Skip to main content

5 tips for contract negotiation

Tom Sweeney

Tom Sweeney | Marketing Executive

Wednesday 4th Aug, 2021

As a limited company or umbrella company contractor, being able to negotiate your contracts effectively is an essential skill. The aim of the game is simple, you are trying to get the highest possible contract rate. However, with that being said it’s not quite as easy as it sounds! The challenge of course is being able to sell yourself and secure contracts at competitive rates.

In general, contractors tend to see higher pay rates than that of permanent staff, much of which is due to the contractor having a specific set of skills that the company is in need of utilising. Therefore, as an umbrella company or limited company contractor, it's always worthwhile polishing up on your negotiation skills. So, here are our top 5 tips in the art of contract negotiation.


  1. Assess your value

    Your contract rate can dramatically vary depending not only on your skill set, but also on the industry you are operating in. If you have a niche skill set that clients are struggling to source you will find yourself with strong bargaining power, so don't be afraid to use it. Make your potential client aware that you would be willing to walk away should you not be offered a competitive level of pay. You should always go into the negotiation with high expectations and be willing to compromise, but remember to never undersell yourself.

    At the same time it is important to ensure you remain fair with your contract rates, if you overprice and under deliver, you could cause a lot of harm to your reputation and long term success.

  2. Keep up to date with industry rates

    In order to negotiate effectively, it important to know the current industry contract rates for your job title and skills set. If not you could fall victim to consultant contract rate estimations which could result reduced earnings on the contract. It’s important to remember that rates change over time and can vary depending on region so keep up to date. One of the best ways to seek industry averages is by asking other contractors operating in the same field as you, giving you an industry average benchmark.

  3. Stay ahead of industry trends

    As rates change over time, the same is true for systems, processes and technologies. As an umbrella company or limited company contractor it is essential you remain ahead of the game.

    Utilise seminars, training days and online training programs so that you continually add value to your skills set. Not only does this improve your ability to do your job better than other contractors but, when pitching to potential clients, your enhanced skills set and industry knowledge will give you greater leverage to negotiate higher rates.

  4. You don't need to say yes to everything

    When first starting out as a limited company or umbrella company contractor it can be easy to slip into the routine of accepting every contract you get offered, be it big or small, in order to maximise your overall take home pay.

    However, this may not always be the best solution for the long term. Working for well known, larger companies with bigger budgets can not only boost your professional image but could also lead to longer term contracts, which would give greater financial security and more take home pay in the long term.

  5. Estimate contract rates according to industry averages

    When negotiating contract rates it can be easy for contractors to set a standard rate and stick to it for numerous contracts. This is especially true when a contractor finds themselves taking on a new contract with the same company. However, you should remember that each contract should be reviewed in isolation and if the contract requires the use of a different skill set then the contract rate should also be revisited along with the new contract terms.

    Therefore, when negotiating get a rough estimate to the time, level of work and the skills set needed for each contract and individually quote for your client.

Remember following these simple but golden rules could result in higher take home pay. Always aim high for contract rates and be willing to comprise if the contract is valuable to you. Ensure that you are in a strong position if you are considering walking away should the contract rates not meet your expectations. Finally, don't hesitate when it comes to negotiating your contract renewals and remember to use your skills set and up to date industry knowledge as leverage.

Regardless of whether your contract falls inside or outside IR35, we have a service for you. For those contracts that fall inside IR35 why not use My Max, our award winning umbrella company. Alternatively, if your contract falls outside IR35 our expert accounts team are ready and waiting to ensure you work tax efficiently.

Related article - How to avoid gaps in between contracts

Working as an umbrella or limited company contractor can sometimes mean that you have gaps in between contracts so it's important to be proactive before your current assignment has ended to try and limit the amount of time you have free in between assignments.

That is why we at PayStream have outlined some top tips on how to avoid those unwanted gaps in between contracts.

View now
Back to the Top