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Diener & Associates

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How CPAs Can Help Independent Contractors Negotiate Price Adjustments

January 30, 2023, by Michael Diener

businessman stacking money coins with up arrow and percentage symbol for financial banking increase interest rateRising inflation continues to affect the cost of products and services. When faced with these price hikes, independent contractors are wise to review the terms of their agreements. Price adjustments are a common component of business, impacting nearly all industries.

However, negotiating price adjustments can be complicated. There are many factors that independent contractors must consider to prevent losing valuable contracts or selling themselves short. An experienced certified public accountant (CPA) can assist independent contractors in negotiating these price adjustments.

Importance of Negotiating

The notion of a price adjustment can bring forth feelings of uncertainty. While independent contractors must know their worth, they must also be willing to negotiate to come to a mutually beneficial agreement that satisfies all parties involved. Working with an effective negotiator is critical to help build a successful career and maintain a good reputation as a valuable contractor.

What to Consider as an Independent Contractor

independent contractor concept with handThere are many things that an independent contractor should consider when approaching the concept of price adjustments. Negotiations should be based on key factors, such as the contractor’s minimum acceptable rate, the industry, location, and other factors unique to the client or circumstance.

Here are some important things to consider as an independent contractor when negotiating price adjustments:

1. Establish a Minimum Acceptable Rate

An independent contractor’s minimum acceptable rate is the lowest hourly rate that they are willing to charge a client. There are several ways that this number can be calculated, such as the following:

  • Desired Salary Plus Overhead Costs – For salary, an independent contractor should consider their former salary or by looking at salaries for comparable jobs online. When considering overhead costs, include expenses such as office space rental, company vehicles, advertising, tools and uniforms.
  • Total Costs Times Desired Profit Margin – Multiple the desired profit margin as a percentage by total costs. An independent contractor can then divide this number by the billable hours they expect to work to get their minimum hourly rate.

2. Know the Industry

Contract rates can differ significantly from one industry to the next. For example, contractors in information technology (IT) often demand higher rates than contractors in other industries as IT is a more specialized field that requires advanced training. It is important to do ample research when negating price adjustments to determine industry contract standards.

3. Consider the Location

people studying goverment contractAlong with industry, location can make a big difference when negotiating price adjustments. Salaries in larger cities are generally higher than those in more remote areas.

This is due to many factors, such as a higher cost of living, the level of demand for certain services and taxes in some locations. Research to determine the average rate for independent contracts in both the industry and location before negotiating.

4. Factor in Unique Circumstances

Unique circumstances will also impact the negotiation of price adjustments for independent contractors. Rates are often based on the unique project of the client, whether the client requires fast turnarounds, if traveling or relocation is involved, and similar factors.

When negotiating price adjustments, keep client constraints in mind but also consider advantages of the contract that could affect negotiations, such as virtual work or if benefits are part of the compensation package.

5. Start with a High Rate

When negotiating price adjustments, independent contractors should always start with a higher rate than they would normally accept but with an understanding that after negotiations, the final contract rate will be lower.

Starting with a higher rate with a willingness to negotiate and accept a lower rate can help ensure that the contract rate does not fall below the established minimum acceptable rate. It is important to remember that while the initial rate should be higher, the rate should stay within the client’s limitations and industry standards.

How a CPA Can Help with Price Adjustment Negotiations

Many independent contractors work with CPAs when navigating price adjustments. A certified public accountant is a type of accounting professional that has met specific state licensing requirements to earn a CPA designation through experience, educational training and passing the CPA exam.

hand holding a debt rateThe reliable CPAs at Diener & Associates understand the importance of negotiating price adjustments and can help independent contractors with services including contract modification, contract negotiation, contract proposal, contract renewal and contract termination.

With the help of a knowledgeable CPA, an independent contractor can avoid being subject to an unsatisfactory price adjustment or poorly altered agreement terms.

Schedule a Consultation Today

Negotiating price adjustments as an independent contractor is an essential but complex skill. For more information about how CPAs can help you negotiate price adjustments or to schedule a consultation with a CPA, contact Diener & Associates today at (703) 386-7825.

About Diener & Associates CPAs LLC

Diener & Associates CPAs LLC has been a leading provider of professional CPA services in the DC metropolitan area since 1989. We offer a range of consulting/advisory, outsourced accounting, and tax services to assist businesses with their most challenging processes. Regardless of your industry of operation, Diener & Associates CPAs LLC can maximize your organization’s efficiency, scalability, and profitability.

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