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How to Raise Billing Rates in a Recession

I recently made my yearly call to the accountant. After some small talk and catching up, he apologized, but informed me that my appointment was going to cost a bit more than it did last year. He cited the general state of the economy, the fact that his rent has gone up and that even his printer paper was more expensive now. In all honesty, I didn’t really flinch. He’s always done a great job, and everyone is feeling the economic pinch in some way. I’m still happy to be his client.

This prompted me to think that despite the economic crisis, some service businesses still need to consider raising their hourly rates. I wondered: How is it possible to let clients know that your rates are going up, while making sure they remain satisfied clients? I decided to round up some strategies and advice to make this task a little bit easier for business owners and their clients.

Set Precedents and Expectations

Making a smooth transition to a higher rate card is all in the approach according to Susan Vaughn of 1099 who recommends these three reasons to share with clients.

The Annual-Rate-Hike Reason: “I raise my rates 10 percent each year.”

The More-For-Your-Money Reason: “I’ll be adding extra services that will greatly benefit your company.”

The Rising-Cost-of-Doing-Business Reason: “I’m keeping my fees reasonable, but I’m making allocations for increases in my overhead expenses.”

Nothing to Lose

The American Bar Association via LawBiz recommends using potential clients as a litmus test for your new rates.

Test the waters with clients you do not yet have and, therefore, are not as worried about losing. Do not tell them this is an increased rate. They will not know what the old rate was. No explanations are required.

We’re All In This Together

About.com acknowledges that no business is spared during an economic downturn and offers some advice.

From a gas crisis to a health care crisis, there may be highly publicized national issues that are impacting overall expenses for businesses. If your firm is affected by these types of costs, customers may even expect your rates to go up.

You’re Worth It

This sounds simple, but Lea Woodward of Freelance Switch explains you should recognize your value.

If you are 100% confident in the service and value you offer your clients, then you have absolutely nothing to fear from raising your rates.

Do you have tips of your own?  What have been your experiences with clients when raising your rates and what are your tips for making it a smooth?   Let us know in the comments below!

The Small Business 101 column is where we share tips and ideas from our own experiences and the small business community. If you have articles you’d like to share from your experiences for a future write-up, send us a tip!

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This was posted in Harvest Tips, Online Invoicing, Product News, Small Business 101.
  • I decided not to raise my rates this year, but it had more to do with not knowing exactly how to approach it than the economy.

    Do you send out a letter to all your clients? Do you call them up and personally notify them? Do you wait until their next project begins?

    I know I should have raised rates already (and perhaps I still can do it this far into the year,) because it makes it that much harder to reach the rate schedule I’ve set to reach in 5 years. Skip it this year, and its an even bigger jump next year.

  • I sent out an email newsletter telling all current clients that my rates would be increasing, but told them:

    “Anyone with an active account will be grandfathered their original rate.” I went further, by defining an ‘Active’ account as a client who has contracted billable work in the last 6 months.

    This way, I get a small rush of work for clients who partially want to keep their rate lower, and maybe had a job or 2 they could have me do. But they have to keep the stream going –6 months of dormancy would mean they’re subject to a rate increase.

    All new clients, and clients who had not been active for 6 months got the new rate.

  • I generally raise my rates about 5% each year, sometimes a bit more if my general rate structure changes. I tend give clients who have been with me for a few years and high-volume clients a 5-10% discount for about 6 months as a way to ease them in.

  • I’ve found the “Nothing to Lose” technique to work quite well in situations where you’re acquiring clients on a regular basis, but if you just have a few big/core clients that probably isn’t going to work too well.

    Another tip: If you’re in a situation where you offer prepaid contracts to clients (something that has its own pros and cons), when it comes time to raise your rates you may very well be able to get a good number of prepaid renewals, similar to the rush commenter A.Fruit describes.

  • Paul Decoursey on March 23, 2009

    I just emailed them all and told them bluntly my rates were going up. But I also put clauses in all my agreements that rates could adjust if needed every 6 months. All of my clients expected the increase or were not surprised.

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