Raising your prices takes courage, but it’s often the only way to grow revenue when you’re a freelancer, solopreneur, or running a small service business. But it’s possible to do it without losing your clients–here’s exactly how.
Step 1: Figure Out Where You’re Most Profitable
When you first start out, it may be worthwhile to take on clients that aren’t very profitable to get some cash flowing and build momentum. Taking on a well-known client you can mention in your marketing or someone influential who can refer you to new business, even at slightly less than you want to charge, can help you get established—even if you’re barely breaking even.
But after a while, it doesn’t make sense to keep working with these clients. You won’t generate enough to cover your overhead or reinvest in the business. So tally up the cash you’re bringing in from each client every quarter, and look at the time and money you’re investing to complete each client’s projects. This way you’ll know if you’re breaking even or turning a profit. If you aren’t, you may be better off either raising prices, or replacing the client with a more profitable one.
Step 2: Research Market Rates
In consumer product businesses, it’s easier to figure out what prices the market will bear because your competitors advertise them online. In professional services business, you may need a different approach. Consider joining a trade organization that offers market reports on how much independent professionals in your field are charging. In my experience, $200 membership dues to such a group pays for itself many times over.
Talking with friendly competitors in the same geographic area can also help you find out the common rates for a particular service. Are most of them charging more than you do? Then it’s probably time to consider a rate increase.
Step 3: Calculate The Return On Your Clients’ Investments
Clients won’t mind paying you more if you’re doing a great job and you can show them how hiring you more than pays for itself. Look for objective ways to quantify the financial gains you’ve brought a client before approaching them with a rate hike. For instance, if you coached a client’s sales team for six months and now sales have tripled, you can easily make a strong case for paying you more.
The value you provide doesn’t necessarily have to translate directly into dollars, though. If you’re a speaking coach and your client has been invited to speak at better venues or more often, thanks to your coaching, then that may have value, too–even if your client isn’t getting paid to speak yet.
Step 4: Consider All Your Rate-Raising Options
The simplest way to raise rates is to charge more for the same service, but that isn’t the only way. Maybe you can repackage the services you offer so that, for instance, clients can no longer get a particular service à la carte and instead need to buy a package that builds in pricing at premium rates. For more ideas, look at how other players in your niche are packaging their own products and services, then brainstorm a few options for yourself.
Step 5: Test The Waters
Before raising prices across the board, try upping your rates with one of your friendlier clients first, or initiate the rate increase with new clients only. If you get pushback, you may need to refine your approach.
It could be that clients and prospects are willing to pay more, just not as much as you’re asking. So consider how you’ll deal with that possibility. You don’t want to work at a financial loss, but you don’t want to drive away all your clients, either. It could be that six months from now, your value will be much clearer, making your new rates easier for clients to stomach. Having a diverse group of clients, rather than concentrating your business on just one or two, gives you some leeway here.
Finally, regardless of what you charge, you won’t have a business if you don’t get paid. No matter what, don’t do more work for any client before getting a payment than you can afford to lose if they default. So consider using the period when you’re testing out higher fees as time to give chronically late-paying clients the boot. If a client can’t pay the $1,000 they owe now, it’s not likely they’ll be able to foot a bill for $10,000 later.
This article is adapted with permission from The Million-Dollar, One-Person Business by Elaine Pofeldt.