After freelancers were able to push through a even higher hourly rate over the years, these generally stagnated since the beginning of the pandemic in 2020. While large sections of freelancers are suffering from the economic consequences of the pandemic, the outlook for IT freelancers can be seen as far more positive. IT workers are benefiting from the boom in digitization.
In one of our last posts, we already pointed out which trends and technologies are important for freelancers in this context.
In this article, you will find five simple but very effective tricks and behaviors to confidently go into negotiations on your hourly rate and successfully conclude them.
The more prepared you are when you enter into a conversation with those responsible for a new contract, the greater the likelihood that you will be able to push through your own fee ideas. Information about the company and the upcoming project is essential and not only makes a positive impression on the other person, but also gives you more self-confidence. Ideally, you should also find out who exactly the interviewer is and inform yourself in advance via Xing, LinkedIn or other platforms. In addition, you can ask freelancers in your own network whether they have already worked for the client, what their experience has been and how much they have charged for their work.
Thorough preparation is therefore the be-all and end-all to shape the contract in a way that is in your best interest – because preparation is a signal of appreciation and interest.
Clarify Ideas in Advance
It is also important to clarify in advance what ideas your counterpart has about the desired cooperation. Negotiations often fail because the ideas of the contracting parties differ too much. For example, if a client is looking for a freelancer for 70€/hour, but the freelancer does not work for less than 130€ per hour, you will quickly realize that contract negotiations may be superfluous with such a discrepancy. Therefore, it makes sense to clarify before the conversation, or at least early on, whether the interests and ideas of both parties go in the same direction.
Do Not Justify Your Fee, Explain Your Perfomance
In a negotiation about your hourly rate, you are not selling your price, but the added value that you can deliver to a company. Therefore, make clear in advance what arguments and evidence you can use to demonstrate that your service is worth the price you are asking for it. Ideally, demonstrate your performance to your counterpart.
Also, ask previous clients if you can use them as references. Suggest that the person you are talking to ask how satisfied they were with you and your performance. Helpful are, among other things, references on your LinkedIn profile and other forms of credible and accurate assessment of your performance.
Ideally, no contract negotiations are necessary at all in your contract meeting; if the personal and professional aspects are in the foreground and both parties are convinced of each other, often only individual aspects need to be “smoothed out”.
Note: As soon as you start justifying your hourly rate demand, you let your counterpart take control of the conversation.
Recalculate Your Hourly Rate for Each Project
Freelancers must earn at least one and a half times as much as a salaried employee, only then can they provide themselves with sufficient social security and take into account any sick days and vacation days in their calculations. Principles like these should always be kept in mind when calculating your hourly rates.
Factors such as travel and accommodation costs, as well as the hours you spend traveling to and from your employer, must also be taken into account. Of course, these expenses will be lower if you work in a home office. Therefore, calculate these costs fairly for both sides.
The conditions of your project change from project to project, so you should also recalculate your hourly rate each time. As soon as you have made it clear to yourself which items make up the fee, you can give prospective clients more than just a bare figure. Ideally, you will be able to explain the components of your fee to your counterpart. This increases transparency, which benefits both you and your client.
Finally, you will gain experience after each project and improve in what you do. For this reason, you should take credit for your newly acquired skills, insofar as they are useful for the upcoming project.
Negotiate Hard But Cordially
Depending on who you have as a contact person – whether a representative of a recruitment agency, a buyer from your customer or a department manager – you must clearly communicate to your counterpart what your strengths are. Based on this, you have to start the negotiation. Both client representatives and staffing agencies must be interested in your performance, because ultimately they are responsible for justifying you as a freelancer to the client or the technical and IT departments. Therefore, follow the steps mentioned above and sell yourself at “market value”. Your interlocutor is usually not out to find the cheapest service provider, but the one that will bring the company the best and fastest to their goals.
