How to negotiate your fee as a consultant: Figuring out what matters

What your daily rate means

What should you consider when negotiating your consultant fee?

I’ve touched on this topic in a previous post: Money Matters: Making a Living as an International Development Consultant. Now we’re going dig a little deeper and explore what lies behind the figure you arrive at. It turns out the answer is—quite a bit.

First of all, negotiating is about more than getting as much as you can. It isn’t really even about getting what (you think) you’re worth. Many factors come into play and it is worth spending a little time thinking them through. After you’ve signed the contract, assuming your negotiations land you at that point, you want to feel good about what you’ve agreed to.

When it comes to work, money isn’t everything. It’s one element among many that gives satisfaction. Why else would people volunteer, or work for low pay at organizations they believe in? In other words, when you are negotiating, the dollar amount (or whatever currency you’re getting paid in) is not the only thing you should be thinking about.

In this blog post I am going to suggest 12 things to consider when negotiating your rate. The goal is to help you be more conscious of what exactly you are negotiating about, as well as more strategic.

This post is longer than normal, so if you don’t have the time or inclination to read on, here are the main messages: Know thyself. Think about what the number (your daily rate) means. Decide what matters to you.

The scenario

To make it more realistic, let’s build the discussion around a typical scenario.

I’m going to posit that you are a consultant working in international development, although some of what follows applies more broadly.

The basis of your remuneration is your daily rate, because you undertake short-term assignments, rather than full-time, salaried work. The daily rate and number of contract days are normally the basis of short-term contracts in this field.

You have entered into discussions with an organization over a short-term assignment. Let’s call them Acme & Partners International. They are a consulting firm based in Arlington, VA and they submit proposals to organizations like the World Bank, the UN, and USAID, and they subcontract consultants like you.

They found your profile on Devex.com or assortis.com, they’ve checked out your references and contacted you. You’ve had a few exchanges. It turns out that, yes, you are available and there is mutual interest in having you on the project. Your role and responsibilities have been defined. You’re expected to spend part of your time working from home and part of your time onsite, i.e. overseas. So far so good.

Because you haven’t worked for Acme before, you need to agree on remuneration. The subject might come up as part of their initial inquiry as to your qualifications, interest, and/or availability, or it might come up later.

Like most organizations, Acme has a standard range — and upper limit — for the daily rate they are willing to offer their subcontractors, i.e. independent consultants like you. It will be based on some combination of their fee structure or guidelines, what they pay similar consultants, and the demand for your services.

Now that we’ve got the preliminaries out of the way, what factors should you take into consideration when negotiating your rate?

1. Any previous assignments may be used as reference points

If you have previous consulting work experience, you will probably have received different fees, and thus established a range. For the rest of the discussion, we’ll think in terms of your range. That range can be wide or narrow.

If you are new to the field of consulting and have not yet had an assignment based on your daily rate, ask around for advice. Ideally, ask another consultant. If you’ve been employed full-time somewhere, do not divide your salary by 250 (the approximate number of working days in a year) to arrive at your rate.  Why? You will arrive at a figure which is too low, because the full-time nature of salaried work, the benefits, and the overhead covered by the employer, do not generally apply to independent consulting work. 

Especially as a beginning consultant, you will probably not be working a full 250 days. It took me about three years working as a consultant before I was able to corral enough assignments to keep me more or less busy year-round. And, as noted, you need to take into account the fact that you will not be getting benefits — health insurance, vacation, sick days, etc. — with this rate.

Also, bear in mind your personal overhead — i.e. the time you spend on activities associated with your work for which you cannot bill a client. These activities include things like updating your CV, applying for assignments or responding to inquiries, planning and organizing your schedule, managing your taxes and accounts, developing your technical capacity, maintaining or building up your professional network, etc.

Unless you’re a superstar in your field or your skills are hard to find, you will not be able to unilaterally declare your rate. The vast majority of us live and function in a world of constraints. That requires self-knowledge and intelligent negotiating.

Ideally, the rate you eventually agree on with Acme will be toward the upper end of your own range. However, there are a number of reasons you may accept a rate that is toward the low end of your range, or even below it. Read on.

2. How much do I want or need this assignment?

Have you been trying to get work with Acme (or the UN or the World Bank) for a long time, and this seems like your chance? Have you always wanted to go to South Africa, and this is your opportunity? Have you been trying to get experience on refugee issues?

The more attractive the assignment is, the more willing you may be to agree to a rate that is toward the bottom of your range. On the other hand, if you’re feeling lukewarm about the assignment, think about how much they’d have to pay you (and under what conditions) for you to say “yes.” In other words, anything below that — you’d be willing to walk away, no regrets.

3. Are there any opportunity costs?

What if you accept this three-month assignment — which perhaps you’re sort of interested in, since you need the money, but you’re not enthused by — and then, a month from now a much better one comes along? It might pay better, or it might be more aligned with your skills or goals, or it might just be more interesting. Will you have to forgo the better opportunity because you’ve committed to Acme already?  If yes, then that’s your opportunity cost.

The higher your opportunity cost (i.e. the chances of missing out on something better) the less willing you should be to accept a lower rate. Of course, you may be able to say yes to both, and fit them both into your schedule.

I tend to have multiple assignments going on at once. Juggling is part of the deal. Here’s a bonus trade secret — it is very common for projects to start later than planned. If the whole discussion so far has been about starting the work on September 1, don’t be surprised if it actually starts in October.

