157. How do you tell clients that you're raising your rate?
Do you increase your rate with inflation? 📈 As of 2022, your hosts are! Hosts Phil and Lauren get real about all things price increase—the when, how, and if of telling clients—and encourage you to charge for your worth. This episode is going to inspire you to take an objective look at your business, your margins, and the way you communicate your value.
Episode transcription
Phil
Well, hello there. Welcome to Brand Therapy. I'm Phil.
Lauren
And I'm Lauren.
Phil
And this is the podcast where we help you position, build, and promote your brand. Today we're talking about money. And you know by now if you've been, or you've listened to one of our episodes before, that money has a topic near and dear to our hearts. It should be to you as a solopreneur, or as a small business owner, or as really, anyone in the world now. Money equals lots of things, a sign of success, freedom. It means something different to everyone. And we're going to have a conversation about increasing the amount of money flowing into your business, ideally, when is it time to raise your prices? And how do you do it
Lauren
Yes, without making clients feel uncomfortable or wanting to take their business elsewhere? So we actually have only had a very brief, Slack conversation about this topic. But Phil, I have a lot of questions about your perspective on things like the right way to do it with clients. But maybe let's kick things off by just framing why someone might want to increase their rates?
Phil
Sure. No, it's funny, because you and I have had like a handful of casual bite sized conversations about it, but we haven't actually talked about it. And I thought, Oh, that would make a really good podcast episode where we actually take the time to talk about it and bring the listener along with us for that, why might someone want to raise their prices. If your prices have stayed the same for several years, it's worth some consideration. Because even if you're not increasing your own prices, and the prices of things are increasing around you, even just take inflation, you know. Which by the way has, been higher than it normally is, it's an important reminder that if you're not increasing your prices, while the price of everything is increasing around you, and it might be time to adjust with that. Now, that's one thing that people might not have thought about.
The second one is a little more obvious, but you have been in the game now longer. If you're continuing to provide a service or a product that you have for several years. Well, those years have added on to your years of expertise, your years in the field, your years, you know, since you established as a business, and there's a good chance, if you've been doing that work ever since every day, then you're more of an expert now than you were. And that might be reason enough to increase your prices.
Lauren
I completely agree with you, particularly on the inflation side of things, and just the rising costs of living on this planet. And there's this one post I saw on LinkedIn that actually triggered me to contact you and basically say I think we should raise our rates in 2022. So it's by a guy named Jerry Lee on LinkedIn. And I'm just going to read his post outright, because it was really, really good. ‘A promotion this year should at least result in a 15% pay increase. Why in the past year, there was a 6% inflation rate in the United States. What does this mean? This means that if you are not getting at least a 6% Raise, then you are losing money. $1 last year has more purchasing power than it does today. Therefore, a raise should be more than 6%. A promotion should be more than an average raise’. And then he did a poll to ask people what they thought. But I thought the the way of framing it as you losing money if you don't proportionately increase your rates to the cost of the US dollar or wherever you live, is kind of fascinating. Now, I'm not advocating for making monthly fluctuations with inflation rates, you know that that would be a little absurd, obviously. But in the case of us, I mean, our billable rates have honestly been the same for years, more than five years.
Phil
Since 2015 I think 2016 Maybe?
Lauren
Yeah, maybe? I think it might have been a little earlier.
Phil
Too long. And part of the reason is that we're not in a traditional corporate environment where negotiating for raises is a bit more commonplace. When someone is working for a corporation, they're in a safe and secure, locked in salary. And that's something they have, you know, to, I guess look forward to or reiterate their value. I can't imagine being in that because for us if we want more money our first thought isn't ‘let's raise our prices’, our thought is ‘let's hit the ground running and pitch and do some new creative initiatives to stir up some business. a business. It's just not something we talk about. It’s probably not something we have done enough, because I think as freelancers or as even a small business, we just don't think in this way.
Lauren
Totally, totally. Okay. So I think we should talk about some examples of how someone might raise their rates. And just tactically they should, how they can think about this.
