Working as an Independent Contractor: Effective Contract Negotiations

Contract negotiation requires skill and preparation


An increasing number of men and women are looking to self-employment as a path toward success in business. High unemployment and a lack of available jobs has made “going it alone” an appealing alternative to traditional employment. An important distinction between self-employment and working for someone else is that as an Independent Contractor, you will sell a product or service instead of your time and labor. To do this effectively, it is important to develop effective contract negotiation skills.

A key to your success as an Independent Contractor will be your ability to negotiate for jobs or assignments in ways that benefit you. To accomplish this you must offer something your clients need in return. Former Boston Celtics coach and general manager Red Auerbach was renowned for giving other NBA teams what they wanted while getting the ideal players for his team. Microsoft founder Bill Gates created the largest personal fortune in the world with a shrewd ability to negotiate. A foundation for successful negotiations can be seen in their actions and summarized in three precepts:


1. Determine what your client truly needs. If you’re selling teddy bears to a toy store with twenty distributors for this product, you’re not meeting their needs. If only you can acquire that teddy bear or you sell it at cheaper prices or with a faster delivery, your chances of successfully negotiating will dramatically improve.

2. Place yourself in a position to solve your client’s problems. If you supply only 20% of the teddy bears the toy store needs, you might sell them some bears but you will not be their supplier of choice. If you can fulfill their needs completely, you will be much more attractive to work with.

3. Recognize the value of the product or service you’re providing. How crucial are teddy bear’s to that store’s business? If the store has advertised the sale of teddy bears and you are the only supplier, your product is essential to the toy store’s success and reputation. If your teddy bear is one among fifty other stuffed animals they sell, the value of your product is diminished, even if it is totally unique.

Teddy bears notwithstanding, when you fully understand these three points, you are prepared to negotiate with customers for your services.


Learn more about contracts and negotiations with materials from Amazon.com

The art of negotiation

Contract negotiation strategies are essential for the successful entrepreneur
Contract negotiation strategies are essential for the successful entrepreneur
Bill Gates was well known for his skillful negotiations
Bill Gates was well known for his skillful negotiations
Does your client truly need what you are offering?  Is the "teddy bear" vital to his business?
Does your client truly need what you are offering? Is the "teddy bear" vital to his business?
Make a list of what must is not negotiable, and what might be sacrificed while bargaining
Make a list of what must is not negotiable, and what might be sacrificed while bargaining
A successful contract is a win-win scenario
A successful contract is a win-win scenario
A contract negotiation should be based on respect
A contract negotiation should be based on respect
It is important to conduct yourself professionally at all times when negotiating contracts
It is important to conduct yourself professionally at all times when negotiating contracts
Resist psychological ploys aimed at making you fatigued, angry or uncomfortable.  You must stay strong to make the right deal
Resist psychological ploys aimed at making you fatigued, angry or uncomfortable. You must stay strong to make the right deal
If you do your job well, this will be the end result
If you do your job well, this will be the end result

Contract negotiation strategies


Contracts and agreements take many forms, based upon circumstances and details. If you are working with individuals, your contract will usually be a simple one; often it involves nothing more than a customer agreeing to pay the price you’re charging for your services. If you are partnering with small businesses or corporations, negotiations can become more involved. Most agreements can be summarized in these simple terms: you want the best price you can negotiate for your services; conversely, your customers want the best value for their money. Since clients are not apt to tell you what the highest price they are willing to pay for your services might be, it is important to have a clear understanding of what you are seeking from a contract in order to reach an accord. When this is accomplished, your ability to negotiate agreements will inherently improve. To simplify this process, the following eight steps are recommended before and during the contract negotiation process.


1. Study your client. Learn what their reputation is built on. When you understand what they value, you will see their true needs and can ensure your products and services support their ideals. If your customer prides themselves on exceptional value, you must offer it. If fast service is important to them, you must provide this. What does your client absolutely need? What do they most want from bargaining with you? What is non-negotiable and what will they settle for in compromise? You may never know what your clients really want before talks begin, but try to figure it out. Answers to these questions will allow you to negotiate from a position of strength.

