How often do you think about raising your rates? Are you current rates fair? Learn more in this podcast episode about what to consider when raising your rates and how to break the news to your clients.
Episode 91: The Freelancer’s Guide to Raising Your Rates
Welcome back to another episode of the Advanced Freelancing podcast. This episode is being recorded towards the end of 2019 with this particular topic because it tends to come up halfway through the year and at the end of year mark. But it’s a hot button topic all year round. And it’s all about raising your rates.
Freelancers often, and I’m just going to put it bluntly, overthink the concept of setting their rates or raising their rate. And that idea of overthinking puts you in an almost paralyzed mode, where it’s really difficult to communicate to your prospective clients, and your current clients about what it really means with you raising your rates.
My strategies and the psychology behind raising your rates.
So many people get stuck with the concept of rates because they know that in raising their rates, there’s always the possibility that you could lose clients. This is something that’s important to acknowledge. Because going into it knowing that means you need to run the numbers behind the scenes. And make sure that this is really a good fit for you to raise your rates, especially if it’s going to impact multiple clients. And there’s a possibility that one or more of those clients is going to say, “No.” Now, if your clients are thrilled with your work and your rate increase is moderate, it shouldn’t be that big of an issue. Especially if you have not raised your rates in a long time, or ever.
A couple of years ago, I was in the midst of a rate negotiation, where it was actually a sad story. I was partnered with a gentleman who ran a company. He was the one who hired me. We worked together for 18 months, and he passed away. So the business passed on to another employee in the company. And for the longest time, I didn’t raise my rates.
For one, they were decent rates to begin with. The work was easy and very consistent. I wanted to be sensitive to the fact that this business was going through a tremendous amount of transition. And I didn’t want to hit them out of nowhere.
Well, honestly two entire years went by, where I didn’t raise my rate. Then I proposed a very modest rate increase to this client. Of course, this wasn’t the person I’d started working with. And this wasn’t an employee I had too much of a relationship with. So it was definitely a harder point to negotiate from. And their immediate response was to try to push my rate increase down. So not down to where it was, but like a compromise almost like we were negotiating a salary. So we’re going to arrive at somewhere in the middle.
So I chose not to stay at that negotiated point in the middle. I informed them about the situation. So I explained that I had started working with them, when I first began my freelance business. And that I’m very grateful for the work and I love doing it. I then explained that as a result of getting more experience and learning more about search engine optimization and blogging, my pieces are now more effective than ever, and I’ve never actually raised my rates with them. So, that was one of these many great examples of something I talk about all the time.
Everything with freelancing is negotiable.
Do not assume that if a client pushes back, you don’t have any wiggle room unless they come back at you with something and say, “This is a hard line. There’s no room to negotiate here.” But I knew, even in my client writing me back and hinting that they’d like to push this down a little bit because they felt like it’s a little bit high of a rate increase, I knew I had already made that decision in my head that I might lose the client.
So I knew that and I decided that at that point in time, it was more important for me to hold to my new rates. It was more than reasonable that I had let two years go by, and don’t make that mistake. And ultimately, the client decided to stick with me and with the new rates as well. It was also very important, not just for that one time, but for training them about what they can expect with regard to me requesting rate increases in the future. So I was almost training them to prepare them for the possibility that just because we’ve locked in at one rate doesn’t mean we’re going to stick with that forever.
So the second concept that comes up a lot with regard to rates is how often you should raise your rates.
Now, this is one of those famous answers. It depends. There’s a lot of factors to take into consideration here about when you should raise your rates. I believe that all other things held equal. So nothing else is changing in your business, except for the fact that you’ve been doing something longer. Every six months, you should be taking a look at your rates. You should be seeing your quarterly numbers for tax purposes and business planning purposes.
So a really good metric to tell if it’s time to raise your rates is one at least six months has passed and you’ve been fully booked or close to fully booked. That means that you are at a sweet spot with regard to your rates. You’re either charging very reasonable or too low, or the work that you do is such great quality that your clients are happy and more than willing to pay that rate. So you’re in a really good position to negotiate up from there at least a moderate increase.
