When You Have to Raise Your Prices

When I first started freelancing for companies--about four or five years ago, when I still had a full-time job--I really didn't know the first thing about setting my prices. I was a service provider on Elance, and I based my prices on what other people were bidding. At first, I tried to come out on the low end of the pack because I believed that would get me more work, especially as someone who didn't have a ton of experience or feedback. For those of you who've worked on Elance before, that tells you how low I was charging--even the high priced providers on Elance often don't charge market rates.

I never planned to be on Elance long-term--the fees were just too high. But although I was successful in moving my business away from Elance, I had trouble moving away from Elance rates. For a while, I priced myself quite low--simply because that's what I was used to charging and that's what I believed people would pay.

I had a wake-up call when I quit my full-time job. I realized I needed to make a certain amount to succeed--and I developed a strategy for setting my prices. Last year, all seemed well--I was charging enough to pay my bills, and I was thrilled to death that my business was thriving.

Then I got another wake-up call. My tax bill came due, and it was much larger than expected. I didn't put money aside for taxes last year, so it all had to come out of my savings. If you're a freelancer, you know how crucial your savings account is--it's your safety net against slow months, your secret weapon against emergencies. Without it, you're naked. I jumped into an onsite job--something I really wasn't thrilled about doing--that took my attention away from growing my business for two months, simply because it was a guaranteed way to replenish those savings.

In the wake of the Great Tax Disaster, I decided to re-evaluate my prices. I realized that if I wanted to make tax-paying painless, I had to account for it in my pricing--just like I account for all other expenses. That means I had to start raising my rates again.

I have a lot of repeat clients, and some of them have been with me since the Elance days. Last year I didn't get much resistance to my price hikes--but just yesterday I had a long-term client who drifts in every couple of months get back in touch. The quote I gave him was higher than what I've given in the past, and I got some resistance. It's not that tough to charge more to new clients, but with your old ones, I imagine this isn't uncommon. Of course, sometimes you just outgrow certain clients--but when you're first raising your rates, it can be tough to risk losing regular customers who give you a lot of business.

So I'm throwing the question out there to freelancers: how do you handle raising prices for regulars? What's worked for you in the past, and what hasn't? Do you take the "love it or leave it" approach, or do you try to hang on to customers who are used to paying lower rates?