Author Topic: How to raise my rate as a freelancer?  (Read 883 times)

kiwi

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How to raise my rate as a freelancer?
« on: October 05, 2017, 10:38:16 PM »
I've been doing freelance work for one client about 10 months now. It's IT work, data related. My client is good to work with, the project is interesting, and and he's very flexible with when I work. So, overall, it's fine. But I've known for a long time that my rate is way below market. I've been telling myself for months I should have a conversation about raising my rates, but I haven't.

I just got another client (I didn't search for either of these clients, they came to me, and I'm doing zero marketing). He asked my rate, I told him about 50% more than what I'm charging my current client, and he didn't blink, seemed to think it was very reasonable.

So I REALLY need to raise my rate with my first client.

Any thoughts on how to go about this? Email, then phone conversation? Any specific phrasing or thoughts would be appreciated.





« Last Edit: October 06, 2017, 01:26:08 PM by kiwi »

SeattleCPA

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Re: How to raise my rate as a freelancer?
« Reply #1 on: October 06, 2017, 08:47:11 AM »
So accountants struggle with this same issue... and I'm pretty sure that most of the one-man, one woman operations just get beat up all the time on their hourly rates...

Here are the ways I encourage fellow tax accountants fix this issue:
1. Regular inflation adjustments... E.g., 5% every year. No matter what. Here's blog post I did a while back that explains how you and I get killed if we don't do this: https://evergreensmallbusiness.com/please-bump-your-prices-for-inflation/
2. Avoid as much as you can billing by the hour...but bill by the job or project. Called "value billing" this approach probably lets you price services so you actually make money. E.g., don't bill $50 or $100 a hour... bill $500 or $1000 or $10000... and then make sure what you deliver is worth more, ideally way more, than the price. (Suggestion: Get a copy of any book written by Ron Baker and learn about the philosophy of "value billing"... using the value billing model will change your business.)
3. Track and be sure you bill (one way or another) for all your hours. People (er, clients and customers) can really easily lose track of how much "free" help they get. But that can just radically, radically cut the hours you actually have to sell. E.g., we've regularly tracked the the hours of "free" customer service we provide and it runs about 50% of the work of a tax return. E.g., if the tax return takes 4 hours, there's usually another 2 hours of follow-on service. If we only bill for 4 hours but work 6, yikes,  that really destroys the actual realized hourly rate. $100 an hour goes to $66 an hour.
4. Invest in technology and training that makes you more efficient and more valuable.
5. Get your marketing working well enough that you can filter the low margin clients... (the awkward reality is that really nice clients with problems you'd be a great person to help solve simply can't afford to pay what you need them to pay to make a good living... you need to NOT subsidize these folks businesses or lives giving away time for free or discounting your prices.
6. Never discount your prices. Discounting only works if you have ability to massively scale. And that's never true with a professional service business.

At the end of the day, you should be able to make a good living by doing IT consulting... and if you're not, you need to raise your rates.
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wanderin1

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Re: How to raise my rate as a freelancer?
« Reply #2 on: October 07, 2017, 10:14:30 AM »
Here's a technique I've used in multiple businesses. Has always worked well for me. It could really fit your situation and the timing:

Before the end of October, email your current client saying that your rates will be increasing to $XX starting Jan 1, 2018. Explain that your rates have actually already increased for new clients, but that you're extending the current terms for them as a courtesy recognition of all your great work together. Maybe point out in a sentence or two the value of what you bring to their project (could be monetary, could be quality--you get the idea)--but don't go overboard with this. And tell them they're welcome to contact you if they want to know more about rates etc.

Four to ten days after sending this, touch base by phone. (maybe wrap it into a regular call on another topic) Feel them out to see if there are any concerns. In theory, they might cut scope or hours if their budget is fixed, or drop you altogether if there's a real mismatch. But whenever I've used this method, I'm mostly just gotten a big "thank you" from clients for the courtesy of the extended lower rate.

Good luck!

kiwi

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Re: How to raise my rate as a freelancer?
« Reply #3 on: October 07, 2017, 10:21:26 AM »
SeattleCPA, thanks for your advice. I would really love to move away from hourly billing. But when I think back on my career it's not obvious to me at all how I could have taken my work, and packaged it up into a project at a specific price (only knowing what I knew at the beginning of the project). It's always an enormous process of discovery. But I definitely see huge value in moving away from hourly billing.