Now for you this could really depend on whether you want to go the percentage route or raise it a certain dollar amount per piece. Some clients will push back, no matter when you raise your rates, or how modest or reasonable that rate increase is. And that’s why you’ve got to do that evaluation behind the scenes and say to yourself, “Okay, if I’ve got three clients that are locked in at a certain rate, and I’m not sure if one or any of them is going to push back. At the point when I announced my rate increase, what will happen to my business if I lose all three?”
I like to run the numbers across the board for the different scenarios, because I might pilot my rate increases with only one client at a time. And I like to make sure that it’s going to work or to tell me maybe I’ve got to go and find another new client entirely. So I think one of the most dangerous positions that you could potentially put yourself in is you have six or seven clients and you say, across the board, I’m doing a rate increase. You don’t know if you’re going to keep all of those clients. So you always have to be thinking about that behind the scenes.
Now, by all means, if you have those six or seven clients and all of them are paying you too low, you do need to replace them. But it’s going to be much easier to replace them a little bit slower than doing it all at once. You don’t want to have a six month planned to roll that out. But it might be easier to say, “Okay, I’m going to try to replace these two clients, then because I’ve announced my rate increase, and if they didn’t go with it, I’m going to replace those two or one at a time.” This allows you to ease yourself into it. So at least every six months, you should be looking at your circumstances and seeing if you should raise your rates.
Now there’s other things that might happen in your business or in your life, that could be great opportunities for you to raise your rates.
One such example, when I finally get my PhD, I plan to push my rates up because having that additional distinction, I’ve got a lot of research and writing skills and an additional layer of credibility. One of the things that is really interesting to me is that after publishing a book and doing some TEDx talks, probably three or four of my clients without me prompting them suggested that they might not be able to afford me anymore.
So there was a perception that receiving some type of distinction like that made me unaffordable, which is really interesting. But that could be a good sign to raise your rates. Perhaps you recently completed a digital marketing certification. Maybe you are now doing something more advanced and involved.
Let me give you an example of that as a time to raise your rates.
I am always looking into training around search engine optimization, and looking for ways to become better at doing that and better at writing for my clients to help them rank their websites. As part of that process, I learned what’s working and what isn’t in the industry. And when I bring on something new that involves more of a research process, I am going to incorporate that into my entire writing schedule and the way that I approach Content Strategy for clients.
Now that’s a benefit for them, because I’m doing something that’s more effective. But it might take more of my time. A case in point is when I use different tools to run keyword analysis. Those are some tools that I pay for. And if I’ve really learned and mastered those tools, I might consider a rate increase to accommodate for the fact that, “Hey, I’ve gotten better at what I’m doing. And now my rate has been pushed up as a result of that.” Now, yes, you’re going to pay more, you’re also potentially going to get better results because I’m incorporating the newest and most effective things in the industry.
So let’s say for example, that you’re a virtual assistant too. And you recently learned how to use Infusionsoft or Ontraport which are advanced relationship management tools. So you would probably push your hourly rate up, at least for the projects where you’re using those tools, because it probably took a lot of time and practice. And you probably either paid a coach or enrolled in a course to learn how to use those tools. So those are common examples of why you might want to raise your rates outside of this every six months schedule of taking a look at your rates now.
By all means, don’t just raise your rates because you can.
If you’re not being paid fairly, or something like that, it’s a good opportunity to evaluate and say, “Okay, what would be a fair rate for me where I’m at right now?” But I’ve seen some people where they’re raising their rates every two to three months. And I’m just not really sure that it’s as easy to sell clients on that. Especially if those clients are already locked into a contract or working with you month to month, because you’re going to have to explain more of yourself and why are you raising your rates this often. And you have a higher chance of those clients walking.
So that’s something to also factor in when you’re signing contracts with clients.
If you sign a three month contract, how does that affect where you’re at with that question? Now, will you raise your rates at the end of that? And especially if someone offers you a year long contract, how does that impact the possibility of you raising your rates? Because you’re not going to be able to go back easily, not just because of the contract verbiage, but also because of the relationship with the client. They’ll probably feel cheated. You’re not going to be able to easily negotiate a rate increase in the middle of a signed contract.
So it’s important to be mindful of that when you’re thinking about the length of your contract. I love contracts that are three to six months. It’s a great way to not lock yourself into something that you don’t know if you love yet and where you have the opportunity to negotiate a rate increase or a different package, if it makes sense for the clients.
As far as there being a certain percentage point to raise your rates to, I don’t have recommendations on that.