4. Will this assignment lead to other opportunities?

Some organizations are difficult to break into. Maybe this Acme contract is with USAID, whom you’ve always wanted to work for — either directly or indirectly. USAID, like other organizations, likes it when consultants have previous USAID experience.

If you think this will indeed open up other doors, then you may not feel like negotiating too hard. But be a bit careful here — see Consideration #5.

5. Will this rate determine my rate for all future work with this company or organization?

The answer to that is usually yes. You won’t lock yourself in, but future increases will be based on this first contract. We can call this “salary path dependency.” If you start too low, you potentially are giving up a lot of income down the line. It’s true that $20 per day may not seem like a substantial amount on a 50-day contract. However, if you end up working off and on for Acme over the next 10 years, for an average of 50 days per year, that’s 500 days, i.e. equivalent to $10,000.

A low daily rate at Acme won’t necessarily depress your ability to get a better daily rate elsewhere. Most organizations won’t generally ask you about your previous rates but some might. (USAID is the exception, requiring the so-called bio-data form which asks you to list your salary or rate for the past three years — but note that in some states asking about previous salaries is now illegal.)  However, a good daily rate can be used as leverage in negotiations with other organizations.

6. Are there other benefits?

Maybe the daily rate is only part of a package. For example, the Asian Development Bank typically includes a fairly generous lump sum per diem amount for every day of onsite work in its contracts. The per diem includes both accommodation and ‘meals and incidentals’ (most organizations provide a per diem only for meals and incidentals), so it can be substantial. If you don’t splurge by staying at a luxury hotel and eating at fancy restaurants, you can come out ahead. This might lead you to accept a lower rate.

Another benefit might be that this particular assignment includes a lot of flexibility — in terms of when and where and how the work is done. If that is important to you, factor that into your thinking. 

7. Are there any creative solutions lying around?

Sometimes managers may be happy to pay you more, but they have to work within their organization’s fee structure, which maybe doesn’t align with your range. The budget is there, and both the manager and you want to move forward.

In such a case, sometimes more days can be added to your contract, effectively increasing the total amount while not exceeding fee guidelines. The outcome might be that, instead of the initially mooted 20-day contract you get a 25-day contract.

Another option is to enter into a lump sum contract, with no reference to any daily rate at all. A lump sum contract refers only to a total amount, and does not break out expenses for travel, accommodation or other items, which you must cover out of the total sum. You are not required to submit receipts. With a lump sum contract you can avoid being constrained by a low daily rate, and work the number of days that is appropriate to the total contract amount, taking into account expenses. Lump sum contracts are not very common, however, in the international development field.

8. Do I have to pay taxes?

Because Acme is a private company, the answer is yes. However, at some organizations, such as the IMF and World Bank, international hires do not pay taxes, only U.S. citizens do. That means U.S. citizens need to try and ensure their daily rates are about 25-30% above what their fellow international consultant rates are.

If you are a U.S. citizen and are earning the same amount as an international hire, you are effectively paying a tax penalty, because, come next April, you will owe a cut of your income to Uncle Sam, while they will not. In theory, this would put U.S. consultants at a competitive disadvantage. However, as a rule, I have not found this to be the case. Hiring managers tend to have budgets that are elastic enough to enable them to focus on qualifications.

9. Do I want to help this organization out?

Let’s say you really like Acme and the work they are doing, because they’re a small outfit, doing incredibly meaningful work to help _______ [fill in the blank with your favorite cause]. Maybe they simply don’t have very much budget for the work they’re asking you to do.

In this case, you may be happy to charge them less than your normal rate or range. That’s absolutely fine. However, I suggest stating up front that you are giving them a ‘discount’, so that this doesn’t set a precedent. Thus, if you normally would be asking for x, then charge them 50% of that. That way, your standard daily rate has not gone down, you have simply given this particular organization a one-time rebate.

There are some assistance programs that rely on pro-bono work. They recruit highly skilled senior specialists in a particular field to work pro bono, i.e. for no fee at all. These might be, for example, contract lawyers, horticulture specialists or infectious disease specialists whose day job is academia or at a government agency. The program only pays for their travel and expenses.

I’ve even heard that work done pro bono can exceed the quality of paid consultants. The money motivation is just not there; they’re doing it because they enjoy solving problems, engaging with counterparts abroad, and making a difference.

10. Is the marginal difference important to me?

It could be that the marginal difference of a higher rate isn’t meaningful to you. Maybe you don’t even need the extra income.

For example, you’re approaching the end of your career and the extra income that a 10% higher rate would bring just doesn’t make a difference. Or maybe you have reached your annual income target, if you have one. This also highlights the fact that at different phases in your career different considerations come into play.

Likewise, the pro bono assignments described above may be more accepted by professionals who have the income or accrued assets to the extent that they are willing to work (occasionally) for free.    

11. Should I always negotiate?

Yes (while bearing in mind the previous considerations).

12. Won’t negotiating make me seem difficult, or greedy?

No, it won’t. Negotiating, if conducted in a reasonable way, is considered normal and is expected. It may also be as simple as a few emails exchanging offers and counter-offers.

Keep the tone pleasant, be reasonable and make a good argument. The organization may or may not be able to meet your request, but they won’t hold it against you that you asked for more. There is a side-benefit to the negotiation process: the back and forth over daily rates and other aspects of the contract gives both you and Acme a chance to get to know one another better before making a commitment. And that’s always a good thing.

Good luck!

Photo credit: Frank Liebmann, Pixabay