2. Examine your own needs in the same manner you analyzed your client’s situation. What are your ultimate goals in negotiating this contract? What will you gain by entering into an agreement with the other party, and what will you lose by failing to agree on a contract? How much are you prepared to sacrifice to come to an agreement? What is not negotiable for you? Make a list of compromises you are willing to make to secure a contract with the other party. These will become the negotiating tools you will use to gain concessions from your clients. List them in order of importance so the concessions you make first are least important to you.

3. Take the initiative toward creating a contract. It will be to your advantage if a preliminary contract comes from you instead of from your client. You will then be able to shift the emphasis of the contract and its details in your favor. If this doesn’t sound ethical, be assured that the other party will create a contract in exactly this manner if given the opportunity. The negotiation process itself is where agreements are made, and this involves some give and take. Place yourself in a position where everything you want is on the table, and the negotiation process involves the other party bargaining to include what they want. This will provide an early assist in creating a contract to your liking.

4. Suggest your office or a place you are comfortable with to negotiate (but don’t insist). “Turf” is such an obvious edge in negotiating that its importance can be exaggerated. The site of negotiations can even be a bargaining chip that will help you later. If you give in on this mostly irrelevant point you may be seen as willing to compromise, which may draw early concessions from the other party. If you agree to their location, have anything you might remotely need with you and come prepared to spend a large block of time in their offices.

5. Negotiate from a position of strength. The other party needs something you have or they wouldn’t be bargaining with you. Don’t assume you need them more than they need you, for just the opposite might be true. You will need to make concessions in order to reach an agreement, but never make an accommodation without being granted one in return. Use your list of acceptable concessions in a way that keeps the negotiations progressing, but realize that the person you’re bargaining with will do the same thing—the process will subsequently become more difficult as you go.

Be prepared to seize any advantage or concession offered to you unexpectedly. The person you are dealing with may not realize the importance of what you’re bargaining for and you may get more than you hoped. It is not necessary to tell the other party that they have given you more than you ever expected to get.

6. Act in a professional manner at all times. You will not help yourself by being overly informal, friendly or nonchalant. Bargaining can be stressful, so take some advice from “The Godfather” and remember: “it’s nothing personal—just business.” Business can seem quite personal at times, however, so don’t succumb to emotional responses. It may be a strategy of the other party to push you into an emotional state where you will be less rational, so remain focused on your objectives.

7. Resist psychological ploys. The other party might be attempting to make you uncomfortable, hungry, angry or tired, but you must resist the temptation to give in just to get the process over with. Remind yourself of what you decided in the beginning must be present in an acceptable contract and do not waver from these points. Never hurry to finish the bargaining session and don’t let efforts to distract you push you into making a bad deal.

8. Strive for a win-win scenario. Negotiation is about cooperation. Your objective is to reach an agreement with a potential customer, not defeat them in battle. If you are so ruthless the other parties felt they had to make a bad deal, they will never sit down with you again. Use your agreements to form genuine partnerships that last beyond the length of your contract. Your efforts can lay the groundwork for future business, and the next negotiating session will be easier because the other party will know you’re willing to support a fair deal.


Negotiation skills are life skills


Anyone who is self-employed must master contract negotiation strategies if they wish to succeed as entrepreneurs. Bad luck won’t kill your business nearly as fast as bad contracts will. You might think “wheeler-dealers” are born and not made, but this is not true. The good news is: negotiating is something that can be learned and improved upon to help you in countless ways—negotiating skills are life skills. If you are logical, reasonable, persistent and patient, you have the qualities you need to bargain with others successfully.

I wish you good fortune in all your business dealings.

This article represents only an overview for mastering the nuances of successful negotiation. It is not intended as legal advice. For more information, there are many excellent books available that will help you improve your negotiating skills.


