As seasoned contractors are aware, there are a common set of sales phrases and sales tactics that sales agents use to try and beat the contractor down on contract rate in order to then maximise their own return.
We explain here how not to fall into some classic negotiation traps where you then end up not getting paid as much as you could.
But, just be aware, very many contractors learn the hard way the first time they negotiate and discover they have undersold themselves. It's a hard lesson to learn, and an expensive one, but after a few contracts you will get better at it - especially if you read all of our guides on how to effectively negotiate with agencies and clients.
This guide deals with the classic question asked by agents: “What is the lowest rate you will accept?”
You should never tell the agent a lowest rate, because they will try to decrease you further, and explained below are some simple negotiation tactics you can use to circumvent this very basic sales tactic.
What is an agency margin?
The gap between what the agency pay you and what they charge the client for your services is called the 'margin'. And recruiters will want to maximise this - because that's how they earn more money. That's simply how the recruitment market works.
Unfortunately, first time contractors have little, if any, knowledge of professional sales and negotiation and often wrongly feel “hard done by” when they discover at a later stage that their agent is receiving a very large margin compared to the average - which is 10% to 20%.
“Hard done by” is certainly the wrong set of words to describe the contractor who has entered the market and sold their goods, themselves, below market rate.
Agency asks you - 'What is your lowest rate?'
After sending a CV application off an initial telephone conversation with the client can often go like this:
Agent: “What rate are you looking for?”
Contractor: “£400 per day.”
Agent: ‘What is the lowest rate you will accept?’
Contractor: “I’d probably go to £350”.
Agent: 'Wow, that's quite high, I'm not sure I can get you that, would you consider £300?'
Contractor: 'Maybe, but I really want £400'
Agent: 'I'll see what I can do for you and get you the best rate I can, for you.'
The outcome: The contractor gets offered £300 per day, or even less! Never, ever £400. What ever the agent charges the client over £300, they will keep.
The motivations of the agent
The agent is simply trying to beat you down on rate to increase their margin. They do not get paid by you, they get paid by their firm, and their job is to get the maximum margin they can. That's how the market works. They are not always acting in your best interests.
So, they are establishing the minimum you will go to and will either get you to commit to that rate, or perhaps even try and beat you down further.
Giving a lowest rate is a negotiate error - here's why
Some contractors, particularly first timers fall for this basic of all sales strategies. Seasoned contractors don’t.
Think of it a bit like buying a second hand car:
Owner: “What is the most you will pay for the car?”
You: “I think it is worth £3000, but I would pay £3,500 because I really like it and am having trouble finding one just like it!!”.
Owner: “It’s yours for £3,750. Interested?”
You can see how ridiculous this scenario is, but it is exactly the same as a contractor saying something like “I’m looking for £400 per day but will accept £350”.
Agents get paid for the margin they make on selling their product, which is you the contractor.
You need to make sure you know what you are worth and negotiate well to ensure you maximise your return from the client, which means minimising the margin the agent receives.
Let’s look at some alternative responses
What can you do to increase your rate and negotiate well?
Alternative response 1 - just stand firm on rate
Agent: “What rate are you looking for?”
Contractor: “£400 per day.”
Agent: ‘What is the lowest rate you will accept?’
Contractor: “£400 is the market rate and I’m confident I will get it”.
Possible follow ups:
Agent: “I don’t think the client will pay that much?”
Contractor: “How much have they budgeted for?”
Agent: “£350.”
Contractor: “That’s a shame. Market rate is £400. You might find it hard to find someone willing to do the role for that amount. I’d be perfect for it and would shine in the interview. Give me a call if they change their mind.”
Bear in mind that in this scenario you need to be sure that the market rate is £400.
The agent will continue their calls until they can find someone who they can earn high margin from. If they don’t find anyone you will get called.
Alternative response 2 - reverse the question, and stand firm on rate
Agent: “What rate are you looking for?”
Contractor: “I’m new to this. How much are they willing to pay?”
(A seasoned sales agent might spot this sales tactic a mile away, and have a chuckle - but don't worry, it's all part of the negotiation game and they are acknowledging your sales bravado! )
Agent: ‘I could get you in for £350.’
Contractor: “That seems low to what others have told me. I’ll give it a miss.”
Agent: “What have others told you.”
Contractor: “£400 to £450”.
Agent: “I doubt they will pay that much but I’ll get back to you if they can”
The agent will continue their calls until they can find someone who they can earn high margin from. If they don’t find anyone you will get called.
Alternative response 3 - stand firm on rate, but say you are still interested
Agent: “What rate are you looking for?”
Contractor: “£400 per day.”
Agent: ‘What is the lowest rate you will accept?’
Contractor: “I’m after £400 and I’m sure I’ll get it, but if the client doesn’t manage to find anyone in four weeks and I’m still available then give me a call.”.
[Bear in mind that on £400 per day you earn as much in 40 weeks as you would in 44 weeks on £350 per day – hence the reason to wait a while and seek the higher rate.]
If the agent calls you back then you have the upper hand in the negotiation, and you can stand firm on rate and not have to compromise too much. And if you have other offers at £400 then the rate has now gone up to £425, right?
Alternative response 3 - get to the interview
Agent: What rate are you lookin for?"
Contractor: “£400 per day.”
Agent: ‘What is the lowest rate you will accept?’
Contractor: “£400 per day.”
Agent: 'The client can only pay up to £350 at the most, would you accept it?'
Contractor: 'I'd consider it, it depends on how the interview goes and whether I really wanted to work with them. And it also depends on what other offers come in from things I'm pursuing - of which there are none yet by the way. I suggest we proceed to interview stage and go from there.'
Agent: 'The thing is, the most they will pay is £350, so I don't want to put you in at that rate and then you say £400 afterwards.'
Contractor: That's fair enough. I'd be happy to have a chat with them on that basis, but please let them know that they are asking for a below market rate.'
Agent: 'Ok, I'll put you forward'
You then go to interview, and are hopefully offered the position. And then you need to decide what you want to do. Options are:
- tell the agent you love the work, but that you have alternatives at £400 per day so won't accept £350 - and see what happens, or
- Take the contract for a few months at £350, and then try and increase the rate to £400 at renewal time. The agent will try and lock you in for 12 months if they think they are getting a great margin. Don't fall for that one!
- Take the contract at £350 because you know you won't be able to line anything else up within the next four weeks.
Final contract rate negotiation tips
Sales negotiation is a game. You just need to portray yourself as the greatest candidate of all time, and know your rate and stick to it. The client pays the same rate regardless of how much you charge, the rest of the margin goes into the agents pocket. That's how the game is played.
There will be some clients who pay less than the market rate, but this will be apparent in the quality of the contractors they attract. And if you play tennis with someone less able than you then your own game will eventually suffer. So aiming for higher rates which will not only result in increased income but also in much better experience.
As Alan Sugar once said on The Apprentice “Any fool can stand on the street all day and sell £10 notes for £8.” Don't sell yourself short.