I like to think about modest increases just like you would give yourself a raise while factoring in those other elements as well, such as if you’ve completed a certification. What I would charge to ghostwrite somebody’s book is different before I published my own and after. So you’ve got to take into account your own factors.
I think that 10% is a great place to start with and see how you feel around that when you’re thinking about raising it. If you push your rate higher than say 10%, or what your clients might consider a moderate increase, it might be a challenge for you every six months or every four months to go back and revisit that and push it higher again.
So it’s this sweet spot where you want to be raising it enough to ensure you’re being compensated fairly for the skills and the services that you have, while also not just raising it so that you can say you charge $500 an hour or raising it on a client four times within a year and then they just decide to go a different route. Does that really make sense if customer loyalty is very important to you.
Now, the next thing I want to talk about is should you offer something specific affecting your current clients when you raise your rates?
I like doing this because, as I mentioned earlier in this episode, everything is negotiable. And there’s probably a chance that I can get some other benefit out of getting them locked in even if it is at the lower rate. Your initial response might be, “Well, why on earth are we raising our rates, if we’re going to keep some of our clients at the current rate?”
Let’s say that I have a client who signed a three month contract and it’s ending at the end of November. So now I’m in a position to potentially renegotiate this contract and I don’t want them to sign just three months. Maybe I want them to sign four or five months. So I might offer them the opportunity to be grandfathered in to my old rates if they signed by a certain date and extend their contract slightly.
So maybe we have a client that’s got a smaller portion of projects, or is only purchasing a small block of hours. That’s another opportunity where we can say I’m actually eliminating my 10 hour a month package, the new package is 20 hours a month, that’s the minimum. But if you purchase it now, you will be able to lock in those rates for a short period of time.
Even with my coaching clients, when I bring my coaching clients on, it’s only a three month coaching program that’s required. Many of them choose to renew beyond that. Probably 80% to 90% will renew at least once. Some of them just keep working with me for a longer period than that. So I promised them when they come on, your coaching rate stays the same, so long as you continue to renew the coaching services. So that’s peace of mind for them. They’re getting a benefit for working with me longer. And they know that a rate increase is not going to come out of nowhere.
So let’s imagine that you charge $500 a month for coaching or for whatever your service is. And you might push that up to say $600 a month in the middle of the year.
Now, your current clients, if you’re raising your rates too often, or if the rate increases so significant that it becomes unaffordable or they don’t see the value, they may not renew at that rate. So my strategy behind that is I would rather have the opportunity to work with the coaching client longer, where they feel honest and upfront about what they’re getting as far as their payment. And the incentive is for them to continue working with me longer, which means they’re going to get better results. So it is a win win across the board.
If you are charging that $500 a month for something and that person renews all year round, that is better than pushing your rates up to $600 a month and having them cancel after two months. Does that make sense? So that’s how I would consider that.
I like grandfathering in clients to an extent.
You don’t want to grandfather them in forever, but it can be a really nice incentive to show that you are thankful for the business that they have thrown your way. So if I have a client that I’ve worked with for several years, I’m going to give them like a three month transition period. Or I might say that my rate is going up 15%, but they can re-sign at a 10% rate increase if they sign the contract.
Now, I like offering those benefits because it’s much like keeping the coaching packages the same. My goal there is to build customer loyalty and have them be very clear and honest about what they’re getting as part of that. The incentive is there for them to renew.
There are two important lessons I’ve taken away from growing a freelance business from a side hustle to something that’s much bigger as a solopreneur.
One is firing clients. That means knowing how to decline people and to fire clients. And then number two is the power of recurring revenue. That means getting clients on retainer. Having recurring and predictable revenue is so super important. It really helps you be able to adjust your cash flow to make the right investments in your business. And to see ahead of those times when you may need to raise your rates, switch services, or do something a little bit different.
So recurring revenue is very important. To me, it is worth far more than saying that I was able to get somebody to pay a 50% higher rate, and then they cancel after one round of working together or one month of freelancing services. So give your clients incentives, it also encourages them with a little bit of urgency to resign a contract.