So I, for one, have some hesitations about just sending an email out to your clients and saying, hey, in a month, we're raising our rates, that actually doesn't sit well with me, and you know, me, like, I'm really aggressive when it comes to money, but something like that I feel it could potentially jeopardize your relationship. What do you think?
Phil
It also makes me uncomfortable, really makes me uncomfortable, because it puts the wrong amount of responsibility on your client. It's just not positive. It's not it's not a positive experience to pay more for the same thing. There's just some psychology there that I struggle with, like, why is it your clients problem? Why should they have to incur a greater expense because they're buying the same thing in January? That would have been cheaper in December? I'm just not a fan of that approach. I just don't see, I guess, you know, positivity is my number one strength out of the 24 strengths we've talked about and there's nothing positive about that approach. It's even awkward for the person that might be getting paid more, I don't even think it's worth it. So I'm not a fan of that approach, either.
Lauren
Yeah, you're right, it puts the emphasis on the wrong thing. For me personally, what feels right is not increasing your rates with existing clients, or you can message them and say, hey, just so you know, we're increasing our fees in 2022. But because we really value your repeat business. Just so you know, for the duration or the rest of this project that we're working together, or any new projects that happen this year, we're going to be keeping our rates the exact same as what you've been paying before. So I feel like it could be kind of nice to give a little bit of a heads up that maybe come 2023, our rates might be a little different. But I know that if I was on the receiving end of that, I would feel really, really appreciated, knowing that they were choosing not to increase their rates with me. And instead, I think it's important to just on a fresh foot, anyone who comes to your business moving forward, you just only give them the new rates, and then it will be a little bit of a blended situation at first that will eventually go full raised rate,
Phil
It also gives you the chance to test it, because there's no real way to know for certain that you should be increasing them, you might find that people are hesitant to that price, and you don't want to lose the existing clients you have that you work really hard to earn and keep happy over something that is relatively trivial in the in the grand scheme of things. So I fully support that.
I also think that this is an opportunity to consider branding as a solution to this. So I have talked about this before on the podcast., and I think it was maybe in a very early episode, when we were giving someone specifically advice, how to increase their rates, or how to change something, I think to revisit the value that you deliver as part of a service not make it so much about about the hours that you work to render that service, I think how can you think as a whole about the value that you're delivering and the price associated with that.
So let's say for example, you're a hairstylist or a hairdresser, obviously, there's a certain amount of time that goes into that service, but rather than just raising your prices for the exact same thing that you delivered, and it's just more expensive, I would go well, what could I add? What is some value added to this experience, be it I don't know, a wash or a styling or maybe something a product that you include.
lauren
Complimentary bang trim? That is what my stylist does.
Phil
Okay. So something like that, that might not even cost more, but in the eyes of the consumer or the client, it's value added and therefore worth more. I always think that branding is often creative branding is a really good solution to sending someone that dreaded email that essentially reiterates you now have to pay more for the same thing.
Lauren
You're so right. I think that thinking of the big picture is really critical. To be honest, when we're pitching clients. I mean, I doubt they even really focus on our hourly rates because we're focusing on the big picture. We're focusing on the total value.
Phil
It's the last slide that they see. Yeah, the last slide and I'm thinking back to questions people have no one has ever questioned Like the rates are tried to negotiate them because it's there because it has to be so people can see the transparency of what we're delivering. But it could not even be there, I think and we'd still win business.
Lauren
Because I don't think that clients really care how long something's going to take. I mean, of course, if it's a quick job, and it's taking six hours, then I would care. But at the end of the day, people are paying for the total value of whatever project you're offering. And if you think about an accounting firm, if an accountants like my rate is $400 per hour, and this, doing your taxes could be anywhere from two hours to 100 hours, that makes me really uncomfortable. But if an accountant says, generally, taxes costs about 5000 per year have a filing of this size., for reference, my rate is 400 per hour., and that's what I'm basing the 5000 on, it feels a lot better.