I need to be more aware of the "Track and be sure you bill (one way or another) for all your hours". I was sitting down and working yesterday from 8.30 AM to 7 PM. But I only felt like I could bill for 9 of those hours.
« Last Edit: October 07, 2017, 10:38:23 AM by kiwi »

Telecaster

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Re: How to raise my rate as a freelancer?
« Reply #4 on: October 07, 2017, 10:34:16 AM »
I need to be more aware of the "Track and be sure you bill (one way or another) for all your hours". I was sitting down and working today from 8.30 AM to 7 PM. But I only felt like I could bill for 9 of those hours.

That's the thing I hate about billing by the hour.  You have to ask yourself how much work you really did.   Fact is, almost no one works eight hours a day.  They might be at work that long, but large portions of that time aren't spent working. 

beee

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Re: How to raise my rate as a freelancer?
« Reply #5 on: October 07, 2017, 02:50:02 PM »
I would really love to move away from hourly billing. But when I think back on my career it's not obvious to me at all how I could have taken my work, and packaged it up into a project at a specific price (only knowing what I knew at the beginning of the project). It's always an enormous process of discovery.

Yep, it will be hard and risky to move away from hourly billing. Although it should become easier and easier with every next project. You'll have more experience, be more aware of how you work and what you need to charge to be profitable.

On the bright side, this is not a unique problem, it's been solved by many people before. Check out "Double Your Freelancing Rate", for example.
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kiwi

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Re: How to raise my rate as a freelancer?
« Reply #6 on: October 08, 2017, 05:09:02 PM »
@wanderin1 - Thanks, that's a great idea. I think I'll do exactly that once I've validated, hopefully this coming week, there's there's no glitches in the new contract and everything is going as planned.

Syonyk

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Re: How to raise my rate as a freelancer?
« Reply #7 on: October 09, 2017, 10:25:49 PM »
I've generally tended to keep my lower rates for reliable existing clients, as I know them, they know me, and there's generally very little drama (they know what I can do, know how to spec work out, etc).  But the "Raising rates in the future, hey, you're getting a discount for a while" thing is a really good idea.

Another tip I've picked up over the years:  Set your rates a bit high, and offer a 10% discount on invoices paid promptly (if you care about this).  I've found "Net 45, 10% discount paid in Net 15" invoices tend to come back paid awfully quick...
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SeattleCPA

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Re: How to raise my rate as a freelancer?
« Reply #8 on: October 10, 2017, 08:06:55 AM »
I've generally tended to keep my lower rates for reliable existing clients, as I know them, they know me, and there's generally very little drama (they know what I can do, know how to spec work out, etc).  But the "Raising rates in the future, hey, you're getting a discount for a while" thing is a really good idea.

Another tip I've picked up over the years:  Set your rates a bit high, and offer a 10% discount on invoices paid promptly (if you care about this).  I've found "Net 45, 10% discount paid in Net 15" invoices tend to come back paid awfully quick...

A 10% discount for paying a month early is the same thing as borrowing money from your customers at an annual rate of around 120%.

That's a pretty brutal interest rate to pay...
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Syonyk

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Re: How to raise my rate as a freelancer?
« Reply #9 on: October 10, 2017, 08:44:17 AM »
I consider it a penalty on those who don't pay quickly.

Just phrased differently.

But make sure you specify late fees, at least.
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SeattleCPA

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Re: How to raise my rate as a freelancer?
« Reply #10 on: October 11, 2017, 06:35:01 AM »
I consider it a penalty on those who don't pay quickly.

Just phrased differently.

But make sure you specify late fees, at least.

If a vendor doesn't take a 10% discount for paying 30 days early, they're borrowing money from you at basically 133% annual interest rate. I.e., if they don't pay $90 but instead pay $90 plus another $10, that's $10/$90 or 11.11% interest for the month.

