Last week I read an Entrepreneur article in which a reader who ran a small consulting business was seeking advice about how to communicate that he was raising his hourly rate from $175 to $225. Many self-employed consultants or solopreneurs target the start of a new year to either raise their hourly rates, so this is a good time to review how to communicate such a change appropriately with existing clientele.
The guy who was seeking advice was considering an approach that was jaw-droppingly bad. He seemed to think it might be okay to just use the higher rates on his January invoices without giving his clients prior notice. Well, yeah, he could do that if his greatest desire was to seriously tick off his clients…what a dope!
The expert who responded to this consultant’s query proposed a communications scheme that seemed much to complex and time-consuming; it involved dividing your clients into tiers and using different methods for each. I’ve found a much simpler approach to be highly effective. To implement rate hikes at the start of a new year, I mail notification letters in late November.
Note that I said letters, not e-mails. A letter connotes that you are sharing important information, not the usual back and forth about projects and other topics that occurs in e-mails. And besides, e-mails by their nature invite immediate comment, whereas letters don’t (although, of course, in your letter you definitely should ask clients to call you if they have concerns about the increase.) I’d rather a client has time to digest the contents of my letter without giving me the kneejerk response that an e-mail invites.
The first time I sent out rate-increase letters, I was plenty nervous; I thought I’d probably get a lot of pushback. By now, however, I’ve done this a number of times and don’t recall ever having anyone react very negatively. At most, some clients have acknowledged at our next meeting that they received the notice and while not thrilled, they certainly understood that such increases are to be expected. I certainly have never lost a client as a result of a rate hike.
Of course, unlike the guy who wrote to Entrepreneur, I never proposed raising my rate by close to 30%. Usually it’s been more in the 10 to 15% range. And I haven’t done this every year…usually only every two to three years. I’ve also never raised my rate during any of the three recessions I’ve survived. During those times clients are looking at every expense and there is no need to remind them of what you’re costing them.
If you need to raise your rates significantly year after year, it means you didn’t set a reasonable rate to begin with; this is what I thought immediately when the advice-seeking consultant told Entrepreneur that he was charging $175 while others in his field were charging between $250 and $300. Clearly he didn’t do his homework before setting his rate. It will take him years to get up to where his competitors are. There’s a lesson to be learned there, too!