Mark Pratt gives the insight and actual usable formula, nicely packaged in a spreadsheet, for how to maximise your contract income in relation to day rate choices.

When I was younger, so much younger than today.

I never really understood the mechanics of day rate pay.

But now those days are gone, now I know why Nanna used to push

That fine old saying “a bird in hand’s worth two int’ bush”

With apologies to my fellow scousers for butchering their much loved classic, if you are in the business of day rate contracting then I’m about to reveal to you some information that may quite literally change the way you think about how you position yourself in the market, with a particular reference to the rather sensitive topic of day rate.

Over the last 15 years, I’ve worked with A LOT of day rate contractors. Project Managers, Business Analysts, Developers, Testers, Programme Directors, Programme Managers, Architects - the list goes on. I’ve also been out for a pint or two with A LOT of these people, and I’ve found mild lubrication of an alcoholic beverage to grease the wheels of the topic of day rate which most would typically not discuss in a professional context.

This is of course, not surprising. What is surprising to me, is that almost all of these highly intelligent, professional and generally financially comfortable group of people, mostly display quite limited commercial acumen in relation to maximising the earnings of their Limited Company, and thus their own earnings. Moreover, I’ve found that most of the time, this is driven by their limbic brained emotional inner chimp, rather than their eminently more logical, reasonable and financially astute prefrontal cortex human brain. (If you’ve no idea what I’m blithering on about here, read the Chimp Paradox by Steve Peters and prepare to have your world transformed!)

Best explained by way of example, let me introduce to you Colin Contractor.

Colin is a great Project Manager. He’s been “in the game” for a few years, earning around £500 a day for his excellent skills and is generally a very sensible, detail-oriented, clever chap.

Colin has done an excellent job for his current client, they’re very happy with him and have renewed his contract a few times, increasing his rate by 10% along the way, ending up on £550 per day. However, now the client has completed the projects they had Colin working on, and with no further need of his services have wished him well on his future journey. Buoyed by his success and experience, Colin decides his time is now worth £600 a day.

As a diligent and responsible guy, Colin updates his CV straight away and starts getting in contact with his network and applying for roles on job boards to find some new work.

Within a few days, Colin gets an email from a new client, really keen to speak to him about a juicy new opportunity, to deliver a long term contract, paying £500 a day, maybe £525 for the right candidate.

Colin is flabbergasted by the bare-faced cheek of such a derisory offer and declines off hand.

Colin spends the next seven weeks watching Jeremy Kyle in his underpants, and eventually lands a gig with a client willing to pay £600 a day.

How long do you think it takes Colin to “break even” and turn over more in his Limited Company on the £600 a day contract vs. immediately accepting the £525 contract?

The answer is 14 months (280 billable days to be precise).

Now, I know there are many, many variables to consider here: role and responsibilities, length of contract, location etc. But for the purpose of this article, let’s leave these to one side (I’ll waffle on about these things in a future article). Let’s concentrate on pure cold hard cash.

You see, Colin, despite his intelligence, wasn’t listening in Maths class when his teacher explained the concept of ‘Relative Velocity’. Or in simple terms, the age old problem of “If a truck leaves town travelling at 50mph heading for a town 300 miles away, and a Sports Car leaves the same town 2 hours later travelling at 70mph aiming for the same location, who gets there first?”. Or even earlier in Nursery in the Tortoise and the Hare fable. (The answer is of course the Tortoise and the Truck won). You can insert whatever metaphor you like here, the outcome is the same.

Luckily for you, I was a right little swot, listening intently and absorbing everything like a sponge.

The fact is that our old friend Mathematics can help us solve this problem. I’ll briefly bore you with the details. If:

d = Your desired day rate

a = A rate you’ve actually been offered, or might consider

t = Time it takes for 'd' to be a better financial outcome

p = The time passed since you started a contract on rate 'a'

Then

t = { pa / ( d - a) } + p

In our Colin example above:

t = { 35 days x £525 / ( £600 - £525) } + 35 days

t = { £18,375 / £75 } + 35 days

t = 280 days

Based on an average of 20 billable days per month, that’s 14 months .. wowzers!

Now, because I’m a nice guy who doesn't wish to see you tie yourself up in algebraic knots, I’ve put together a spreadsheet to do all this for you.

It calculates:

  • The difference in potential earnings between any two day rates over 12 months
  • The time to “break even” between two day rates
  • The difference between two day rates after one year, in total and by month

To get access, please contact me on LinkedIn and leave me a little note to let me know you’d like a copy. I'd be more than happy to share it with you.

Until next time, my friends!

About the author

 

100

Mark Pratt

Director, Hydrogen Consulting Solutions

Mark is the leading authority on successful Project Management. He does this by sharing his coal-face knowledge on LinkedIn and his Blog. If you'd like to engage his services, Mark is Director of Hydrogen Consulting Solutions and can be contacted here. Mark can particularly help with outcome based engagements to ensure his clients pay for actual delivery rather than the number of days spent!


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