The price increase letter: how to tell clients you're raising your rates

June 15th, 2018 by Steff Green 12 minute read

Time moves on. Costs go up. The almighty dollar buys less and less. You learn new things and refine your processes and get better results for your clients. You start to ask yourself – am I being paid enough for what I do?

If you were an employee, you could go to the boss and make a case for a pay rise. When you’re the boss you can choose to raise your rates at any time, but you’ve got to sell that increased price to your clients.

That’s a scary thought, and it’s a thought that traps many business owners into sticking with their current rate sheet and pricing model for much longer than they should. If you want to grow your business or meet your own personal financial goals, you need to take a hard look at your numbers. You can’t keep doing more for less. Price increases are a normal part of doing business, and there are ways to introduce a rates rise without scaring away all your clients.

In this article we look at why, when, and how to raise your rates and set a fair price for the work you do.

When is it time to raise your rates?

The decision to raise rates is personal to each business, and can be sparked by many factors. According to Alyssa Gregory of The Balance, you should be constantly reviewing your rates, services, and competition to decide if your business will benefit from a rates rise.

One of the key reasons professional service firms choose to change rates is because they’re trying to move away from time-based pricing. As you improve your skills, you can complete client work faster. If you operate with an hourly rate, this actually means you lose money as you take less time to complete a task. Your pricing values speed over quality, which is not the way you want clients to think of you. In this case, you won’t just be raising your rates, but moving to a different pricing model that isn’t tied to timing.

Reasons why you might decide to raise your rates include:

  • Increases in the cost-of-doing-business (such as rent increases or other contractors raising their rates) eating into your bottom line. Raising rates will enable you to pass these costs on to clients.
  • You have more work than you can handle. Congratulations, you’re in hot demand! Raising rates will enable you to lighten your workload and focus on doing a great job for select clients.
  • Your skills have improved and you’re offering a higher quality of service, and you want your rates to reflect that.
  • You’re changing your pricing structure to better reflect the value you provide to clients, instead of the time you spend on their work.
  • You’re wanting to grow the business or meet personal goals and need more revenue to play with in order to achieve this.
  • You discover you have underpriced yourself in your market, and you’re making your pricing align with your competition.
  • You want to rid yourself of nightmare clients who quibble over every cent. Raising rates and changing the way you structure services may encourage them to look elsewhere. (See our previous article on firing bad clients).
  • You wish to provide a bespoke service or target a certain type of client/market segment who operate at a higher price point.
  • Stress and resentment due to overwork and budget constraints. Many business owners report that raising prices has an immediate positive impact on their stress levels.

Figure out your new rates

You’ve decided it’s time you got paid more for the work you do – congratulations! The next step is figuring out exactly what your increase will be and what your new pricing structure will look like.

You may opt to simply increase prices by 10%, or you may choose to redesign your pricing structure, create new packages, or move to a monthly subscription model. Here are some tips to help you make these decisions:

  • Know your worth. Understand the value your service brings to a business and price accordingly. (Learn more about value pricing on Cleverism.)
  • Analyse your time. Figure out which clients, projects and types of work bring in the most profit. Look at where you’re making money, and where your purse is bleeding out. Use your rates raise to plug the holes and focus on projects and clients that bring in the most revenue. If you use project management software, running reports on your timesheets will provide useful insights.
  • Test new rates on clients. If you list your rates on your website, then just changing them for future clients will be an easy way to test if you still see interest. If you negotiate rates, then test our higher rates on your next couple of projects to get a feel for how the market reacts. This is much less scary than jumping in with both feet.
  • Reflect your value. Before raising rates on your current clients, it can be useful to demonstrate how you’re providing value. Showcase recent projects and the value you provided. Shout about your accomplishments. Make sure clients know you’re going places and you’re bringing them along for the ride.
  • Consider budget alternatives. If you anticipate certain clients struggling to budget for your new rates, presenting them with a new, pared-back package may enable them to remain on your books while saving you time.
  • Offer a free trial. If you’re raising rates in conjunction with changing up your service offerings, consider allowing current clients to trial these new services free for one month. You’ll gain valuable input and will have the opportunity to convert clients to higher value packages.
Train your clients to expect rate increases. Laura Vanderkam wrote an excellent piece for Fast Company about what freelancers should be doing to command higher rates. One of her suggestions is to train your clients to expect increases by building language into your contract/engagement letter. According to Laura, a 3% increase each year is easy for most clients to handle, whereas a 10% hike every five years will cause a backlash.

