Raising my prices

How should I approach existing clients?

[mtmama]

Hi everyone,

As I mentioned last week, I am getting out of a long-term design job and starting my own freelance business. Trouble is, I have been charging a small fee while freelancing on the side of my "regular gig" all these years, and now I need to raise my prices to survive.

I have three well-established clients who send me regular work and referals. How do I start charging them my raised price? I can't charge existing clients one fee and new clients another -- that's just asking for trouble, especially when most of my new clients know my existing clients.

The price increase is double what they are paying now. (ouch). But I just can't justify offering my services at the low price anymore.

I've thought about explaining that the prices I charged before were to help increase my portfolio and now that I am starting my own business, I have to adjust my prices to cover overhead, insurance, etc.

Any advice?
Jessica

[christopher w]

Well with any business you almost inevitably need to shed some of your first clients to evolve. How many referalls do they typically send you? Are they very needy (meaning will they chew up a lot of your time)?

[pleeker]

Is there any way you can cushion the blow by placing the higher fees in the context of additional services, better services, etc.? Try to present it so that the higher fees are NOT the only new thing you're doing ... but as a result of the other new things. You don't want to say, "Same service, double the price...."

[webwoman]

I don't think it is your clients' problem that you now need to make up for income that will no longer be there. If these are loyal clients that send referrals, I think it is insulting (and unrealistic) to double their fee for *your* needs, while providing the same service.

I have a couple clients that have been with me for many years, they are on ridiculously low fees...but they send me customers and they got me started. I tell them not to discuss what they pay me with their friends who they refer, they know they are on special pricing and that my rates have increased over the years.

Unless you intend to provide something extra, I hardly think they will go for doubling the fee...if you were in their place, would you?

[EileenC]

Announce that since you are launching your business officially, you will be raising your fees to market rates. However, because your long-time customers are so loyal and were so important to helping you get started, you will phase in their rate increase at X% a year over the next few years. Or, that you will not increase their rates at all, but tell them it's a special rate only available to them, and ask them not to discuss their discount with anyone else. (There's nothing worse than a referral who came to you because someone told him you were the cheapest guy in town!) Send them a letter packed with praise and appreciation for all they've done when you make this announcement, and it should keep them feeling reasonably warm and fuzzy about you.

[mtmama]

I always find it interesting to hear all the different perspectives on business topics in this forum.

I do agree that the clients should not pay double for the same service. I should have mentioned, or made it more clear, that these clients will be getting more services offered to them and certainly more attention than years past when I was working mainly nights and weekends.

I've always been told not to give "special" pricing to anyone. It's been my experience that the first thing a potential client asks an exisiting client is, "how much does she charge?" I don't feel comfortable asking my clients to lie or skirt the subject for me...

I'm also drawing on experience I've had with other service providers who have raised their fees in the past. I wouldn't ask my daycare provider to keep her fees the same for each child I place in her care over the course of say, 7 years. Or my electrician to charge me the same fee he charged me 2 years ago when he rewired my house.

However, this discussion has brought up another alternative I think I may consider. Maybe I could devise some sort of discount to take off the top of a new set fee? Let's say I raise my prices to double what they are now. Then I give my three existing clients a special discount off the top of that fee? Some sort of "senior client" discount or something. This way, when people ask how much I charge, the client can be truthful. They could also mention they receive a special discount, without feeling uncomfortable about it. I was already planning on offering a referal discount, so this may be a good way to go for me.

Would that be a good compromise?
Jessica

[digitalv]

I have been charging a small fee while freelancing on the side of my "regular gig" all these years, and now I need to raise my prices to survive

I've always been a fan of honesty and this pretty much says it. It's one thing when you have a side business and just want a little extra spending money, you can afford to be cheap. When you're running a real business, you don't always have that luxury.

How your clients will react depends a lot on how much work you do for them right now. If they will benefit from you being a full time designer based on the CURRENT work you're doing, then most won't have a problem with it. However if the benefit isn't immediately present they might not be too happy. To clarify, what I mean is that just because you have more time to focus on them doesn't mean they actually REQUIRE that from you. If they don't need any more from you than you're currently giving them, then a price increase will be seen as nothing more than charging more money for the same service. However if there are things they want to do with you that they can't right now due to your time restrictions, then they will most likely look forward to having more of you to go around. You should have a pretty good idea of which of the above applies.

Since you have only 3 clients, you also should prepare yourself for the fact that they may drop you entirely and find someone new. Personally if I were in your position, I wouldn't increase their rate at all until I had some new business (at the new rate) to compensate for any losses. It doesn't matter if anyone else knows what another customer is paying you - if anything, you can use that to strengthen your commitment to your customers. If a new customer has a problem with the fact that they're being charged more than Company X, inform the customer that when you originally agreed to work for Company X it was a spare time thing and you had a full time job paying the bills. Now that you're out on your own, you have new expenses that weren't there before, you're more experienced now than you were then, blah blah blah etc. Tell your new customer the bottom line is that you agreed to work for Company X at a certain rate, and that's what you're going to continue to charge them. Stick to your guns - don't let them haggle with you, even if it means they're going to walk. Once you have enough new business at the new price to afford to lose your old customers, approach them with the price increase then. That way if they run for the border at least you don't have to go back to working for someone else. Also, once you're solo I would try to find some business that has nothing to do with Company X so the situation doesn't even prevent itself anymore.

We've all been starting on our own once. If you ask most successful business who started solo, most will tell you they successeded largely because they stuck to their guns and sometimes had to walk away from a deal that wasn't going to be worth the money it paid. If you ask most business owners who have failed, they'll tell you it was because they undercut themselves so bad that they couldn't afford to pay the bills. We all learn from our mistakes, but it's a lot easier to learn from other people's mistakes instead :)

[beckie]

I have 98% of my clients still with me from when I first started my business a few years ago. I have raised my prices over double the rate during this time... I now offer these clients 'client appreciation discount'. The discount depends on how much the total bill is. I also offer everyone a referral fee, but if a client needed work done and also referred someone, it would be either the discount or the referral fee - not both.

I also have one client that contacts me every 8 months or so and I have to do a text update for him. I charge him the original hourly fee since he was one of my first clients and I don't see the sense on charging him XX more for a 5 minute job.

Hope that helps some.

[mtmama]

Beckie, how did you approach your clients when it was time to raise your rates?

Thanks, everyone, for the great feedback.
Jessica

[beckie]

I sent them an email stating that I was raising my prices to keep competitive in the market. I didn't have any complaints and no one dropped me. For the services I charge hourly, I bill in 5 minute increments so they weren't paying $XX for a 5 minute quick job. I didn't tell them that I would give them a 'customer appreciation' discount in this email either - I would do it when they wanted something done and I billed them after.