saving the client would make by cutting your rate, then there is every chance they won’t go through with the cut.
We’ve seen phases of rate reductions before, and many contractors who pushed back using the right strategies emerged from these periods on even better rates than they started on.
Just because rate cuts are giving you a feeling of déjà vu, it doesn’t mean you have to blindly accept them as inevitable. You’re a contractor, so negotiate a better deal!