When and How to Raise Your Rates
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Thanks to inflation, everything is more expensive now. Seems like a good excuse to raise your rates, and now is the perfect time.
The easiest time to raise your rate is on the cusp of something new — a new year, a new project, a new client. With the new year just around the corner, now is the time to inform your clients that your rates will be going up next year. Read on for ways to make this easier.
How to determine your new rate
Unfortunately, there’s no one-size-fits-all formula. Instead, I suggest triangulating on a rate that seems fair. Look at several different numbers and then decide. Here are four suggestions.
Make a guess of what you think your new rate should be. For example, if your rate is now $150 an hour, what do you think is a logical next step? $175? $165? Jot it down.
Calculate a percentage increase. The amount might be 3% or 5% annually. Or maybe you need to make up for the last two or three years with no rate increase so 10% or 15% increase seems appropriate. Do the math a few different ways and see how these numbers play out. In my example of $150 hourly, a 5% annual increase works out to $157.50 for year one, $165 for year two, and $172.50 for year three.
Do some market-rate benchmarking to learn what other consultants are charging, or what clients are paying. Try doing a quick survey of similar consultants you know (maybe ask them to select from list of price ranges). Or search the internet: for example, “typical consultant rate for organizational design in New York.” Alternatively, if you’ve worked through an agency, you can guess what the client paid for your services by adding 30% to 40% to whatever rate you were paid.
Compare to other professional services. As a consultant and solopreneur, how does your rate measure up against other services like accounting?
Once you have the numbers, it’s easier to raise your rate with conviction because your new rate is based on research and not just pulled out of thin air.
Decide who will be affected
Do you want to raise your rate for all clients or just new clients? The latter option is easier because no explanation is required; just start quoting your new rate. (My blog post, “Quote Your Consulting Rate with Confidence” can help with this.)
On the other hand, if you tend to do a lot of repeat business with a handful of existing clients, raising your rates only for new clients won’t create much additional income.
If you’re uncomfortable raising rates for existing clients, consider taking a longer-term hybrid approach in which you quote the higher rate for new clients. Later, tell existing clients that you’ve been steadily raising your rate on new projects but were hesitant to charge them more because you appreciate working with them so much; however, now you run the risk of subconsciously favoring the higher-paying clients.
Another idea is to offer them an alternative. For example, for larger or longer-term projects (say, at least six months or over a certain dollar amount) your current rate will still apply.
I think it’s probably easier to just do it all at once, starting with your next new contract. (Don’t try to renegotiate your rate during an existing project.)
How to do it and when
You should probably do it now. You’ve read this far so on some level you want to go for it. Here are my suggestions.
1. Get right to the point. Price increases are a normal part of doing business. Burying your message in a bunch of small talk will only undermine your professionalism. Remember, sometimes in business you’re not here to be liked, you’re here to get a job done. This is one of those times.
2. Make it a policy. Perhaps the most important part of effectively raising your rate is to commit to doing it. I also recommend making it your policy. Literally create a document titled “Rate Policy” and write down what rates you charge for what services. Alternatively, if you like to quote a price range (which I highly recommend), write down the variables that affect whether you quote the low end or high end. Be sure to include your “walkaway rate” or lowest acceptable rate. Your policy should be short, maybe half a page. No one is likely to see the policy except you, but having it will enable you to say to clients, “It’s my policy.” These are magic words that somehow make clients more reluctant to negotiate, or for you to cheat yourself.
3. Set an effective date. This serves as a line in the sand, both for you and the client. This is also why the end of the year is a good time to do this. Effective January 1 sounds less arbitrary than effective March 1. If you have a contract that extends into the new year, your policy should be for all new contracts after your effective date. (Note: Another logical time is on your company’s anniversary; if you don’t know what day your business was founded, make one up — maybe the date you opened your business bank account or you signed your first contract. Your business anniversary is also a good opportunity for some social media exposure but I digress.)
4. Remind them of your value and how you value the relationship. Reference the length of your relationship or any recent results from your work.
5. Give your clients ample notice. As with any change, it’s best to get people used to the idea first. Depending on the degree of change, you’ll want to give your clients one or two notices. Here is some sample language you can adapt.
Subject: New rate policy for 2024 (or) Kicking off 2024: Upcoming Changes
Dear Joe,
As 2023 comes to a close, I’ve been doing some accounting and assessing my bandwidth for next year. As a result, in 2024 my consulting rate for new projects will be increasing to $275/hour. This rate will only apply to new projects, so our existing contract won’t be affected, but I want to give you a heads-up now.
Of course, rate increases are a natural part of running a business. I value the relationship we’ve developed over the last two years, and certainly want to continue being of service to you and the team. Please don’t hesitate to reach out with any questions or concerns.
6. Most importantly, be confident. Deliver the message with confidence so your client knows you’re serious. Running the numbers to triangulate on your new rate should strengthen your psychological backbone. Also reflect on all the ways you’ve helped your clients and the value you provide. Whatever you do, don’t apologize. This is a normal part of running a business; why apologize for being a sensible business owner?
If you’re not going to raise rates at the beginning of the year, start dropping hints now to make it easier to raise your prices later. For example, right after a “win” or other milestone: “Yes, I thought the project went exceptionally well too! Let me know how else I can help. By the way, I’m planning to raise my rates in the spring, but we can discuss that later.”
Raising your rate doesn’t need to be awkward or intimidating, it just takes planning. If you want to grow your business or meet your financial goals, charge what you’re worth!
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