Friday, May 30, 2008

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?

7 comments:

Lillie Ammann said...

I haven't had to raise prices often, but when I do I discuss the need for an increase with the client first - then get into the amount of increase. I have met with little resistance, though one client had concerns that she would not be able to pay the new rate. We agreed to try it with the proviso that I would reconsider if she got in a bind. She has used me even more since then with nary a complaint.

John White, Localization Guy said...

Frankly, I think we're close to the time when all bets are off. NOBODY in this country can deny that energy costs are through the roof, and only people who don't go to the store or read the newspaper can deny that food is more expensive. I don't think it would be inappropriate to plead all-around economic malaise and raise rates accordingly.

If you get pushback, try an arrangement to guarantee incrementally more work at the current rate.

Susan Johnston said...

Jennifer, I'm not at the point of raising my rates yet, but I feel for you. Despite the loss of networking and business-building opportunities (not to mention autonomy), onsite gigs can be very appealing.

If I were you and I genuinely liked the work I was getting from a long-time client, I might stick with them even at a lower rate. In fact, one of my pubs had to lower their rates recently but the PITA factor is so low I agreed to keep writing for them for now.

There is one upside to raising your rates for new clients, though. Many people equate higher rates with higher quality. Though some people may not want pay $X more, others will respect you for it.

SelimaCat said...

I just recently raised my rates. Most of my clients were paying a higher rate to begin with, but two of my clients were holdovers from my beginning days and were paying unreasonably low rates. I sent them emails at the beginning of April saying that as of May 1, my rates would go up on any new work. One didn't even comment, which was a great relief. The other argued (good-naturedly, he said, but it was still stressful for someone who was brought up to think nice girls don't talk about money) and proceeded to pile on more assignments than I could undertake in a month. He knew I couldn't do them all before May 1, but he wanted me to accept them so I would have to count them as "old work" (i.e. pre-rate change).

Eventually he had to face the rate change, though, and there's only been some mild complaining since. I felt pangs of guilt, but then I remembered how he argued with me about my initial prices until I dropped $5/hour and my initial estimate (I said 50 hours, he said 30, project ended up being 65). The rate change means I can afford to keep working for him, but it was excruciating.

Lori said...

I view rates as something that's pretty close to non-negotiable. There are exceptions, but dang it, the price is the price. I don't set rates willy nilly. I know what it will take for me to survive and actually live a half-decent existence.

If the client is lost because the price is too high, that's not the client for you.

In my experience raising rates, I've lost clients, but they were ones who were paying very low rates to begin with. That's almost a relief as you're not spinning your wheels and exhausting all sorts of time for very little payment.

Selimacat, that your client was brazen enough to pile on work pre-rate hike is a bit sleazy on his part. If he were any kind of business person, he'd have tried to negotiate a bulk rate with you. Glad he settled down after the fact. :))

Yuwanda Black said...

Jennifer, as I raise rates every 2-3 years, I rarely lose clients. In fact, I can't remember losing one b/c of a rate hike.

I used to work in publishing and learned that editorial is not an industry that withstands rate changes yearly. So, when I set a rate, I usually stick with it at least two years; sometimes three.

HOWEVER, if I encounter an unusually sticky project with a client, I do let them know that it will cost more because of x, y and z. Most understand.

One last thing: When negotiating rates in the beginning, I set very tight guidelines. That way, clients know exactly what they're getting, so when a project lands outside those parameters (and many will try to pass on the more difficult projects for the same rate), I gently remind them of the guidelines initially agreed to and they either reset the project guidelines, or rescind the project.

While this may not work for all freelancers, it works beautifully for me. After all, who's going to quibble if you haven't raised rates in 2-3 years. Most clients feel it's more than fair.

Just my 2 cents.

Yuwanda

Anonymous said...

I like previous posters view rates as largely non-negotiable. They, and you, will respect you more in the morning if you stand firm.

That said, rates need to reflect the economic reality of the times and should be adjusted upward AND downward if your concern is the longer-term relationship. Additionally, many folks aren’t prepared for rebuttals and have a limited negotiating arsenal.

Consider an upfront payment against future work or, my favorite, stricter payment terms (Net 7 rather than Net 30, for example).

I’m a consultant in banking for large firms, so admittedly, it’s different than publishing. But, I think that there are still similarities. And remember, always know the minimum amount you can make per day/week/month to sustain yourself and meet your goals. Without this info, you have no basis for knowing what is a good or bad offer.