The best way to professionally raise my rates?

August 15, 2006 9:13 AM

Independent contractor filter: what is the best way to simultaneously raise my rates and not lose the business?

About 3 months ago, I left my full time web developer job and sort of fell into freelancing. Basically, I was looking for a new job, saw an ad looking for freelancers, answered it, and this company became one of my first real clients.

At the time, I gave them a hourly rate ($X) that I pulled out of the air based on my hourly rate as a web developer for a corporation. As time went on, I discovered I actually need to charge $Y as a freelancer.

How do I gently and professionally let the company know that my rates have changed for work going forward? This is complicated by a couple of things:

1. my increase from $X to $Y is about 58% -- which is a pretty substantial change to just spring on someone.
2. I have a great working relationship and fun assignments with this company, and really don't want to lose the business. It almost matters more to me than the money.

Would it be smarter to conservatively raise the rates over time, so I'm not just springing a 58% increase on them? Or am I just not being fair to myself at that point? Did working as a corporate code monkey for a few years dissolve my spine, and I just need to learn to be more assertive already?

Any thoughts on this, how ever out there, are appreciated.

posted by Famous to work & money (15 comments total)

Since you have a great working relationship with them, you should just be honest and explain why your rate is changing. They probably know they're getting a bargain at your current rate.

When my company raised its rates last year, we gave our existing clients a few months notice -- it was in the Fall, and we said something like, "Starting January 1, 2006, our hourly rate will be $X." A few months is probably not necessary for you, but if they're using you regularly, and have you budgeted for some near-term projects, they will appreciate advance notice versus an immediate change.
posted by medpt at 9:28 AM on August 15, 2006

Raising your rates over time will look worse. "She's raising her rates again?" will be the thought process. It's like band-aid, a single increase will be a lot better.

A lot of people advise that you charge what you need to live and make a profit when it comes to being a freelancer. This is not bad advice, but misses the point that your value is not really self-defined, but defined by the market (unless you're absolutely killer and unique in what you do). If you cannot get work charging $X + 58%, then you're not worth that, even if that's what you need (this is one sad reason many new freelancers end up caving in).

It's for this reason that I rarely charge hourly, but instead work on a 'I'll do X for $Y' basis. I have tons of shortcuts to make jobs take a lot less time than people expect, so really I'm getting a good hourly rate despite seeming reasonable.

Before you can hike the rates, you need some safety blankets (or a lot of balls). Ideally you'll have some savings so you can take time to find new work if your rate increase fails badly, or you'll have other clients to fill in the gap (it sounds like you might only have a few clients so far). If you depend on any one client, you're really not a freelancer, you're an employee without benefits.

Good luck!
posted by wackybrit at 9:31 AM on August 15, 2006

instead of raising your rates for this client, could you find other clients and charge them more from the start, and then be a little less available for your first client? Alternatively, do the first part but then try raising your rates with client no. 1, safe in the knowledge that you have other clients to fall back on if they object. You'll be a more confident negotiator if you have options.
posted by altolinguistic at 9:45 AM on August 15, 2006

Some great advice so far. I should clarify:

a) I am getting work at $Y ($X + 58%). All my new clients get charged this rate.
b) This is not my only client. In fact they don't represent a substantial part of my work load. I just really like working for them.

The advance notice and the advice against raising rates over time are both very good points that I had not even thought of.
posted by Famous at 9:45 AM on August 15, 2006

I agree with medpt - direct honesty is definitely the way to go here. Explain to them your reasons for the rate increase and since you have a great relationship with them they will (hopefully) be understanding of your situation. If they really love your work they'll see it's worth it to keep your services. Best of luck!
posted by aceyprime at 9:50 AM on August 15, 2006

Another thing to consider: are you getting non-monetary benefits from this client?

They were your first freelance gig. Did you use them in your portfolio? Have you used them as a reference? Have they referred work to you? Basically, in a nutshell, how useful are they in the social networking aspect of your business?

When I was doing freelance work (not web design), I would intentionally lowball my prices for jobs with groups or projects that I really wanted to work with. It was by outright donating time to one project for a non-profit that I made the connections that landed me my current position when I decided to rejoin the land of the salaried.

All of which is my long-winded way of saying that $X isn't always $Y-58%. The status quo may be in your advantage, especially when you said they don't represent a "significant part of [your] workload."
posted by Freon at 10:23 AM on August 15, 2006

Hey now, I would not be happy if one of my freelancers sprung that on me all at once.

If the rate you're making is patently unfair, and I liked you and your work, I'd have mentioned it to you by now, and talked about ways to compensate you more appropriately.

If the shoe was on the other foot, and I were the contractor, and I thought that the rate was patently unfair, I'd be feeling a little taken advantage of (how long has this been going on?)