In summary, both you and your counterpart are interested in concluding an arm’s length contract that is fair to both parties. For you, this means selling yourself well – so well that, in the end, you have no doubt about the accuracy of the payment. The more urgent a problem is for your negotiating partner, the more constructively he will negotiate with you. Conversely, if a problem is not a priority for him, he will enter the negotiations with a certain indifference. Therefore, before the conversation, think about how important it is for your negotiating partner – and yourself – that an agreement is reached.
If we recapitulate the strategies mentioned, two factors stand out. The first factor is preparation, because even before the upcoming negotiation of the hourly rate, it is imperative to inform yourself about your counterpart. Preparation is the foundation for the entire contract negotiation. The second factor and at the same time the most important principle of a negotiation is to never sell yourself short. Be aware of your capabilities and how you can help your client achieve their goals.
When it comes to negotiating successfully, most people think of strong arguments and clever rhetoric. They think about how to push through their own ideas, maybe even exceed expectations and leave the negotiating table as the winner in the end. Sounds good, but it’s wrong.
Negotiation professionals know: If you want to negotiate successfully, you have to reach a result that is satisfactory or even beneficial for all parties involved. It is important to achieve a win-win situation, and in doing so, it may be necessary to be willing to compromise.
What Do Freelancers Earn?
According to the project exchange and personnel platform freelancermap, the average hourly rates of freelancers in the D-A-CH region are around €96 net. Therefore, an eight-hour workday would result in a daily rate of approximately €770 net. However, upon closer examination, this amount is relativized. Unlike employees, freelancers have higher expenses and must consider additional cost factors besides their pure labor costs.
For example, they have to pay for their own social security contributions and provide for their own retirement. Additionally, they have to cover the costs for their workplace and equipment themselves. They also have to create additional reserves to bridge periods without orders.
Therefore, it is important not to view the hourly rate of freelancers in isolation but in connection with their expenses and risks. Although the hourly rates may appear high at first glance, freelancers have to work hard and plan carefully to be successful.
Freelancer And Taxes
When calculating your hourly rate as a freelancer or self-employed individual, you must consider not only your business expenses and insurance costs, but also your tax payments. The amount of these payments depends on your profit. It is important to note that factors such as marital status and tax bracket, as well as special expenses and exemptions, also play an important role.
The higher your profit, the higher your tax burden will be. It is crucial to know your applicable tax bracket and to include any exemptions and special expenses in your calculation. Responsible financial planning is essential for freelancers and self-employed individuals to avoid unpleasant surprises at the end of the year.
An Alternative For Freelancers: Fixed Prices For Projects
Every freelancer has a different work pace. That’s why the hourly rate is not always the best option for paying freelancers. An alternative option is to agree on a flat rate for the entire project.
Especially with a high work pace, this type of payment can help you earn more in a shorter amount of time. With this model, the price is based on the end product, which is ultimately what the clients are most interested in.
Of course, there are important factors to consider here as well. First, the scope of the project must be determined. It must be figured out how much work needs to be put into the project and how much time will be needed for it.
Assuming you are a web designer. A client wants to have a website created with many functions. Programming these functions may be a simple and automated process that doesn’t take much of your time. Nevertheless, you should include this work in your calculation because it is part of your service that belongs to the order. The price for this step is therefore not necessarily based on your working time, but on your know-how.
What Is the Current Situation?
In the fall of 2020, the incidence of infection with the coronavirus picked up noticeably and has recently accelerated again. As a result, Germany’s economic recovery, originally expected for spring 2021, has been delayed in the course of the year. According to the forecast of the Ifo Institute, GDP will grow by 3.7% this year and by 3.2% next year. Looking at the combined economic output for the years 2020 to 2022, the costs of the Corona crisis amount to EUR 405 billion according to this forecast.
It is clear that these costs will have an impact on the digitization of companies and may also be felt in the hourly rates of IT freelancers. It is therefore still unclear whether and, if so, when freelancers will be able to push through higher hourly rate demands again.
Do you have further questions about contract negotiations or generally about the topic of contract formation with freelancers or companies? We will be happy to help you and answer them individually. We’ll talk to you anytime about current challenges in IT, your next project, ElevateX and all your questions. Please book a time slot, and we will call you for free.