FWIW, that old 2% 10, Net 30 works out to 36% annual interest and should be all the incentive a customer or client needs to pay early if the customer is adequately capitalized.
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AnnaGrowsAMustache

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Re: How to raise my rate as a freelancer?
« Reply #11 on: October 14, 2017, 09:58:41 PM »
There's no particular reason why you have to have one rate. If the company you do cheaper work for gives you a whole lot of work and they're flexible, maybe that's worth it. You can charge new people whatever you like. Personally, I wouldn't rock the boat with the first company just yet. It sounds as though you're starting off freelancing. You could ask the first company if you can use them as a reference for your marketing, and ask them not to discuss rates as you're putting them up for future clients. Consolidate that relationship with the first company. That's your bread and butter. Future companies can be the steak.

kiwi

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Re: How to raise my rate as a freelancer?
« Reply #12 on: October 14, 2017, 10:18:41 PM »
Thanks for your thoughts.

Though I like my main gig, it's a matter of time - I'm selling my hours, and I only have a set number of hours to sell. The more hours I sell for a low price, the less I can sell for a higher price.

AnnaGrowsAMustache

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Re: How to raise my rate as a freelancer?
« Reply #13 on: October 15, 2017, 04:19:18 PM »
Thanks for your thoughts.

Though I like my main gig, it's a matter of time - I'm selling my hours, and I only have a set number of hours to sell. The more hours I sell for a low price, the less I can sell for a higher price.

On the other hand, a bird in the hand is worth two in the bush.

pbkmaine

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Re: How to raise my rate as a freelancer?
« Reply #14 on: October 15, 2017, 04:33:54 PM »
If I spend 15 minutes working, I bill for 15 minutes. Do not sell yourself short on time.

forumname123

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Re: How to raise my rate as a freelancer?
« Reply #15 on: October 15, 2017, 04:44:26 PM »
I'm a freelance designer and I raised my rates by 20% about 8 months ago.

I emailed my existing clients and told them they would be grandfathered in for a few months at their current rates, at which point they would then rise to my new rate. They all essentially said "no problem, thanks!"

Fast forward 3 months to the rate raise and my biggest client (roughly 80-90% of my work at the time) tells me they have hired an in-house designer. You'd think that would be a problem, but I think you'll be surprised by how easy lost clients are to replace with better ones. If client X wants to leave because you're too expensive, client Y is waiting in the shadows and will be happy to pay your new rates. I think about the clients I had 5 years ago when I was charging next to nothing and I shudder. Higher rates will bring better clients, so if you lose some, say good riddance and move on to better ones.

AnnaGrowsAMustache

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Re: How to raise my rate as a freelancer?
« Reply #16 on: October 15, 2017, 04:47:51 PM »
I think about the clients I had 5 years ago when I was charging next to nothing and I shudder. Higher rates will bring better clients, so if you lose some, say good riddance and move on to better ones.

This is very true. The less you charge, the less people think you're worth and the more demanding they get.

Telecaster

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Re: How to raise my rate as a freelancer?
« Reply #17 on: October 15, 2017, 09:40:19 PM »
I think about the clients I had 5 years ago when I was charging next to nothing and I shudder. Higher rates will bring better clients, so if you lose some, say good riddance and move on to better ones.

This is very true. The less you charge, the less people think you're worth and the more demanding they get.

Word.  If you are providing value, the good clients literally don't care what your billing rate is (within reason of course).  They want the job done well and on time.  Money is secondary.  Clients who go with the lowest bidder, will always go with the lowest bidder.  Don't bother with that market.  There will always be someone who bids lower than you.  Focus on being the best in your field, and you won't have any problems getting clients willing to pay.

SeattleCPA

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Re: How to raise my rate as a freelancer?
« Reply #18 on: October 16, 2017, 05:09:48 PM »
I think about the clients I had 5 years ago when I was charging next to nothing and I shudder. Higher rates will bring better clients, so if you lose some, say good riddance and move on to better ones.

This is very true. The less you charge, the less people think you're worth and the more demanding they get.

Word.  If you are providing value, the good clients literally don't care what your billing rate is (within reason of course).  They want the job done well and on time.  Money is secondary.  Clients who go with the lowest bidder, will always go with the lowest bidder.  Don't bother with that market.  There will always be someone who bids lower than you.  Focus on being the best in your field, and you won't have any problems getting clients willing to pay.

+1... Great points...
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