If you want to get paid more by your existing clients, the formula is simple:
- Communicate (or be willing to communicate about a challenging subject).
- Accept the challenge.
- Understand how you add value.
- Be okay if they part ways with you.
- Give them an extended ramp-up period.
You aren’t always going to succeed. (I think you’ll rarely succeed.) But this is a bullet that’s worth firing off. (Why is it worth doing if you might fail? Because as I touched on in yesterday’s letter, you want to start raising your rate when you’re in demand, booked solid, or in an otherwise stable position. That means you’re somewhat insulated against the risk.)
Let’s dive in.
First off, this boils down to ‘use your words.’
If you refuse to have a (potentially hard) conversation with your client about compensation, you will never get paid more. Full stop.
You need to be willing to have that hard conversation. If you aren’t willing, you won’t get to earn more from this client.
Second, accept the fact that raising rates on your existing clients is challenging.
You’re an outside contractor/freelancer/consultant. They aren’t your employer. You aren’t their employee. They owe you nothing!
On top of that, you are — ideally — a fixed, non-variable cost in your client’s business. They (mostly) know what your costs will be in a given month/quarter/year. When you show up and say, “Hey, the price is going up,” it can result in some unpleasant feelings on their part.
Plus, your contract might specify things about your rate. Or how you can increase it. Or if you even can increase it. If that’s the case, this turns into contract negotiation. (Call your lawyer.)
So, again, it boils down to communication. Use your words.
Third, understand that value > price > cost.
You need to make sure that your value to your client exceeds your price.
When someone buys something from you, they have a Value (V) in mind for the service they’re buying.
They decide to purchase your service because they perceive the Value (V) they’ll receive by purchasing as higher than the Price (P) you’re charging.
V > P
Your Price (P) for your service shouldn’t equal your Cost (C) for the service — your Price should be higher than your Cost. That’s how you make a profit.
If you’re considering raising your price, you should first make sure you have a grasp on:
- Your value to this client. What are you doing that’s valuable for them? How (or why) is it valuable? Is it saving them money, making them more money, or saving them time/effort?
- Your price to this client. How much are you charging? How much do you want to charge? How does that price line up with your value?
- Your costs. How much does it cost you to perform this work? What’s your profit margin look like?
And, additionally, you should have a grasp on:
- Your client’s best alternative to working with you. Just like you need to understand your Best Alternative To A Negotiated Agreement (BATNA) in a negotiation, here you need to understand your client’s alternative to working with you. If you got hit by a bus (heaven forbid), what would they do? Hire another contractor? Task an employee with handling what you were handling? Something else?
- Your client’s cost for their best alternative. If they needed to hire another contractor to handle this work, how much would that cost them? How does that compare to your cost?
Do you know what your value is to this client? If not, you should immediately start there before working on raising your rates. Have a conversation with your client to understand what’s working well, where they see the value, and what could be working better.
Fourth, be okay if they part ways with you.
Again, raising rates on an existing client is a challenge. Going into this conversation, you have to be okay with all possible outcomes. Maybe they’ll decide they don’t want to pay more (or choose to head in a different direction with this work), and you’re out a client.
You need to be okay with that, or else this isn’t a conversation you should have.
Consulting Grand Poobah Alan Weiss recommends firing the bottom ~10-20% of your client list every year. That’s how you can make space for new, better, higher-paying clients.
If your attempt to raise your rates on an existing client goes south (and they’re no longer your client), think of this change as you making space in your business for new, higher-paying clients. It isn’t a failure. It’s you making room for better clients.
Now you can quote your new, higher rate to all leads you encounter. It might take a few weeks or months to replace the client, but you’ll be replacing them with a new client at your target higher rate.
Fifth, if they say yes, give your client an extended ramp-up period to the new rate.
Let’s say you charge $100/hour. (Hint: Don’t charge hourly! Read Hourly Billing Is Nuts https://jonathanstark.com/hbin.)
And, for this example, you’re raising your rate to $150/hour. That’s a sudden (and unexpected) 50% surge in a non-trivial cost. Clients might see the value in your services (and know that your value is more significant than your new price), but even so, an everlasting surge on your consultant’s pricing is… not that great.
So, boil that frog.
Give your client a multi-month ramp-up period to go from where you currently are to where you need to be. Maybe that looks like:
- Month 0 (this month) – $100/hour
- Month 1 – $125/hour
- Month 2 – $135/hour
- Month 3 – $150/hour
Or maybe that looks like saying:
“In 3 months, I’ll be raising my rate to $150/hour. Until then we’ll continue billing at our current rate.”
Is either ideal? No. Not for you (it takes a few months for you to make more money, you’re still billing hourly) and not for your client (they’re paying more, which they likely don’t love). But this is a way to earn more and ramp-up to your higher rate while making it easier (or less hard) on your client.
Pausing For Insights
From the 800-ish words so far, I’m guessing you can glean that in my experience, raising your rates on an existing client is hard. Very hard. ‘Flip a coin and if you lose the flip you might lose the client relationship’ hard.
But if you’re underpaid relative to your value to your client and your value on the open market and you want to change that and become more profitable, it’s a bullet that you’ve got to fire off. (If you’re being underpaid and you don’t care because you enjoy the current situation and it’s meeting your needs? Then keep on keeping on, friend.)
Is it easier if you aren’t hourly and are, instead, weekly/monthly? Sure, a bit. But even then, it’s a challenge with existing clients who might be accustomed to your previous pricing.
How Productized Services Are Different
It’s much easier to raise your rates on existing clients if you’re selling fixed-scope, fixed-rate services aka Productized Services (https://productizedoffer.com/).
With a productized offer, you’re selling a fixed output. Maybe it’s “Get on 5 podcasts as a guest”, “SEO Audit + 5-8 SEO opportunities for your Shopify store”, or a “Done-for-you case study without the awkwardness.”
In those cases, when you’re selling a thing (a productized service) instead of your time, it’s easier for a client to grok the increase. “Oh, the price for this output (e.g., podcast, SEO audit, case study) went up” rather than, “Oh, the price per hour went up. Crap.”
Again, you need to over-communicate a price increase to your clients. Here’s an example:
“Hey there. I’m enjoying working with you and helping you guest on podcasts. I’m writing to let you know that my costs have increased for this service over the past few months and as such, I’m raising my rates. You have been paying $1,500/month. Starting in March, my price for this service is increasing to $1,750/month. Let’s discuss this on our next meeting and confirm the next steps.”
Your Next Steps
Start by communicating with your client. Not immediately about them paying you more money.But about value. Your value. Talk with them about where (and how!) your work is helping.
Once you understand the relationship between your value to your client and your cost to your client, think through the details of the relationship.
Then (and only then) start the conversation about raising your rate.
And again, if that conversation results in you parting ways with your client, accept that that is a change that is freeing you up to work with other, higher-paying clients.