Comments 14 comments

Denizee profile image

Denizee 6 years ago

The general majority will find this helpful, in order to succeed if leaning towards self-employment. As you note the economy has forced people to look for other means of incomes, which is confusing and time consuming to many. Great job with this - I enjoyed it very much and have learned something new today.


couturepopcafe profile image

couturepopcafe 6 years ago

Mike, what a great idea to write about. I am an idie for Verizon Wireless and I'm only making $1. more per hour than I was ten years ago after four contracts. I think women don't recognize their value in the workplace as much as men do and don't ask for more money. I will keep your tips for the next contract. Thanks!


Mike Lickteig profile image

Mike Lickteig 6 years ago from Lawrence KS USA Author

Denizee, thanks for reading. It is such a difficult time for so many people, and I sincerely hope that folks can pick an item or two out of what I write and have it make a difference for them. It is so important for people to return to the success they once enjoyed. I appreciate your kind words, and thanks again for stopping by.

Mike


Mike Lickteig profile image

Mike Lickteig 6 years ago from Lawrence KS USA Author

Coutrepopcafe, thanks for stopping by. Many folks don't really know how much value to place on their work, and it is admittedly a difficult thing to learn because there are so many variables. When we do get a sense of our true value, it is a tremendous asset. Frankly, I think women, the elderly and many groups are actually taught to undervalue their work. Not directly, but through a lifetime of being asked or expected to perform work for free or at substandard wages. It is important for everyone to realize their true worth--and get it. Thanks again for your comments and insights, I appreciate them a great deal. Take care.

Mike


Allan Douglas profile image

Allan Douglas 6 years ago from Great Smoky Mountains, Tennessee

Lots of good information and clearly, logically presented... as always!


Mike Lickteig profile image

Mike Lickteig 6 years ago from Lawrence KS USA Author

Allan, thanks for stopping by. I appreciate your kind words, my friend.

Mike


Lady_E profile image

Lady_E 6 years ago from London, UK

Excellent Tips Mike - Definitely one I will bookmark to read again and refresh my memory.

Thanks for being so generous with this information.

Enjoy the weekend.

Ps. I see a Business Coach in my Crystal Ball. Hint, hint. :)


Pollyannalana profile image

Pollyannalana 6 years ago from US

I had a small business for several years on a smaller scale than you are talking I am sure but it is clear to see this is all good. There can be lighter relationships with clients once you get to know each other but keeping it all business until you have established that is very important, many people are only business and if that means more success for you then you would always be the professional. Really good hub, and yes I think most of us here could be in a position to heed this advice.


Mike Lickteig profile image

Mike Lickteig 6 years ago from Lawrence KS USA Author

Elena, thanks for your comments. I am glad you find the self-employment information useful on some level. Business coach? Hmmm... You have given me something to think about.....

Thanks again.

Mike


Mike Lickteig profile image

Mike Lickteig 6 years ago from Lawrence KS USA Author

Polly, thanks for your insights. You're correct--if the relationships have been built and are strong, it is certainly possible to establish a more friendly tone for negotiations. That certainly makes negotiations less pressured. Until that level is reached, however, it has always seemed best to keep things as professional as it can be. I also tend to believe that you know when you've reached a point where some trust has been established.

Thanks again for reading, and for your comments. Have a great Sunday.

Mike


wt1s3rv3r profile image

wt1s3rv3r 5 years ago

Excellent Tips


Mike Lickteig profile image

Mike Lickteig 5 years ago from Lawrence KS USA Author

wt1s3rv3r, thanks for stopping by. I appreciate it.

Mike


zzron profile image

zzron 5 years ago from Houston, TX.

Well noted advice. I appreciate your research and effort in presenting this information in a professional way. Thanks.


Mike Lickteig profile image

Mike Lickteig 5 years ago from Lawrence KS USA Author

zzron, thanks for stopping by. I appreciate your kind words. Take care.

Mike

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Read more about self-employment and entrepreneurs with materials from Amazon.com

    More by this Author


    Click to Rate This Article
    working