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Why You Should Raise Your Prices and How to Tell Your Clients
Marshall Taylor March 31, 2021 · 5 min read
Billable time: If you’re working, count it.Be aware of your time so that you get paid for the work done — even the small things. Accurately keeping track of your time will make it easier to approximate budgets for future projects that are related. Don’t be afraid of tracking details like phone calls or travel time. They should be taken into consideration when constructing your hourly rate. Use a time-tracking app to really up your game. Many of them can even tie into accounting software to help streamline the billing process. Even a basic timer will do to help maintain your purpose and give more accountability to your invoice.
Expenses: What does it cost to do your work annually?Track what you spend, so you know what you charge. Any dollars spent on items that help the operation of your business, small and large, should be accounted for when establishing your expenses. Examples of costs for a typical freelance design business may include:
- online subscriptions,
- software subscriptions,
- office space (whether from home or not),
- internet fees,
- and any other goods or services you pay for that get used towards the business, in partial or whole.
Profits: How much do you want to make annually after expenses?A little more abstract than the other variables, profits are what you wish to make to satisfy your goals for the business and your living standards. A good starting point is to set a target annual salary for yourself as an “employee” of your freelancing endeavour. Next, consider what your goals are with your freelance business. Do you wish to expand and will new capital be needed for the future? Add on 10% – 20% of your target annual salary to accommodate the growth of your business. Example: My target salary may be $55,000. After adding 15% for business growth, that makes it $66,000.
Industry research: What do you know about the client?Is the client more likely to be price sensitive because of their industry? Nonprofits, churches, and schools are a few examples of clients that may be a little more price sensitive, being aware of this before proposing a price may help you land the contract. Find out your local rates. Getting the inside scoop on how other freelancers are pricing their services will give you better awareness of how you may want to structure your pricing. This can help you stay competitive in more price conscientious markets where over pricing could get you rejected. Bonsai has recently put together a handy tool that sheds some light into local billing trends, so far limited to a few countries.
Annual billable hoursThis is a fairly easy number to calculate: (40hrs/week times 52 weeks/year) less (vacation hours and sick hours) I recommend sticking by a 40-hour work week and a fairly normal amount of sick/vacation hours to help regulate your chances of projecting an accurate hourly rate to charge. This will additionally help give you a more market competitive rate and better showcase the hourly rate that you need to work for in order to achieve the annual salary you wish to have.
Add it up(Expenses + Profits) ÷ Annual Billable Hours = Hourly Rate Compare your calculated hourly rate and see how it stands up against your competitors. Charging above and below the local averages will have its pros and cons, make sure your price reflects your goals and supports your businesses future.
How to tell your clients your rates are increasingFor most freelance work, an email is an appropriate way to contact your clients about price increases, but use your judgement for when whether a phone call or an in-person meeting would be better to communicate your business’s new direction.
Be upfront early onWith a topic like price changes, I find it clearest to be upfront with the purpose of contacting your client. Let them know in topic line that your prices are increasing and give them a timeline, then use the body of the email to better illustrate your intentions and how this will benefit them as well. By being upfront in your topic line, I have found this leaves less room to be interpreted as bad news instead of a new opportunity.
Where you have been, where we can goUse the body of the email to showcase the relationship you have with your client and how you can continue to build value for them through your various services or products. Start by recapping the highlights of your work together so far, and when possible, use specific examples of successes. For instance: with the redesign of your website’s email newsletter call-to-action we have seen a growth of 153% in website-driven subscriptions monthly. Secondly, discuss what benefits can be built into the future. Your price increase may reflect your business’s growth, and if so, discuss the new opportunities that this growth will bring to your clients – how does this help them? Reinforcing your relationship with your client during this process by showing them how you help them best is a great way to better ensure you carry the right clients with you into your freelancing businesses new future.
Be in contactStay in contact with your client, even consider creating a call-to-action in your email for your clients to reach you with any questions about your new pricing structure. Furthermore, respond to each client promptly, this goes a long way to help eliminate any ambiguity and gives you another chance to help build a trusting relationship with your client.
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