4 Possible Outcomes of a Rate Increase Negotiation with Customers
Preparing to contact your clients about a rate increase can feel daunting, especially when you really want your working relationships to continue in a positive light.
To reduce the risk, and the fear, I always recommend that freelancers and small business owners raise their prices with one client at a time. However, even then, I know it can be hard to find the courage to take concrete action.
One thing that often helps my mentees is to consider all the possible outcomes of the negotiation before starting a conversation about raising your prices with a customer. By doing this, you feel better prepared and already know how you’re going to respond to whatever your client says. You’re far less likely to get swept up in the heat of the moment and find yourself agreeing to something you’re not really happy with.
In this blog post, I’m sharing the 4 most common outcomes of raising your prices with existing clients. I hope that being aware of them will help you prepare for your next client negotiation so you can enter into it feeling confident and more in control.
Negotiating with clients – Potential outcomes of a rate increase negotiation
1) The client agrees to your new rate and continues to send you work
The ideal outcome for most rate increase negotiations is the client agreeing to your price rise and continuing to send you work at the same level as before. This means that you’ll be earning more money for the same amount of work, which should make a difference to your bottom line.
The only time you might not be happy with this outcome is if you were raising your rate to try to get rid of the client or decrease the amount of work you receive from them. You’re most likely to want this kind of outcome if you have a consistently heavy workload and are struggling to manage too much work.
In these cases, you might want to increase your rate more than you would do normally to reduce the chances of the client accepting your increase outright. And if they still accept, perhaps the extra income will make continuing to do the same volume of work for the client worth your while!
2) The client agrees to your new rate but sends you less work
Sometimes, when you raise your rate with a customer, you might find that they accept your new prices but the workload they send you decreases. I’ve written a whole blog post on the ins and outs of this possible outcome, which you can read here.
Customers often agree to a rate increase outright because they value the work you do and believe your services are worth what you’re asking for. However, if their budget hasn’t increased, it’s only normal that the amount of work they’ll be able to afford from you will be lower.
This can be a nice situation to find yourself in because you’re earning more per billable hour while also freeing up time to use how you wish. If your main focus is earning more money, you might decide to use the extra time to market to new clients who are happy to pay your higher rates. And since you’ll have some availability for client work, you’ll ultimately end up making more money than if you’d continued doing the same amount of work for the same client at your old rates. You’ll also have expanded your client portfolio, making you less dependent on individual customers, which is always a good thing!
Having said that, if you’d prefer to reduce the likelihood of this happening and want the client to simply agree to your rate increase while sending you the same amount of work as before, there is something you can do. If your client is a company, they’re likely to work to a financial year that starts and ends in a specific month. By asking them when this is, you can inform your client of your rate increase before their financial year ends. This way, they’ll be able to allocate a higher amount for your services in next year’s budget so the extra cost is already accounted for.
3) The client agrees to pay more but not what you’re asking for
Often, the client will come back to you and say that they can’t or won’t pay the new rate you’ve proposed but they are willing to pay you more than they’re paying you now.
This will involve a negotiation, so make sure you know the minimum you’re willing to accept in order to continue working with the client. In Charge with Confidence, I show my mentees how to calculate the minimum rate they can afford to accept per hour, taking into account their business expenses as well as their personal expenditure.
If your client can’t or won’t pay your minimum, it helps to have already considered what you’re going to do. Is there anything you could negotiate on besides the price that would make the work less time-consuming for you? Perhaps you could ask the customer to reduce the scope of their projects, or maybe you could offer them fewer rounds of edits. In this blog post on negotiating with clients, I provide a few alternatives you could consider.
Here, you can also find my top tips on how to negotiate on price with customers.
4) The client refuses to pay more than they’re currently paying
The worst-case scenario is usually when your client simply refuses to pay any more than their current rate. That is, of course, unless you already knew they would be reluctant to accept a rate increase, and you specifically raised your prices to get rid of them!
When considering that the client could refuse to pay you more, always ask yourself whether you’d be willing to walk away. If you wouldn’t, you might prefer to wait until you’re in a stronger position before you raise your rate with this particular client. Once you’ve increased your rates with other customers or have found new clients who are paying you higher rates, you might feel less dependent on this client and more able to walk away if necessary.
On the other hand, if you’d still like to try raising your rates with this client and they do refuse to pay more, you can always think about non-financial elements of your relationship you could ask them to compromise on. In exchange for maintaining their current rate, you could ask for better payment terms, longer deadlines, or for your client to agree to a minimum charge for small projects.
If you’re able to find a way that makes their current rate work for you, there’s no harm in continuing the relationship until you have higher-paying clients and can afford to lose this one.
Considering each of these 4 scenarios before you contact a client about increasing their prices is a great way to prepare yourself for a customer negotiation. It helps you decide objectively how you’re going to react to all eventualities before you find yourself in the heat of the moment when your emotions can take over.
If you’d like some support to work through all these possible outcomes and make a plan for how you’ll act in each situation, my One Client, One Rate Increase package is for you. You’ll answer a few questions and I’ll give you a custom strategy for increasing your prices with your existing customers so you feel 100% prepared and ready to take action.