Should a contractor charge a higher hourly rate for a shorter term contract? Rules of thumb?

Question

I was approached some time back by a recruiter who had a 1-week contract opportunity. I'm guessing the client anticipated a quick fix to a single problem. Anyway, the rate quoted by the recruiter was low, even for a typical length contract for that kind of work. I declined to proceed on the basis of being unavailable at the time and didn't mention the lowball rate.

Still, it got me thinking: Shouldn't the hourly rate increased for a shorter-term contract? What are the rationalizations for doing so (to explain it to the recruiter and/or client), and is there a rule of thumb for how much more to charge based on how short a contract is?

Answer 1

I do charge a higher rate for shorter work. This is especially true for contracts. I figure I have more non-billables going into shorter work. In my experience this is fairly typical of consulting businesses as well. Other firms I have co-worked projects with have offered similar steep discounts for longer-term projects of up to 50% as well. While consulting is not quite the same as contracting, a consulting perspective here can be of help in understanding what some of the issues are.

The way this is typically done however is not raising the rate for short-term contracts but offering a long-term discount. Ideally your initial asking rate should be what you would charge for a one-day contract, and you can offer discounts for longer projects. For longer projects I have been known to offer up to 50% discounts (meaning my initial hourly rate can be as much as double what I would charge for a long-term big project). This way long-term customers are happy because they got a discount, while short-term customers do not feel like you just jacked up your rates.

Edit in reply to Luke's excellent points below

It is true that dependability of income is important but it isn't the only thing to consider. There are also a lot of expenses you have to pay to get a contract rolling. These may include reviewing a contract with a lawyer if you want to, but also things you have less discretion on such as showing up for interviews and other parts of the "sales process."

You can't charge for any of that, and so if you have a lot of small gigs that is far less helpful than if you have a few big ones. Optimal is probably a steady flow of low-grade long-term contracts where you can work a different contract each day, and when one ends, you still have some availability to do sales channel work without being out of income.

Another point is that you have a lot more negotiating power if you are not entirely relying on recruiters. If you have other customers already, then you can more easily

Answer 2

I agree about the higher rates like @ChrisTravers mentions, but just to add:

You are asking for more money because it's not a longer contract, meaning you may not necessarily have work afterwards. Yes, it's a "personal issue", but still something to be considered. With longer contracts, you usually can accept charging less because you have some reliability there. If you have a contract for 6 months, you know you'll have 6 months of work and pay ahead for you. With a short term contract, you may not necessarily have that much work available, but you still need to be compensated.

This is not to say you should charge extreme amounts of money, although certain profesionals can; what I'm saying is that you need to be able to live off of the contracts you do have. Most recruiters that I have dealt with already put in a bid for a contract to another party, and are simply finding the lowest-cost way of completing the contract, while they still turn a profit. One company I worked for was notorious for this, and even tried offering me lower then minimum wage for my province on one contract; needless to say, I told them to take a hike after that.

As for explaining to the recruiter: I would mention that you have certain costs that need to be offset with the time. You are basically being paid for your time, and that needs to show it. If your normal rate is $50, and that covers all your expenses with just a couple jobs, then you are free to maybe negotiate a little lower, depending on your other projects. If they are low-balling you for doing your $50/hr work at $20/hr, that is a major slap in the face. Explain that when you do projects, you take the time to ensure the job is done right, and that you are being paid for your time/expertise. Recruiters are trained to get the lowest possible cost for a project, and as long as you aren't desperate, do not go lower then your absolute minimum acceptable rate, in order to keep money flowing INTO your pocket

Answer 3

Of course you should charge more. Even if you are working on very short contracts, looking for new contract takes time.

If you work on 6-month contract, even if you have then 1 month pause, your money flow is active in 6/7 of your time. If you search for 1-week contract for another week, your money flow is active only a half of time. And your expenses are the same. You must pay rent, social insurance, health insurance, food etc.

From the client's point of view: if they want to hire a consultant for hours, the big companies are charging about $200 an hour. This is how much you need to pay for the possibility to take some extra people for a few days only.