How to tell your clients you’re raising your rates

Now that you’ve figured out your new service offerings and how you’re going to structure your new rates, you have to break the news to your clients.

This can be scary, especially if you’re a small business. You picture clients deserting en masse, leaving you without the funds to keep the lights on. The truth is, that’s rarely what happens. Most clients will accept price increases as part of being in business. Some of them may even admonish you for keeping them low for so long!

If you’re worried, you can stagger your notifications in order to minimise any potential fallout. Start by notifying a small subset of clients. Once you’ve moved those over to the new.

Many firms also introduce updated pricing initially only to new clients, then slowly roll it out to previous clients as their yearly packages expire. This won’t result in a sudden influx of available cash, but it will enable to you slowly introduce the change and manage any resulting gaps in your roster.

Sample price increase letter

Reach out initially to clients via email to let them know about coming changes. Keep your email professional and positive. Emphasize the great results you’ve achieved and resist the urge to apologise. Remember, you are a business owner, and are not required to justify changes in your business. But you want clients to during the process.

Dear Client,

I’m so pleased to hear how happy you were with last month’s figures. We’re getting some great results on the PPC campaigns and it looks to be driving growth. [opening sentence personal and speaks to specific positive client experience/results.]

We proud to be achieving such great results for our clients. In order to ensure we can continue to provide exceptional service, we’ll be increasing the rates on all our packages effective 1 June. Some of our packages will also be tweaked to reflect the services our clients most need.

You can see the new packages and pricing here [link]. We’ll be rolling this out to new clients from June 1, however, we wanted to give you the first month on your new package at the current rate [offer for longstanding clients] as a thank you for being such an amazing client!

This increase will enable us to continue to provide the quality and breadth of service you love. If you have any questions about the price increase or our new packages, don’t hesitate to let me know.

Yours Sincerely,

Finally-getting-paid-what-I’m-worth-Felicity.

After sending out the letter, make sure you:

  • Follow up via phone after a few days to ensure clients understand what’s happening and how it impacts them.
  • Show confidence in your prices. Don’t let a client talk you down to their current rate or make you feel as though you don’t deserve to be fairly compensated for your time.
  • Demonstrate professionalism, even if a client gets angry. Emphasize the value you bring to their business and that price increases are just part of the game.

What happens if a client can’t afford my new rates?

This happens much less frequently than you’d expect. The truth is that moving between service providers is a huge hassle and if a client is happy with your work they will deal with price increases because it’s easier than choosing and migrating to another firm.

Sometimes you will find a client who simply can’t afford the new rates, or who may be using the increase as a jumping-point for finding a new provider who might better meet their needs.

That’s perfectly okay. In fact, it’s good to get rid of clients who aren’t a good fit. If at all possible, try to part on good terms. You may life to refer your client to another firm who could meet their needs, or offer to extend their current pricing until the end of the business year. Provide assistance to help them transfer files and records over to their new supplier.

See, increasing your rates isn’t so scary, after all. Just remember, even though it will make a huge difference to your bottom line, your clients may barely even notice the increase as long as you continue to provide value. Go on, take a leap, and start charging what you’re really worth!

Have you increased your prices? How did you introduce the increase to your clients, and how did they react?

comments powered by Disqus

Get started now

14 day free trial. No credit card required.
Try It Now For Free See how it works