However, if the rate is in the lower end of the normal-ish range, I'd talk to the client, explain that I need to raise my rates by a certain amount - and that amount would be less than 58%. If I'm getting $50/hr, I'd go to $60 or $65, for instance. It still seems similar to $50, know what I mean? You go $75 and it starts looking too much like $100. Get there in a couple of bites - or don't get there at all. You don't have to charge everyone the same rate, esp. if you have NPO clients or buddy clients, or a client that gave you your first break, like this one.
posted by Mister_A at 10:38 AM on August 15, 2006

WHoa! Missed the part about you only being f/l for 3 months. Still, tell 'em you need to go to $x + 10, I think they'll get it that you went low-ball at first, and if they dig you, they will not want to lose you as a f/l. Remember, they need you too!
posted by Mister_A at 10:41 AM on August 15, 2006

What's your "walk-away price"? That is, if you don't get paid at least $Z then it's not worth doing the work (considering the other possible benefits that Freon mentioned). If Z=X then you're bluffing when you ask for more and that can leave you with egg on your face (that is, you will damage your credibility if you ask for more and then settle for the same old price). If Z=Y (or anywhere in between) then you just let them know that you need to raise your price in order for the job to make financial sense for you and let them take it or leave it. Keep it friendly and leave the door open to future work.

I also agree with wackybrit that hourly rates for contract work should be avoided if possible. But having a price per project requires a careful definition in the contract of what work is included and what requires additional pay (so you don't end up doing twice as much work as expected for the price when they ask for the final product to be revised three times, for example).
posted by winston at 11:28 AM on August 15, 2006

Someone I used to work with once said "I charge whatever it takes so that I don't feel resentful".
posted by amtho at 11:42 AM on August 15, 2006

If you do work for your other clients at $X+58%, then you have an excellent explanation to give to this client when you do let them know (well in advance) that your rate will be changing:

Something like "I like you guys, and I like the work I've been doing for you. The thing is, it doesn't make good business sense for me to turn down work at $X+58% because I'm busy doing work at $X. Because of that, in (30 days / 60 days / 90 days) I'm going to be raising my rates across the board, including for you guys, to $X+58%."

Maybe they'll want to negotiate. If you value your relationship with them, or like them, or whatever, perhaps you can allow them a small victory and charge them only $X+40%. Or stand firm at $X+58%. Depends on how you feel about them.
posted by dersins at 12:00 PM on August 15, 2006

Did you use them in your portfolio?
Nope.

Have you used them as a reference?
No, I asked, and while my contact at the company would have been happy to, he said he couldn't because of the legal issue of misrepresentation.

Have they referred work to you?
No.

I also agree with wackybrit that hourly rates for contract work should be avoided if possible.

I do some project-based pricing, but very often I find that hourly is the best way to avoid the dreaded scope creep. I'm young and energetic and if someone wants to expand the project halfway through, as long as I get paid for every hour of my time, I really don't mind. I assume someday my stance on this will change, but right now I'm still feeling this whole thing out.

Someone I used to work with once said "I charge whatever it takes so that I don't feel resentful".

I think you are onto something here. I no longer feel comfortable at $X, but I don't have to get $Y. I could go for $Z and still be happy.

So, do I approach this as a negotiation, or just an announcement? What's the best way to get maximum value for my work and still keep everyone happy?

On preview: dersins's answer seems to satisfy this last question.
posted by Famous at 12:07 PM on August 15, 2006

Tell them you'll be upping your prices in the future, apologise but say it's necessary for you to do a good job and you'll be happy to discuss how they feel about it (a door ajar for negotation without openly inviting it). Do any imminent work for the old rate, and offer a slight discount for favourable terms (being able to publicly take credit, getting a link on the home page, being paid half up front, scheduling work well in advance, etc.). You have to be willing to lose some clients though.

At the same time, could you try to give them better value and a better impression? Improve the way you plan work and communicate (client extranet, regular email updates, etc.), smarten up your logo and site, be more efficient and better-prepared in meetings, and formalise your testing & deployment procedures. Act like you're worth the extra cash.
posted by malevolent at 1:55 PM on August 15, 2006

(I've just put up my rates by 50%, but as part of a move from working in my spare time to full-time freelancing, so I'll be giving clients more attention and be better organised)
posted by malevolent at 1:59 PM on August 15, 2006

a) I am getting work at $Y ($X + 58%). All my new clients get charged this rate.
b) This is not my only client. In fact they don't represent a substantial part of my work load. I just really like working for them.

These are the ideal answers. The question, therefore, comes down to.. "do I enjoy the work enough that it's actually worth spending some time doing it at a lower rate?"

I have old clients I still do a small occasional amount of work for at bargain basement rates merely to maintain the connection.
posted by wackybrit at 2:39 PM on August 15, 2006