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Contractor doctor: how can I renegotiate a smaller agency margin?

Dear Doctor,

I am currently on a low rate compared to the market and have discovered from the client that the agency mark up is high at 28% - bad news!.

Firstly, are there any legal implications if they find out that I know what margin they are charging?

Also, could I perhaps switch agencies to get a better rate, and would this be legal?

I'm nearing the end of a 6 month contract which the client wants to renew. Relations with the client are very positive and they are encouraging me to get a better deal.

Should I wait till the end of my contract before negotiating or changing agency?

kind regards

Peter

Contractor Doctor says:

Thanks for your question.

The agency margin of 28% is certainly high. Agency margins range from 10% to 40%, with 15% being most common. Large markups of over 20% tend to be applied to consultants working via other large consultancies, or for very short term highly paid work. For you, 28% indicates that you have sold yourself short.

From a legal standpoint there are no implications due to you finding out this information. The agent will be disappointed with their client, but that's all - they want to keep good relations with the people who pay them.

The agent is the only party in the transaction who is interested in a high margin. Contractors certainly don't want it, and clients want their contractors to be happy and not leave due to an over zealous agent. Large companies often have fixed margins they agree with agencies to avoid this situation.

Many first time contractors unfortunately suffer from a lack of sales experience, and sell their product (i.e. themselves) for less than it is worth. If, after negotiating an initial rate you find yourself in this position, you only have yourself to blame, sorry. The agent will be rubbing their hands with glee. There is certainly nothing legal you can do about coming out less favourably in a commercial business transaction.

If your existing agency won't play ball on the rate, which is unlikely, then you could consider trying to switch agencies, but this will be difficult and you will need to take legal advice.

There will probably be a restrictive covenant clause in your contract that states that you can't work for the same client for a minimum period after leaving them.

This clause isn't enforceable if you opted out of the agency regulations when you signed the first contract, which is again unlikely. If you haven't opted out then you could still legally make the switch happen, since the clause might not be enforceable by law - they aren't allowed to stop you from working, but this does not always mean you can circumvent the agent claiming a restraint of trade. Again though, this will be messy and you should take legal advice.

To stress again though, your agent is not at fault here. Your initial negotiation could have been much better. Switching agencies is not a renegotiation tactic that any contractors generally use. What tends to happen is everyone learns this lesson hopefully once.

To strengthen your bargaining position you need to first of all line up another contract that is more favourable, then simply say to the agent that you want a rise to £X for the role, otherwise you will not be renewing. Don't tell them what your alternative is, otherwise they will come in lower. Ask the client to put pressure on them. And tell the client that unless the agent plays ball then you will be leaving. That's your best play here.

Going forward, your best bet would be to enhance your sales and negotiation skills, then prepare and negotiate a good contract renewal every time.

Good luck.

Contractor Doctor

Updated: Monday, January 15, 2018

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