So if you have a client that isn’t really in a position where they feel that pressure to renew with you, explaining that you’re planning to increase your rates and giving them some type of incentive to come on with you helps. Even if it’s, “I want to thank you for being a long time client. My rates will be going up effective January 1. I’m going to throw in this freebie for you. I’m going to throw in one free hour, I’m going to do XYZ free thing to thank you for your service.” When that rate increase occurs, it helps to build loyalty and makes them feel better about the opportunity to continue working with you.
So you certainly don’t have to do that when you’re raising your rates.
You don’t have to go to a client and promise them anything or incentivize them in any way. But it absolutely increases your chances of getting them to sign that contract and work with you again if they are thrilled with your work. Now, if you’ve had problems from day one with this client, or they don’t really see the value or you’ve delivered late, it’s going to be very hard to negotiate anything. They may just say, “No, thanks. I don’t want to work with you at all. I don’t care about being grandfathered in.” So you have to do these behind the scenes thinking exercises about how will this affect my business if I lose the client and then what position am I in with this client? Do I have room right now to negotiate? Or maybe I’m raising my rates and I know this client is going to walk. And that’s okay, because I don’t want to work with this particular client anymore. So this is my way of nicely ending the contract on mutual terms.
So raising rates is about so much more than just pushing your prices up.
It’s about thinking where your business is at now and what changes you need to make to take it steps forward into the future. And then are you prepared to negotiate those changes or possibly lose clients. Now, if a client comes back to you, when you’ve said that you’re planning to increase your rate, and they say, “No, we’re just going to decline to work together.” You don’t necessarily have to give up entirely.
You could offer to give them some sort of a discount. That’s why it’s better to lead with that position of offering them some type of incentive like grandfathering them in giving them a transition period, throwing in some type of a freebie etc. Because you’ve already sweeten the pot. You’ve led with a very generous offer, which makes them feel appreciated. And as like they want to continue working with you, it’s much easier to negotiate from that point, rather than just telling someone out of the blue, “Hey, my rates are going up. You can pay it or not.” You have much less room to negotiate there.
You might take that approach with the client you want to get rid of. So you might just say, “Hey, my rates are going up 30% next month. Please let me know if you’d like to resign.”. And you say this knowing that they’re probably going to walk away from that. But with the clients you really care about, it’s a little bit more of a delicate balance of figuring out what makes sense?
Should I start with my lowest paying client first? Should I start with a client where I’ve done a really amazing job and I think I have the best chance of getting them to accept the rate outright? You’ve got to make those decisions for yourself behind the scenes.
But don’t stay locked in with clients forever.
I see this often with virtual assistants to they start off charging $20 an hour and then two or three years later, they’re charging only $25 an hour. So you need to be evaluating that on a more regular basis.
Oftentimes when we, as experienced freelancers, present pricing to clients they’ll say, “Well, geez, I could hire another Freelancer for half that.” Well, you’re not paying just for the service that I’m doing for you today. So me as an SEO writer, you are paying for the seven years that I have spent becoming a master and professional at writing for search engines and for websites. So you’re paying for all the things I’ve learned with past clients, all the software tools that I invest in and use, all of the training and conferences and books and insight I’ve gotten from other freelancers to get to this point. So you’re getting the best version of my SEO services. And of course, that’s not going to be priced the way that it would when I first got started.
So some clients will always go with the bottom line price. And as we know, in the freelance world, you often get what you pay for. So that’s not someone you’re going to be easily able to negotiate with anyways. So I would not stress out over that.
And that’s why you do this case by case example. Okay, client A is paying me this, that’s really lower than I’d like. But there’s other benefits to working with them that I’m only going to give them a modest rate increase, or I might give them the chance to be grandfathered in for a short period of time with the newer rate. This other client is really difficult to deal with. So I might be adjusting my rates higher because of that as well. I might be factoring in that this client is difficult and that they take six weeks to pay their invoice and they still pay me by check. That’s really annoying that I have to wait for that right.
So you’re thinking about all these things on a case by case basis. Even a rate increase that’s across the board might not be the same amount across the board. So lots of food for thought in this episode. I hope you have gotten something out of it.
If you are at the end of the year or listening to this episode at any other time, really ask yourself how long has it been since I’ve raised my rates? Am I due for another rate increase? I’m so excited to continue to be a part of your success! Thanks for tuning in again to the Advanced Freelancing podcast. I’d love it if you left the show a review on iTunes. It helps other people to find my show and become avid listeners just like you!