Why Raising Your Prices Isn't Always the Right Thing to Do When You Aren't Earning Enough
I often find myself telling freelancers and small business owners that they should consider raising their prices. In fact, given the current economic climate, I’ve been recommending this approach more than ever before. With inflation and the rising cost of living, it’s only fair for us to increase our prices in line with the costs that are going up around us.
Having said that, if you aren’t making enough money through your business, raising your prices isn’t always the right (or only) course of action, especially if you’re already earning decent rates from your customers. There are other factors to take into account and alternative options you can consider.
Of course, the first step is always to understand what you need to be charging based on your circumstances and financial needs. This is something I teach in my Charge with Confidence mentoring programme. We look at your individual business expenses and personal outgoings before calculating the minimum hourly rate you need to be earning to make your business financially viable.
The next step depends on your unique situation. What if you’re charging what you need to be charging per hour, but you still aren’t earning enough to make ends meet? Just because you aren’t making enough money through your business, it doesn't necessarily mean you should immediately tell your existing clients you're putting your prices up.
In this blog post, I’m talking you through when raising your rates might not be the best idea as well as alternative courses of action you can consider instead.
When raising your prices with existing clients might not be the best step
I’d say that increasing your prices with existing clients might not be advisable when you aren’t working to full capacity. By this, I mean when you don't have enough client work to keep you busy most of the time. For example, perhaps you’ve done your pricing calculations based on an availability of 4 hours of paid client work per day. However, with your current clients, you’re actually only managing to fill 2 of those paid hours. In this instance, you might prefer to avoid increasing your prices with your customers.
Raising your rates with clients is always a risk. This is why I never recommend increasing your prices with all your customers at once.
Increasing your prices with existing clients could mean that you end up losing some of them. They might not be able to pay your higher rates, or they might send you fewer projects so they remain within their budgets.
Sometimes customers agree to a rate increase because they value the work you do and believe it’s worth what you’re asking for. However, if their budget hasn’t increased alongside your price, it’s only logical that the total amount of work they’ll be able to afford will be lower. In this blog post, I talk about how to mitigate the risks of this happening.
In any case, raising your prices with existing clients can always mean you end up with less work, and therefore less income, than you currently have. This is exactly what you want to avoid when you aren’t earning enough as it is.
How to make enough money without raising your prices with existing clients
1) Look for new, higher-paying customers
If you find yourself in the above situation, rather than increasing your prices with your current customers, I’d recommend focusing on expanding your client base. Look for new clients and onboard them at your higher rates. Here, I offer some advice on how to identify higher-paying clients and how to target them through your marketing and messaging.
If you aren’t earning enough, I’d always advise finding new clients at higher rates before contacting your existing clients about raising your prices. This way, when you do increase your prices with your current clients, you’ll already have increased your income to an extent that allows you to take risks. If an existing client is unable to accept your price increase, you’ll still have your new customers to fall back on who are already paying your higher rates.
2) Reduce your expenses
While finding new, higher-paying customers is a great way to make more money, it isn’t the easiest or most immediate course of action. If it were that simple, we’d all be doing it!
Identifying and onboarding new clients at higher rates requires time and effort. You have to market to these clients, often for a while, before they become paying customers.
With this in mind, an easier alternative that could work in some circumstances involves reducing your spending. If the amount of money you're bringing in for your services would actually be enough if your expenses were lower, a shorter-term win might be to cut some of your non-essential expenditure.
Of course, some spending on business expenses is necessary to grow and develop your business. However, we all end up spending money on things that we end up getting little or no value from. In the budgeting spreadsheet I share with Charge with Confidence participants, there’s a column that allows you to evaluate the necessity of the expense you’re budgeting for. While some items will be essential, others will provide little value or won’t be truly necessary.
If you cut some of these expenses, might it help you make sure you’re earning enough to make ends meet? For those items that are unnecessary but that do offer you value, you can always put them back into your budget once your income has increased and the situation has improved.
In this blog post on cutting your business expenses when money is tight, I take you through the process step by step so you can decrease your spending and make your income go further.
I hope this blog post has given you some ideas for things you can do if you aren’t making enough money through your business. With the cost-of-living crisis and energy bills hitting new levels, I expect more freelancers and small business owners to find themselves in similar situations. By sharing this advice, I hope to help you set your business up for the best possible chance of success.
If you’re worried about making ends meet, I can offer you tailored support through one of my Custom 1:1 Mentoring calls. We’ll discuss your unique circumstances and consider various scenarios before deciding which course of action is the right one for you.
Are you unsure which direction to take your business in?
Hi, I’m Susie
I mentor freelancers on pricing and business finances so you can earn a decent living doing what you love.
I’m a translator, editor, chocoholic, crochet addict, animal lover, and budding gardener (get it?) who loves empowering others to achieve their goals.
