Is Now the Time to Raise Your Rates?

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How do you know when it’s time to raise your rates? You could find out by a client like Miles described in last week’s Tribune, but most of the time your clients are not going to tell you your rates are too low.

When I started my e-commerce consulting company, we kept the same hourly rate for several years, despite inflation and significantly growing our service offering over that time. We were making good money, and were consistently landing bigger clients and projects. Still, our hourly rate remained the same, despite our growing experience and increased value we offered our clients.

Much to my surprise, when we finally made the decision to increase our rates, we never got a single complaint. I don’t even remember a client mentioning it.

When It’s Time to Raise Your Rate

Ultimately, you will have to determine when it’s time to raise your prices. There are lots of factors to consider such as inflation, rising cost of expenses and labor, competitors’ pricing, and more. You also have to account for your increased experience and skill set.

Another important factor to consider is capacity. Supply and demand applies to services just as it does to products. If you currently have more work than you can handle, increasing your pricing can help. The natural result of increasing your pricing is that you will have fewer clients (though I’ve not always found this to be the case). You can make the same, or even more, revenue while freeing up some time. Or you can use the extra revenues to add staff and finance your continued growth.

How to Raise Your Rate

Some providers choose to keep current clients on their old rate, while charging new clients the updated and higher hourly rate or pricing structure. You may have a feeling of loyalty to your current clients, which is natural. However, every company must raise its prices it’s just part of doing business. Don’t feel bad about raising the rate of your current clients, just do it the right way.

Give Ample Notice.

Don’t raise the rates on your clients without letting them know. Give at least a month’s notice, but preferably two or three months notice. Send them a letter in writing notifying them of the new rate or pricing.

Don’t apologize.

You have nothing to apologize for, does your attorney or accountant apologize for raising their prices? Simply state the new rates and when they go into effect.

Honor Any Agreements.

If you currently have any contracts open, you should of course honor the pricing agreements you have already signed. Once they have been fulfilled, your new pricing should go into effect.

Plan for Regular Rate Increases

Inflation is a fact of life. To keep up with inflation, and your growing skill set and experience, you should plan for regular rate increases over time. They don’t have to be annually, but that is certainly an easy interval.

Having smaller, regular price increases over time is the best way to stay profitable. If you increase prices by ten percent every year for five years, your rate could increase from $75/hour to $120/hour over time. What would you rather see as a client – a one time increase from $75/hour to $120/hour or an annual increase from $75/hour to $83/hour? Not to mention, regular price increases will bring in more revenue over time than more seldom increases. Don’t wait until your higher expenses force you to raise your rates, do it proactively.

Create Client Agreements

Hopefully you have signed contracts for all your project work ‚ we’ve talked about that a lot in the Tribune and on the SitePoint Forums. Signed contracts are imperative for any projects you work on, but what happens after the project is over? Do you have an agreement that covers all the hourly work you do for your clients?

If you are like us, you have a substantial amount of billable work that isn’t covered by a specific project (or contract). I strongly recommend creating client agreements that outline transfer of intellectual property, hourly rates, turnaround times, rush fees, and payment terms. They can have many of the same clauses as a contract for a specific contract, but should be worded so that they cover your entire client relationship (or anything not covered in a specific contract).

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  • Kathy Mehraban, Co-Founder SortFLIX

    Great article…I like your approach. We have done similiar things, especially the point you make about raising the rates on new clients and keeping some of the same rates for the old, for their loyalty. Another thing is to shave off some services that you think are not value – added any longer and set them aside, or the services that take more time than you anticipated, and charge more for them if you can. One thing I tell folks too, is that if my cost went up for something I directly turn around and provide for you, then I may have to increase to you too. If it is not significant, I don’t increase the price because I feel like I have built enough bandwidth in my prices to cover small incremental price increases. Good luck to you…you have some good knowledge to share.

    Kathy Mehraban, Co-Founder, CAO PlanetBILLBOARD, inc.
    http://www.sortflix.com

    • Brandon Eley

      Thanks, glad you liked it!

  • Steph

    Good timing of the article as I just raised mine!

    • Brandon Eley

      Congrats!

  • Kenn Schroder

    Hey Brandon, thanks for writing this.
    I think many web designers error on charging too little.
    I’ve never lost a client due to a fee increase.
    Also bear in mind that in order for a client to quit your services due to a reasonable rate increase means the client needs to spend hours searching for a new web designer, trying them out, and finding out the new web designer wasn’t as good as you.
    Again, thanks for this article, lot of nice gems.
    Kenn Schroder
    http://www.GetWebDesignClients.com

    • Brandon Eley

      I think so too. I think so many talented web designers, developers and programmers are selling themselves short by not charging enough. Glad you liked the post!

  • http://dotnet.softwebsolutions.com/ .Net Development

    Yes I read your article .. its very true. most of the entrepreneurial choose to keep current clients on their old rate, while charging new clients the updated and higher hourly rate or pricing structure.. very true .