As I write this, I just asked one of my customers for a raise. This process is always a little nerve wracking, but it has to be done, and gets a little less difficult each time I do it.
One might argue that as an independent business owner (with a staff of one) I should tell customers my rates and let them decide whether or not to use my services–like a grocery store. However, I’ve worked with this particular customer for many years, and taking a softer approach to this negotiation seems like the best method.1
I won’t get into tactics, as I’m no expert–check out Never Split the Difference for an excellent reference on the subject–but there is some truth to the saying, “The squeaky wheel gets the grease.”2 The big point I’d like to get across to you is that however you do it, you must increase your rates from time to time.
As for specifics on how (i.e. how to justify) and why to increase your rates (and even two alternatives), read on. Better yet, subscribe below, then read on!
-To quote Rob Van Winkle, “Anything less than the best is a felony.”3
Unless you’re designing a bridge and it falls down because of your “less than best” work, this probably isn’t literally true. If you do perform excellent and valuable work, especially work that only you, or perhaps a handful of other people in the world can do, then you can name your price. If you’re doing medium quality work that many people (or now even AI) can do acceptably, demand–and the price you can command–will be correspondingly low.
Do great work. Find a niche that means your work isn’t a commodity.
-Letting down those that would have ~happily paid your required rates
Consider a situation where you can no longer justify providing a certain service to your customer per it not being profitable enough. Your choices are to 1) increase your rates or, 2) stop providing the service. The customer may depend on your service to the point where they would ~gladly pay higher rates. Or they may not be. Don’t just say “I can’t charge that!” Give customers a chance to decide if you are worth it before potentially hanging them out to dry.4
-Raise your rates; others can raise their rates
If you do excellent work, but charge less than you are worth, your competitors will have to charge low rates to compete. This may gain you some business, but at the end of the day you’re not only devaluing yourself, but you are also devaluing your competitors.
Do yourself and others a favor and make sure your rates at least keep up with the market. If you–per your excellent work and reputation–can set the market, all the better. For everyone!
While you may sell a product, your writing, or even a ditch-digging service, at the end of the day you are exchanging your time for money. And at the end of the day we only have so much time to sell, even if no one knows his specific supply.
I use a program called Chrono Plus Pro on macOS to track time on many of my projects, which works acceptably, though there are other options available. I started tracking my time for a customer that paid me by the hour. However, it is very instructive, and even motivational, to track projects and calculate your effective hourly rate (whether or not you actually get paid for your time directly).
Sometimes I get paid very well, and at other times I should consider putting my application in at Burger King.5
I once had a salesman tell me that his boss loved writing him big checks. He was on commission, so the more he got paid, the more the boss was getting paid. Ideally, as you charge your customers more you can provide and demonstrate more value to them, so that every time they pay your healthy rates they are still getting a great deal out of your relationship.
How you provide/demonstrate value will depend on the customer. At the end of the day, this is the most important point on this list. If you’re not providing a good value to the customer, they simply can’t pay what you would otherwise be worth.
If you track project times, you will get a better idea of just how many hours something should take. Multiply estimated project hours x your desired hourly rate and you have an amount to quote for a project (I’d advise adding a bit of wiggle room). So if you want to make $100/hour, and a job will take you 8 hours, 8 hours x $100 = $800.6
For repeat jobs/customers, if you are tracking your time you can say something to the effect of “based on the amount of time I’m spending on these projects, I need to charge $XXX for the next job.” However, try not to reveal the actual amount of time, or more specifics than needed in general. If you can just ask for the raise without providing justification do that. As noted above, whatever you need to charge still needs to be worth it to the customer.
Track personal/speculative projects to see if a project was worth the time input. I don’t always do a good job of this, but I’ve been tracking my hours for an upcoming kickstarter project… more to come on that front next week! Hint 👇👇
I generally consider rate increase on a yearly basis, because… well, that interval is somewhat customary, and it’s not short to the point where you’re really bugging your customer over and over. However, discussing my business with my friend Jason7, he asked if my contracts generally included a yearly percentage increase.
While yearly-ish increases per individual request are fairly common for me, having, say, a 5% increase automatically tacked on every year would take some of the guess/negotiation-work out of this process. On the other hand, if inflation was more than 5%, and/or if you simply think your value has increased more than the standard rate, then you may be limiting yourself. Overall though, I think it’s worth consideration.
If you don’t feel comfortable increasing your rates, you can also try to “contract hop” in the same way many try to “job hop” to obtain incremental raises. In both cases, this could be unfair to existing customers if you don’t give them a chance to match, i.e. increase your rate.
On the other hand, if you end up getting more contracts that you can personally handle, as a business owner you can consider expanding. This isn’t true if you’re full-time job hopping, and being able to structure your business is a huge benefit of working for yourself.
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Or read any sort of financial publication, as long as it occasionally talks about inflation and rising labor rates. E.g. if it reports that the minimum wage in California for fast food workers is $20/hour, this is a reminder that what was a good rate 20 years ago is no longer a good rate today.
Additionally, if you are a member of any sort of professional organization–and/or meet/talk with people in a similar industry–don’t shy away from discussing what people charge–especially if its the other person doing the talking. If they’re able to charge much more than you, that is a good indicator that you can (and should) increase your rates.
If you charge more than the person you’re talking with, consider sharing your rate anyway. This could come off as bragging in the wrong context–so use a bit of tact–but you may actually be doing that person a huge favor if that gives him the courage and/or motivation to charge what he is worth.
I don’t know your actual situation, and maybe you’ve just raised your rates and this article wouldn’t apply to you. If so, congratulations. I’m not sure why you’re still reading, but thank you nonetheless. Maybe you’d like to subscribe👇
To the other workers, bosses, self-employed people, proletariat, etc., be sure you’re charging what you’re worth. And if you find the market says that you’re not actually worth that much, maybe it’s time to find a new niche!
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