Communicating a Rate Increase to My Clients

Business
1

Hello! I currently run a two person web development team. My partner and I offer Ruby on Rails programming for our clients (small companies). We typically charge $75/hr for most of our clients but we have two old clients for which we charge $50/hr and $55/hr respectively from when we first started. The former we have never had a rate increase since we started with them in early 2007 and the later we have not had a rate increase in two years. We bill about 50-80 hours a month of work per client for both clients. Both clients are excellent to deal with and I want to continue our strong relationship going forward.

I would like to get both these clients rates up to $75/hr which I feel is more in line with market value and our level of expertise. What is the best way to communicate this? Should I do it in person? Is a professionally crafted email ok? Also, I’m not sure asking a client to go from $50/hr to $75/hr is acceptable since that is a 50% jump. What is an appropriate rate increase per year in software professional services? Any thoughts will be greatly appreciated!

Thanks,

2

I would like to get both these clients rates up to $75/hr which I feel is more in line with market value and our level of expertise. What is the best way to communicate this? Should I do it in person? Is a professionally crafted email ok?

I would suggest, as such changes should be in writing, you write a physical letter.

Writing such a letter should be more personal than policy directive from corporate. It should mention the relationship you have formed over the years. Make it clear the client has benefited from this arrangement for years and you’re only bringing them in line with everyone else.

Essentially this is a sales letter. Explain the value you have given the client others have already paid more for, and what they won’t find elsewhere for less money.

If possible, back up your claim with facts this is industry average. Explain what expenses you have now you didn’t have way back when, remembering to position them as added value – otherwise it’ll seem like whining.

Nobody cares about your overhead. They care about what they get for the money. Explain it from the client point of view.

It could be new services old clients don’t know you provide. Could be you can craft a special report and other bonuses for recognition of the value of your relationship with old customers.

Finally offer a grace period where prices go to, say, $65 for any work done within the next three months. Add your phone number to discuss the situation and willingness to work with the client. Of course, sign it with your signature. What you don’t want is for it to come off as a generic form letter.

You have exactly two letters to write. There is no reason to not write an individual letter to each client.

A price increase notice is an extremely difficult letter to get right, and requires a deft hand. Done correctly, however, it can result in a new commitment and more business from old customers.

3

Good clients understand rate increases - they don’t need any kind of strategy or hand-holding.

Just send them each a personalized email thanking them for their business, expressing your appreciation for their long-term patronage, and informing them that you will be raising their rates so that they will be in line with the rates of other clients and the market.

Then, add in that because of your sincere appreciation of their business you would like to extend them a 180-day period at the old rate before the increase.

That way, you are giving them a good deal and setting their expectations for the future. Remember, raising your rates makes you look MORE professional, not less.

4

Here is an example that might be useful:

[INDENT]Hi X,

I hope your business is going well.

As of X, 2010 the base hourly rate for X’s services will increase from $X to $X per hour. We’ve been resisting any change to our rate for X years now but it’s time we recognised our increased operating costs and more importantly the significant experience and expertise we now offer with regard to website design, development and consultancy.

As a long term and valued client, X is eligible for a 10% discount on this rate for the next X months. Not all our clients receive this discount and it’s a small way of showing our appreciation for your continued support.

If you have any queries regarding this change then please don’t hesitate to contact me.

Thank you for the great relationship we’ve built over the last few years and for the opportunity to work on some exciting and rewarding projects.

Kind regards,
X
[/INDENT]

5

That’s a good email except for the ‘we’ve been resisting any change…’ sentence. Everyone knows that rates go up - you don’t have to justify or soften it.

6

End of year/start of a New Year isn’t a bad time to do a rate increase - if anytime is. It adds to the rationale of “why now?”.

7

Thanks for the responses! That is a great sample letter! I really appreciate the thoughtful answers!

8

This is great advice. I love the idea of grandfathering the current clients for 180 days at the old rate. It’s a wonderful way to set the expectations while still showing courtesy.

9

Since they are solid customers that have been around a while I would suggest a more personal approach.

Surely some sort of relationship has been developed between members at management. Whoever is in charge set up a business meeting over lunch and discuss the options. Try and work with them to solve their current and future problems… maybe they would like to add more details to your contract or additional responsibilities… great time for an up-sell possibilities.

If you can`t up-sell them and renegotiate the contract that way then just explain that your wages will be increasing along with inflation and competition levels. People in business know prices change so lay it to them honestly and see what you can work out. Negotiate a better deal with them.

Most importantly make them feel like special customers and give them an overall discount or special service to acknowledge valued customers.

10

This is overthinking things, I think. There is no up sell, no negotiation, no special meeting required. Just raise the rates and inform the client in a way that shows appreciation.

If you make a huge deal about it, it makes you look like you aren’t confident in your new rates.

11

i totally agree!

12

I do think you must be prepared to lose their business as well and don’t be scared to. I don’t know you, your clients, or your relationship with them but it is natural for business to raise rates as they grow and evolve. It is also natural for them to sometimes lose long standing clients in the process. If you are receiving $75/hour now then obviously your level of service warrants it. You should not raise them to $75 but rather to $65 as another post mentioned and specify in your letter that due to the long standing relationship you will continue to charge them less than new clients you take on. To me this demonstrates that you need to implement an increase but that you value your relationship with them enough to continue to provide service to them at discounted rate. Good luck to you!

13

Well said. I think you should consider this advice too because long-standing customers are invaluable to any business. Even more so in this recession. I think they will understand the need for the increase while appreciating the discounted rate as old customers.

The sample provided by, nutcracker.co.nz, also makes good start for your letter. I think you should send a proper letter as opposed to an email.

Good luck

14

Removed from the context of what’s going on, I really think this has the potential of the text message termination notice. Physical letter, or not.

A little considered thought never hurt anyone, contrary to popular opinion. I don’t think it makes you look weak or uncertain to add details that make it clear the letter is not a blanket notice. Just because it isn’t email doesn’t mean you can’t make it look like an automated, canned, notice.

Finally, if this were merely an incremental price rise, in line with the evolution one would expect, the advice is on target. This is a huge percentage that needs some 'splanin Lucy.

The “if they can’t take it then screw 'em” attitude isn’t really warranted for long time customers. While common in web design and other churn 'em and burn 'em industries dealing with bottom-feeders, it’s also not very marketing savvy.

I see this as a special situation, not the run-of-the-mill incremental and regular price increase that’s expected.