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Dec 17, 2013 12:00:00 AM · by David Kushan

Why Your Rate Will Drop During a Recession - and Are You Prepared for It?

I tell contractors that when the next recession comes around (and it will), the rate they’re able to charge for their work will likely drop. Most of them understand why. During a recession, there’s less work. When there’s less work (i.e. less demand) with the same number of consultants looking for projects (i.e. same supply), contractors are likely to see the amount they can charge go down.

If only it were that simple. For existing consultants, it’s actually is worse than I just stated. Demand goes down, but supply actually goes up. That’s right, more people enter the consulting/contracting market.

When the next recession hits, people with skill sets similar to yours will be laid off from their full-time jobs. Although these people didn’t get into consulting due to the travel required, they will now begin to think about things differently, as they’re without a regular paycheck and there are no immediate jobs in their local market. Some of them will turn to consulting, thinking that it’s only for the short term — a way to maintain some income while they continue to look for a new full-time position.

But here’s where things become impacted even more.

As a tenured consultant, let’s say you’ve been earning $85/hr. The person doing your job at a hospital may be earning $100,000 base salary with benefits. In other words, they’re making the equivalent of $55/hr.

These unemployed full-time employees are not aware of the rates that contractors can get.  Even when the do find out, they don’t care. They care about getting an hourly rate and benefits equivalent to the income they recently lost. So, when these people make themselves available for consulting engagements, they’re making themselves available at a rate that’s 20-40% lower then what the pre-recession market was paying. 

As an hourly contractor, the problem for you is that when you’re presented to whatever new projects you can find, your profile will likely be compared to that of people who’re asking for significantly less money than you are.

So, overall, you understand that you may have to take a lower rate. But what are some of the things you can do today to be as prepared as possible for when this time comes? Take a few minutes and read the post, Use Your Time Providing Services to Secure Your Future, to make sure that you position yourself as best you can.

General, Consulting, Career Planning, David Kushan

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