Phil
Just that transparency and clarity on how you arrived at the math.
Lauren
Now, if you are in a situation where you feel like you do deserve to raise your rates, and you need to tell your clients immediately that you need to raise your rates, I would encourage you to first figure out ways where you can maximize your margin or profit before talking to your client about this.
So can you hire a junior, who's doing the bulk of the work where you're actually making more per hour? Could you find a way to make something more efficient? For us, we ended up doing status calls every other week, on the calendar with clients instead of whatever they wanted to have a call that helps save clients a ton of money, and it helped us save a lot of time, which is the most valuable thing. So I would encourage you to really, really look at how you work and who you're working with. Consider who you might be able to hire. So you could be making money without even working, which is kind of an ideal situation. And then you can start looking at raising your rates.
Phil
I love that tip.
Lauren
I figure you can actually pay yourself more without the client even knowing by increasing your margins.
Phil
Yes, it's possible. It's possible as I sit here and reflect on when I used to do everything, it's interesting how the dynamic changes, I remember hiring the first person within my business to render a service to do the work, instead of me doing the work. Then I had to factor in, okay, I also need to earn some money on this. In addition to it, it was really scary at the time. But if you you know, as you start to move from solopreneur, to even starting to subcontract projects, and realize the value that you bring in having all of that organized, really sets up your business to grow. And to also give you the ability to focus and do the work that you want to do, and not just the things that you have to do.
Lauren
And that brings up another really good point that I would say should be part of your strategy as you're evaluating what your rate should be and what your hourly worth is. And all that good stuff is to maybe consider cost and demand. Right. So if people are saying yes to everything, then that might be an indicator that perhaps your price a little low for whatever service it is that you're offering.
And as well, if the source of your income isn't coming from where you want it to be, then that also might be an indicator to adjust how you price things.
So as an example, Phil, you've rocked YouTube, rocked it completely, raised your profile online immensely, started getting all these incredible content sponsorship opportunities. And meanwhile, we've got wonderful clients who are knocking on the door, saying yes with incredibly high conversion rates, and really, if we think about how time is a limited resource, I think it makes sense to kind of raise the prices a little bit on the client side. So that way we can free up and have more time to really develop the content vertical of the business, too. So by raising your prices slightly, you're potentially going to be slowing down the speed, which is riskier, but by raising your prices a little bit, it could hopefully make that less abrupt of an adjustment.
Phil
Yes, exactly. That's the circumstance that we find ourselves in right now. So we're literally having this conversation listener with you being a part of it. That's a little window into our world on where we're at right now.
Lauren
Mm hmm. Okay, so for tools and just general next steps, I would say most important thing to track your time. Even if you're charging flat rates, track your time because you have no ground to stand on when deciding what your rates should be unless you figure out how long it's actually taking you. You'll be sometimes surprised at how long something does or does not take. I would also consider looking around at salary equivalent salaries of jobs in the area and basically take the hourly rate of that set, and double it, to account for you being a freelancer and having to actually find work, because it's not a guarantee like a nine to five job. Any other strategies or thoughts, Phil?
Phil
Yes, we have a blog post that was published actually a few years ago, but it's completely evergreen and awesome on this topic called Easy pricing formulas for services. Even if you've already priced your services. This is a good one to revisit. It gives you some pricing formulas to consider that you can choose based on your industry or business and adapt from there.
Lauren
Awesome, but a fun topic.
Phil
What a fun episode. Listener, you get to hear where we're at and what we're doing. Let us know what you're thinking about if there's something that we talked about or described in this episode that resonates with you.
Let's continue the conversation I'm @philpallen.
Lauren
I'm @thelaurenmoore.
Phil
#brandtherapy to keep the conversation going on on social media. And while you're at it if you enjoy this episode or any other episode you listen to please take the time to leave us a review in the iTunes Store, five star, five star, that helps other people discover this podcast and we work very hard to create for you.
Until next week, a new episode and a new guests. Thank you for hanging out with us right here on brand therapy.
Lauren
Bye
