Dr. Michael Bisconti
So how does one negotiate a rate? There are many theories on the subject but, in practice, there are some things that hold true across the board. For example, larger consulting firms with an established clientele tend to have more rigid policies. Start-up consulting firms are generally much more flexible. In addition, consulting firms almost never volunteer their client pay rates to consultants. Fundamentally, there are two questions that need to be answered.
IS THE CONSULTING FIRM CHARGING THE CLIENT A FAIR RATE?
If the consulting firm is not charging the client a fair rate, their business will eventually fail. In addition, the consulting firm’s rate IS THE CONSULTING FIRM’S BUSINESS. Consultants should not concern themselves with this aspect of the rate picture.
IS THE CONSULTANT GETTING PAID A FAIR RATE?
This is a harder question to answer. One well-known expert on this question informs us that your hourly rate should be equal to 1/1000th of what you would be paid yearly as a full-time employee. For example, if a full-time employee would be paid $80,000/yr., you should be paid $80/hr.
In actuality, the starting point for one’s thinking has to begin with a “philosophical question”: ARE PEOPLE BASICALLY FAIR OR BASICALLY UNFAIR? If you adopt the view that people are basically unfair, you are going to spend much of your life frustrated, angry, and ill. That alone tells us that it is better to believe that people are basically fair.
With this “fairness doctrine” influencing our thinking, the next question is: ARE CONSULTING FIRMS INFORMED ABOUT WHAT CONSTITUTES FAIR RATES? If they are not, their firms will eventually fail. Your reasonable assumption must be that consulting firms are informed about what constitutes fair rates.
So where does that leave us? We start with the reasonable assumption that consulting firms are both fair and informed regarding what constitutes fair, consultant rates. Well, there are a couple of other factors we need to consider – FUZZY LOGIC and THE GAMBIT.
In practice, all consulting firms have at least a minute degree of leeway when it comes to the rates they pay their consultants. PEOPLE ARE NOT STUPID (another good principle to live by). Recruiters are people. In the process of discussing an employment opportunity with a consultant, they form some idea of the consultant’s ability. This idea, this assessment, influences them as to whether they will pay the consultant a little less or a little more. The main point here is that all of these financial machinations are going on in the mind of the recruiter. This means they are out of the hands of the consultant. Therefore, consultants should leave the recruiter’s machinations to the recruiter.
A “gambit” is “a chess opening in which a player risks one or more minor pieces to gain an advantage in position.” A recruiter usually asks “What rate are you looking for?” Whether they know it or not, they are making a gambit. If the consultant gives a rate that is too low, the recruiter can make more money for his firm. The risk for the recruiter is that the consultant will quote a rate that is too high. In that case, the recruiter will either make less money for his firm (a negative) or have to tell the consultant that their rate is too high (another negative).
What can the consultant do? Prevent the gambit. Don’t answer the question. Simply respond with:
What is your best rate for this contract?
If the recruiter does anything but answer this question or promise to answer this question, THEIR TRAINING IS INCOMPLETE. You should look for another recruiter.
The simple principles presented in this article are enough to handle 90% of the situations that you may face. The other 10% require more sophistication. You may learn how to deal with these remaining situations on the following, password-protected pages: THE MIDDLE GAME and THE ENDGAME.