How to Raise Your Prices When Your Clients Have Always Set Your Rates
In the past, I’ve spoken about how common it is for freelancers and small business owners to set their prices based on what others in their industry charge. This is especially common when you’re just starting out and are looking for a point of reference to help you decide what your rates should be.
Another approach that many freelancers take, particularly when they work predominantly with agency clients at the beginning, is to accept whatever rates their clients offer them. Rather than taking a proactive approach to pricing, they let the customer set the price for the work they’ll be doing.
However, pricing your services in both these ways can lead to problems. This is because what others charge and what your clients offer won’t guarantee you’ll be earning enough to cover your expenses and make a decent living without having to work all hours.
When you accept a rate proposed by your client in particular, it can lead to you feeling underpaid further down the line, and you might not know how to rectify the situation.
Since I’ve been asked about this topic a few times recently, I thought I’d put together a 5-step plan to help you raise your prices if your clients have always set your rates. I hope you’ll find this blog post both useful and inspirational to encourage you to take control of your pricing as a service provider.
How to increase prices when your clients usually set the rate - A 5-step plan
1) Recognise that there is scope to raise your prices
Many freelancers believe that agencies have a set rate for all their collaborators or that they can’t pay more than a certain amount. While this may be true for a small minority, I can tell you that it isn’t usually the case. In my experience, agencies are often willing to grant higher rates to their favourite freelancers. Sometimes they’ll only send their most important projects to these freelancers due to their higher rates, but higher-charging freelancers won’t always necessarily receive less work.
Be aware that when your client set your prices, they probably pitched their offer towards the lower end of their budget. If you accepted their rate upfront and didn’t try to negotiate, the likelihood is that they can afford to pay you more than they currently are doing.
Especially if you’ve been working with them for a while and your rate has never gone up, if you’ve managed to demonstrate your value, there is definitely scope to raise your prices with the client now.
2) Calculate the rates you need to be earning
Once you’ve realised that you can increase your rates with these clients, you need to understand what you want to increase them to.
The main thing is to calculate your prices intentionally to ensure you’re increasing them enough. You don’t want to raise your rates with a client only to discover that you’re still not making a decent living and need to increase them again in quick succession.
In Charge with Confidence, I teach my mentees how to calculate the minimum they can afford to earn per hour to cover both their business and personal expenses in the time they have available for paid client work. If you calculate your rates to account for all the things you need to pay for, including tax payments and savings for retirement, you’ll be sure that your minimum hourly rate will allow you to earn what you need to run a sustainable business.
3) Quote your new rates to new clients
As soon as you’ve calculated how much you need to be charging, start quoting your new rates to potential clients straight away.
Remember that it’s always easier to get new customers to pay higher prices than it is to raise your rates with existing clients.
By charging your new customers more, you’ll start to increase your income, which will give you more financial freedom when it comes to raising your rates, negotiating, and deciding how to proceed with your current clients.
4) Carry out a client assessment
The next step is to assess how your newly calculated rates compare with the rates you’re currently earning from your customers.
Go through each client in turn and make a note of the difference between how much you’re earning and the minimum hourly rate you need to be earning. If you have an agreed hourly rate with the customer, that’s easy. On the other hand, if your agreed rate is broken down by another unit (e.g. per word), you should be considering your effective hourly rate.
To calculate this, you’ll need some time-tracking data to assess how much you're earning per hour on average. All you have to do is divide the total amount you’ve earnt on projects for the specific client by the number of hours you’ve spent on work for them.
5a) Raise your rates with your clients one by one
What you do next should depend on what you found out during your client assessment. If there isn’t too much difference between your new and agreed rates, I’d recommend contacting your existing clients about raising your prices one at a time.
In this blog post on how to increase your prices with existing clients, I explain why raising your rates with all your clients at the same time is a risky strategy. Increasing your prices with one client before moving on to the next puts you in a stronger position during the negotiation phase because you aren’t worried about losing more than one source of income.
You could choose to prioritise raising your rates with a client who feels like an easy win. Alternatively, I often recommend increasing your prices first with a client you’re earning a low hourly rate from and who you don’t really enjoy working with. If they say no, it won’t be a huge loss and you’ll free up some valuable time to look for higher-paying clients. If they say yes, it’ll give you a confidence boost to approach your next customer.
5b) Wait to take action
On the other hand, if you find there’s a big difference between your new and agreed rates, I’d suggest waiting to act until you’ve found new clients who are paying your higher prices.
There is a definite possibility that your existing clients won't be able to pay you a significant amount more than they currently do. This is why I’d recommend gaining more financial stability from other sources before you try to raise your rates with them.
Once you’re working with new customers who are paying your higher rates, you can start to contact your other clients about increasing your prices one by one, safe in the knowledge that you have enough money coming in from other customers if they refuse your rate increase.
If you’d like some help to raise your prices when your clients have always set your rates, I’ll support you through Charge with Confidence. During the programme, I’ll show you how to calculate the rates you need to be earning as well as how to carry out a client assessment. This way, you’ll be able to take a proactive approach to your pricing rather than feeling as though you’re at the mercy of the rates your customers offer you. It’s time to take control of your financial situation!