A very common question I hear from freelancers that I coach is:
“I know I need to raise my rates, but my current clients will never go for that and I can’t afford to lose them!”
First of all, recognize that if you’re too afraid to raise your rates with existing clients, you’ll also probably have a hard time raising them with new clients. So we need to conquer The Fear, but first, let’s talk about why you’re raising your rates in the first place.
When and why you should raise your rates
You can raise your rates whenever you want, for any reason.
Of course, that doesn’t mean someone will pay the higher rates or that it’s a good idea for your business
That said, you should definitely consider raising your rates in the following scenarios:
1. You’re too busy
Having more work than you can handle is the market screaming at you to raise your prices. It blows my mind how often I hear freelancers complaining about having too much work AND not making enough money.
2. You want to chase away a low-margin client
If you have a client who you’re always wondering if what they’re paying you is worth the trouble, let me clear it up:
In the long run, your business will thrive by either dumping these clients, or charging them a lot more.
3. You want to make more money from fewer clients
In my experience, raising your rates by 20% doesn’t mean you lose 20% of your business. It often means you lose 10% or so, which means you’re working less, but making more money overall.
In fact, depending on where your rates are right now, it can actually mean that you get MORE work, because potential clients aren’t wondering why you’re so cheap.
Also, in my experience, the more you charge, the better your clients are.
Getting over The Fear
So you’re afraid of losing clients. I get it. I have two pieces of advice:
1. You should be losing clients
In order for your business to keep growing, you need to be continually swapping out your clients for better ones, higher paying ones, and ones that are a better fit for your changing and growing skillset.
In practice, the best way to do this is to always be growing more valuable, and to charge accordingly. Some clients will see the ROI in continuing to pay for your services, and some won’t.
Don’t feel that this is disloyal or something. As anyone who has freelanced for longer than a few years will tell you, client relationships end. In my own business, ongoing paid client relationships that last longer than a few years are exceptionally rare.
2. Get more options
The best antidote for fear of loss is to have more options so that the loss doesn’t feel so consequential. As a result, before you start heavily hitting your existing client base, I’d start doing some outreach to new clients with your higher rates. Once you have a couple clients at the higher rate, you’ll feel better about raising rates with the past clients. If they balk at the higher prices, you’ll be fine.
Huge tip: the best way to handle the rate increase conversation is to never have it
In the majority of cases, when freelancers want to know about raising their rates, they’re talking about hourly rates.
To be clear, I think charging hourly is one of the most damaging things you can do for your business in the long-run.
One of the many reasons that I don’t like hourly pricing is that it forces you to constantly be having these rate increase conversations, year after year. You’ve virtually guaranteed that you’ll have some difficulty increasing your profits from existing clients, every single year. You’ve focused the entire conversation around the cost of your service, rather than the value provided.
By contrast, if you do value pricing, making more money is easy. You can either increase the price by anchoring to a higher value that you’re providing, or by continuing to improve the efficiency with which you provide that value.
Ok, I’ve given you the soapbox about value pricing, so back to the steps on raising rates.
1. Take it slow and have a plan
If you just fire off an email to your clients that you’re raising your rates by 100% tomorrow, that’s very unlikely to go over well.
This may take you a few months to execute, and that’s ok. You want to keep the long-term health of your business in mind.
2. Take responsibility for this process
I know this seems like common sense, but I just want to reiterate it: the burden for selling these rate increases to your clients is on you.
If your clients balk at at a rate increase, it’s for one of three reasons:
- They feel like you’re being unfair (emotional blocker)
- They don’t see the ROI (business blocker)
- They simply can’t afford it (financial blocker)
Only the financial blocker is potentially out of your influence, and even then, people often say they can’t afford something when they mean that they don’t think it’s worth it. If they thought it had huge positive ROI for their business, they could probably find the money.
3. Email your client and ask how you’re doing
About a month before you want your rate increase to go into effect, email the client and ask them how they think the relationship is going and what could be improved.
I know this can be intimidating, but my experience is that you’ll feel better when they respond. Oftentimes they’ll either only have praise or they’ll have complaints that you knew were an issue, but they’ve been festering. Much better to have them out in the open.
Important: Do the rest of the steps over the phone or in person if at all possible. I know it’s not fun or comfortable, but raising your prices is serious, and you’ll be able to gauge your client’s reaction and respond appropriately much better in person.
4. Tell the client you’re changing your offerings and your pricing, using their own words
This conversation should happen a few weeks after their feedback. You basically want to parrot back whatever they told you they wanted more of.
For example, if the client told you that they wanted more responsiveness and availability from you, you could say something like:
“Based on feedback from you and other clients, I’m becoming more selective with who I work with. This will allow me to be more responsive and available with my clients.”
The reason so many clients balk at price increases is that freelancers essentially present the increase as “I want to sell you the same thing, but at a higher price.”
With this reframing / repositioning, you’re responding to your client’s request to buy an improved service from you with that exact thing they said they wanted.
And since you’re offering something new and more valuable, they can’t really compare your old pricing with your new pricing, because the service level / value is different.
5. Reward their loyalty
Pricing decisions are emotional, so you want to make them feel good about your relationship and this price increase. Say something like this:
“My price for new clients is 50% higher effective immediately, but because of our relationship, I’ll give you a big discount so that your price will only be 20% higher. I’ll also give you 90 days at the current rate before the increase goes into effect.”
Businesses often budget for their expenses well in advance, so it’s a good idea to give them a period to adjust to the new rate, if they choose to stick with you.
6. Reduce their uncertainty
One thing that your client might be wondering is whether they’ll be facing these rate increases every few months.
So it’s also a good idea to tell them they can expect to pay this rate for at least 6-12 months.
I wouldn’t guarantee no rate increases for longer than 12 months though.
7. Don’t leave them hanging
Because you’re pushing this change on them, it’s not a great business practice to just leave them hanging if they can’t afford the rate increase or don’t think the increased value is justified.
Two great options are:
- Offer to intro them to a more junior developer or firm that might be able to meet their needs more affordably
- Offer a lower tier of service at a price point closer to what they were paying before.
I like the second option, unless you’re trying to get rid of this client. It keeps the relationship alive, which can result in a lot of value in the long-term.
This won’t always work
Of course this won’t work with all clients, but that’s OK. And you should also know that some clients will roll with the increases for now since they need your services in the short-term, but start looking to replace you in the long-term.
Remember, you must lose some of your clients as you move more and more premium with your offerings.
If you’re not getting pushback and losing potential projects because of your prices, then your prices are too low.
So go add even more value to the world and demand to be paid for that value, including from your existing clients!