How to Raise Rates as a Freelancer
As a freelancer, increasing your rates can be sticky and awkward. But there’s really no need to worry—simply put yourself in the client’s shoes, be straightforward and you’ll be amazed how smooth the process will go.
Running a freelance operation is like running any business—there’s going to be slumps and crunches, new clients and bad clients, fun projects and rather-sit-on-a-bed-of-nails projects. And like any brick and mortar operation, a freelancer’s business has only two paths: success or failure.
Maintaining a profit is key to the health of your business. There are other standards of success (pro bono work, being your own boss, achieving professional recognition), but the IRS only cares about one thing: your bank account.
Many freelancers make the mistake of simply charging too little for their time and talent. This is very common among those just starting out. Novices are drawn toward contests, bidding wars, “special discounts,” and working for free in order to gain experience and build a portfolio. I am a prime example—when I first started, I billed obscenely low rates, got sucked into Elance, and struggled to pay my bills because I was constantly at the mercy of pleasing clients. I worked long, long hours and not once turned a profit.
Many of you reading this are nodding your heads. So how does one get out of this hole? While there are several things a young Padawan designer must do in order to become a freelance Jedi Master, the first is simple: increase your rates!
Define Why the Rate Increase is Necessary
Carefully weigh the reasons for the rate increase. Make sure there are legitimate business reasons, not personal financial problems. A freelancer’s billings are often all or a great portion of his income, so personal finances do come into play, but there are clear ethical guidelines. A gambling debt is not your client’s problem. An engagement ring is not your client’s problem.
However, new equipment purchases, office upgrades or new personnel affect how you run your business, and clients directly support that. There is a lot of grey area here, and these are not hard guidelines. Be prepared to explain the reasons behind the increase to your clients. It’s amazing how people smell bullshit when it comes to money, so it’s best to avoid serving the stuff in the first place.
If you don’t have good business reasons for increasing your rates, don’t do it.
How Much to Increase
This, of course, I can not answer for you. For a moment, think of freelancing as a salaried position. 5% is a typical pay bump, but is probably too small for a freelancer. (Since you’re not going to raise your rates too often—certainly not more than once a year—make sure it’s worth it.) 15% is a good raise for outstanding work. Avoid jumping more than 25%—that will only raise eyebrows. Also avoid weird rates—it’s always best to stay in multiples of five. (If your current rate is $50 an hour, raising it 25% would be $62.50. That’s nasty. Stick with $60.) If you have carefully thought through why you need to raise your price, then you should have a good idea of how much the raise needs to be.
Informing Clients of the New Rate
Professionalism is critical. Put yourself in the position of the client—if a business associate wants to raise rates, you’re going to ask yourself three questions: how much, when, and why. It’s now up to you to communicate this information to your clients.
First, decide when the rate goes into effect, and then give clients plenty of time to budget. Pick a memorable date, like the first of the month, Thanksgiving or the New Year. Then give the clients at least six weeks advance notice. The last thing you want is to spring a rate hike a week prior. Its bad business and clients will feel like the increase was an impulse move to make a few extra bucks instead of a deliberate, strategic business decision.
Make your announcement formal and comprehensive. Tell everyone at once. Draft a well-written e-mail that explains the following:
- The reason behind the rate adjustment. These are the business reasons we discussed above, not the personal, “I need to pay my girlfriend’s credit card” justifications.
- The exact amount of the increase. You don’t need to explain how you came to that number.
- When the rate goes into effect. Again, give plenty of time for clients to adjust their budgets for you. Many businesses have very tight marketing purse strings and will be appreciate your ample forewarning.
- All current projects and contracts signed before the rate increase target date are perfectly valid for the current rate, even if the project carries over the date of increase.
- A giant “thank you” for their continued business.
This communication should be crystal clear and not circumvent the topic; in fact, your first sentence could very well be “I am writing to inform you that my freelance rates will be increased to XX on XXX.” Do not apologize.
Proof read, spell check and revise until this e-mail is perfect. Have two friends read it, preferably one in the field and one who has nothing to do with freelance graphic designers. Then send it.
When the Deed is Done …
After you send your e-mail, prepare a physical letter reiterating (without copying your original message) the what, why and when of the price increase. Thank your clients. Mail this within a week.
You will be surprised how many people won’t even blink an eye. I have gone through this process three times now, each time with a different cast of clients, and almost every single one has continued to send me business.
There is often the odd client who feels he deserves the old rate for his tenure, loyalty or whatever. He tries to be buddy-buddy and might threaten to take his business elsewhere. In this circumstance, call his bluff and let him. It is simply not ethical to increase your rates for everyone and let one guy get away with a discount. Any client who does try to pull this is probably not focused on the quality of your work and is more trouble than he’s worth anyway.
Finally, enforce the increase. Stay solid on your target date. Don’t “accidentally” bill at the old rate. Once the target date is passed, the story is over and business goes on as usual.