One of the biggest hurdles for contractors, regardless of experience, is deciding between charging an hourly rate or a daily rate. On the one hand, hourly rates can be more financially beneficial, but on the other, daily rates make things streamlined and straightforward.
There is no particular gold standard for contractors to value their time and expertise, as both rates have their advantages and disadvantages. The only real constant is the need for contractors to do their own research, and weigh the available options’ pros and cons.
Read on for a guide on contractor rates, so that you can make this all-important decision better informed and improve your take home pay.
Research your industry
One of the core parts of making this decision is research. It goes without saying that industries can vary significantly from one another, with contract hire rates being one key difference. The price you end up charging will often dictate whether you charge an hourly or a daily rate, so it is vital to have a good idea.
To ensure your rate is reasonable for your sector, assess what the average hire rate is for contractors in your industry. Not only will this give you a good feel for what price is acceptable, but you will also be able to use this information to put yourself in a competitive position for securing work.
Also note that you could decide to charge a fixed rate. As opposed to hourly or daily rates where you charge for your time, a fixed rate is simply quoting for the job as a whole. It can sometimes be quite difficult to accurately assess how much time a contract will take and how much you should charge, so using this kind of rate might not be suitable for less experienced contractors.
Be careful not to mischarge
Doing research into your industry’s rates is invaluable, as without doing so, you risk quoting the wrong amount for your services. By quoting a low price, you might well find yourself with lots of work, but you risk selling yourself short. Competitive rates can be a great way for newer contractors to get started, however too low waste your time. Charging too much can have the opposite effect, with potential clients dismissing your quote at first glance.
While awareness of the average hire rates in your industry is undoubtedly a good thing, you should keep in mind your skill and experience level. Contractors that excel in their field are often worth the premium fee, so don’t think you must necessarily stick to the average rates if you can bring higher quality service to the table.
The pros and cons of an hourly rate vs. a daily rate
After doing the research into your industry, you should have a general idea of what you will charge. With this in mind, deciding upon an hourly rate vs. daily rate is the next step.
While only a rule of thumb, contractors looking to charge over £40 an hour are generally best suited to charging a daily rate, though do keep in mind that it isn’t always as simple as that.
True to the name, a daily rate will see you paid for a number of days, rather than a number of hours. This can be ideal for contractors looking for simplicity in pricing or prefer to have less pressure from a client mindful of their budget.
From a client’s perspective, a contractor charging a daily rate can be appealing as time is much more flexible. Should they need to ask for overtime, they can do so without worrying about a heftier bill at the end of the job. Additionally, a higher daily rate can be less psychologically off-putting for a prospective client, in contrast to a high hourly rate.
The main downside for daily rates is, unfortunately, the ease with which contractors can be taken advantage of under the system. As the price is for the day, there are instances where a contractor could be asked to put in unreasonable amounts of overtime. However, the easy fix for this is to charge an hourly rate, where you would at least be compensated should overtime be needed.
As it stands, hourly rates are the most common rate charged by contractors. They reduce the likelihood of being asked for extra hours, and increase earnings should they be required. If the work does need overtime, the manager would need to give the go-ahead, which means you won’t typically have to worry about last-minute additions to your workload.
Broadly speaking, hourly rates are the rate of choice as it is expressly clear what is expected from everyone involved. Provided the contractor sticks to the agreed time schedule, it is easy to form a good working relationship and breeze through the contract with few, if any, issues.
Which to choose?
There is no one size fits all answer to this question, as much as we would prefer otherwise, since it is almost entirely dependent on your situation.
Hourly rates can be ideal, as all parties know exactly what is expected from the beginning. Provided the time schedule is met, and progress is in line with what the client expects, using this rate can be fairly straightforward.
Conversely, a daily rate offers a good degree of simplicity, and lessens the time pressure faced under an hourly rate. Hourly rates are sometimes criticised as providing an incentive to work at a slower pace, which isn’t the case when charging a daily rate.
Ultimately, the decision between charging an hourly rate vs. a daily rate is best left to you, given how dependent it is on your situation and how you prefer to work. Provided you do your research and keep client preferences in mind, you will be able to choose the best fit for you and your business. Remember, you aren’t locked into a particular rate, you can always change from contract to contract as necessary.