How to Increase Your Prices with Existing Clients
Many freelancers and small business owners feel as though they can only raise their rates at the end of each calendar year. It’s true that the new year is a great time to increase your prices. In this period, clients will be expecting some of their suppliers to raise their rates, and they’ll be preparing their budgets accordingly. However, the end of the year isn’t the only time you can increase your prices, nor is it necessarily the best strategy to raise your rates all at once.
I often get asked what the best course of action is to increase your rates with existing customers while also increasing the probability of them accepting your new prices.
Raising your prices with existing clients is always a risk because they could say no to your revised rates. However, there are certain things you can do to reduce the likelihood of this happening so you can continue to work with them in a more profitable way.
In this blog post, I’m taking you through the process of how to increase your prices with existing clients step by step, from before you even contact them to negotiating with them and agreeing on a final price. I hope you’ll find this guide helpful if you’re one of the many freelancers and small business owners who realise they need to raise their prices but aren’t sure where to start.
How to increase prices
Before you even consider telling your customers you’re raising your rates, there are a couple of things I would recommend doing.
1) Get clear on your new rates
There’s no point deciding who to raise your prices with or worrying how to go about it unless you already know what your new rates are going to be. The first step is always to get really clear on your pricing.
You need to make sure your prices are covering all your financial needs, both business and personal. In Charge with Confidence, I show participants how to calculate their prices based on their business expenses, their personal outgoings, and their current capacity.
It’s really important to make sure that your prices allow you to cover your financial needs in the amount of time you have available for client work. If you’re not earning enough in the hours you have at your disposal, you’re either going to be struggling to make ends meet or you’re going to have to work longer hours to make up the shortfall.
I’d always recommend getting clear on your figures before increasing your prices with your clients. It’s difficult to raise your rates too often with the same client, so you want to make sure you’re increasing them enough the first time round. You don’t want to have to be contacting them again in a few months because you’ve realised you’re not making enough money.
2) Calculate your hourly rate for each of your clients
Rather than just looking at the price you’re charging your customers, you need to make sure you’re considering your effective hourly rate.
Looking solely at the rates you’ve agreed with your clients is quite a superficial approach because those numbers don’t actually tell you that much. Instead, you need to understand how much you're earning per hour from the work you do for each customer.
For example, you might earn the same amount per deliverable for 2 different clients. However, you might find that it takes you twice as long to complete a project for the first client than it does for you to complete a project for the second. This means that your profitability for the first customer is half what it is for the second, even though you’re charging them the same amount.
To be able to calculate your profitability per hour for each client, you’ll need some time-tracking data. Once you know how long you’ve spent on projects for individual clients, you can divide the amount you earnt on jobs for them by the number of hours you spent completing the work.
Knowing your profitability per client can give you a clear indication of where things need to change and which customers you need to raise your rates with.
How to raise prices without losing customers
Once you’ve understood how much you need to be charging and what your profitability per client looks like, you can start to take action.
3) Raise your prices with one client first
I don’t recommend raising your prices with all your clients at the same time because it’s a risky strategy. What happens if various clients try to negotiate, or even refuse your price increase, and you're left in a vulnerable position? You don’t want to lose several customers all at once or find yourself accepting a lower rate from one client because you’re worried you might lose another.
My advice would be to choose one client to raise your rates with first based on the effective hourly rates you’re earning.
When you calculate your profitability per client, you might find that there’s one customer in particular you’re earning a much lower hourly rate from. If this is the case, you might want to prioritise increasing your rates with them to align their prices with those of your other clients. Alternatively, there might be a customer who you know values your work and would be willing to pay more. In these instances, you might prefer to go for an easy win.
4) Think about all the potential scenarios
After deciding which customer you’d like to target, ask yourself what your ideal outcome for the negotiation would be. Then think about what you would do in each of these 3 potential scenarios: the client accepts your rate increase but sends you less work, the client is willing to discuss a rate increase but can't manage the rate you're asking for, and the client can't/won't pay any more than your current rate.
Where the client isn’t willing to pay your proposed fee, ask yourself if there is anything you could negotiate on beyond the price that would improve your experience of working with the client. Perhaps you could reduce the scope of their projects, offer them fewer rounds of edits, or agree to longer deadlines that would allow you to fit their work in around other jobs. Anything that would make the work easier or more enjoyable for you could make for a great alternative for the client.
It’s helpful to have considered all these scenarios before you enter into a negotiation with the client. This way, you know exactly how you’re going to react before you find yourself in the heat of the moment when you can easily be swayed by your emotions.
5) Use your client’s testimonial to communicate your rate increase
I always recommend making sure you get a testimonial from a customer before you tell them you’re raising your prices. There are 2 main reasons for this: if the client says no to your price increase, at least you’ll have gained something from the relationship; but more importantly, you can use your client’s testimonial to help you communicate your price rise and increase the chances of them accepting it.
Look at the testimonial the client you’ve decided to raise your rates with has given you. Is there anything you can extract from it in terms of what they find particularly valuable about your service? Perhaps it’s your reliability, your responsiveness, or the quality of your work.
Use this information to draft an email to your client telling them about your rate increase. For example, if they appreciate the amount of research you do for their projects, you could say that you’re increasing your prices to reflect the time you spend on research for them. Or you might prefer to tell them that you’re putting your rates up to enable you to continue spending the time necessary researching their work.
When you send the email and communicate your rate increase, always give your clients notice and let them know you'll follow up if you don't receive confirmation from them.
6) Negotiate with the client if necessary
After sending the email, see how the negotiation plays out, safe in the knowledge that you're only rocking the boat in one client relationship and you've already considered the various possible outcomes.
Hopefully, the client will accept your rate increase and will continue to send you the amount of work you want to receive. However, if they don’t, you already know what you’re going to do and how you’re going to react.
Once everything’s resolved and you’ve agreed on a new rate, new conditions, or have decided to part company, you can move on to the next client on your list!
I hope this blog post will leave you feeling more confident the next time you decide to raise your rates with your existing clients. Increasing your prices doesn’t have to be scary if you just take things one step at a time!
If you’d like some support to map out the various possible scenarios and draft your rate increase email based on your specific clients and individual circumstances, you might be interested in One Client, One Rate Increase. Through this package, I’ll create an in-depth strategy for you to raise your price with one of your existing clients. Click on the button below to find out more!