Raising your rates after years of charging too little

Start with the arithmetic, because the arithmetic is what gets you over the fear.

Say you have 20 clients on retainer at $500 a month. That's $10,000 a month, and it's probably eating 50 hours a week. Move the rate to $750 and tell yourself you'll lose a quarter of them. Five leave. Fifteen stay at $750 is $11,250 a month, off roughly 37 hours of delivery instead of 50.

More money. Thirteen hours back. And the five who left were, in all likelihood, the five who emailed on Sundays.

Run that with your own numbers before you do anything else. Write down your client count, your average monthly rate, and the number of clients you could afford to lose and still be flat. That last figure is the one that matters. For most people who've been underpricing for years, it's shockingly high — you can often lose a third of your book on a 50% increase and come out ahead on revenue with a lot less work.

You are not gambling. You're trading volume for margin, and you're doing it on purpose.

Work out what a client actually costs you

Not your hourly rate. What it costs to serve one client for a month.

Add up your delivery hours, the admin hours nobody bills for, the software seats tied to that account, any subcontractor spend, and the two hours a month of unpaid meetings that appeared sometime in year two and never left. Multiply the hours by what you'd have to pay someone competent to do that work — not what you pay yourself, what the market pays.

Most people who've been undercharging find at least two or three accounts that are genuinely unprofitable. Not "low margin." Losing money. You're subsidizing a client's business with your family's income.

Once you see it written down, the conversation gets much easier to have.

Set the new number properly

Three inputs, and none of them is "what feels okay to say out loud."

What the work is worth to them. If your bookkeeping keeps a $2M contractor out of trouble with his filings and gets him paid faster, the value is not measured in hours.

What it costs you to deliver well, with margin. You need enough left over to pay yourself properly, cover slow months, replace equipment, and take two weeks off without the business stopping.

What the market pays. Ask three people in your field who aren't your competitors. Most will tell you. You'll usually find you're 30 to 60% under.

Then set a floor. A minimum engagement size below which you don't take the work at all. The floor does more for your business than the rate increase does, because it kills the small jobs that consume a whole day of attention for a fraction of a day's money.

Raise new prospects first

Quote the new rate to the next person who asks. Don't announce anything, don't send anything, just say the number and stop talking.

You'll do this three or four times before it stops feeling like a lie. Somebody will say yes without blinking and you'll feel slightly sick. That's normal. Give it a month of quoting high and the number becomes real to you, which is the actual prerequisite for the harder conversation.

The notice to existing clients

Sixty to ninety days. In writing. Short.

Tell them the new rate, the date it takes effect, and that you're glad to keep working together. That's the whole email. Four sentences.

The mistake is the justification paragraph. The long explanation about rising costs and how you've absorbed them for years and how much you value the relationship. That paragraph reads as an apology, and an apology invites a negotiation. You're not asking permission. You're informing a business partner of a commercial change, which is a thing they do to their own customers.

Don't send it to the whole list at once, either. Send it to your smallest and least-loved accounts first, in a batch of three. You'll learn how the conversation goes when the stakes are low, and by the time you get to the client you're afraid of, you'll have had it four times already.

Send it from your own address, one at a time, with their name on it. A mail-merge announcement about a price change is how you turn a loyal client into a former one.

What actually happens

Roughly speaking, in thirds. Some accept immediately and say nothing. Some accept and grumble. Some push back, and a portion of those leave.

The ones who leave rarely leave angry. They leave quietly, at the renewal date, and it stings anyway. Expect it. You calculated for it at the top of this piece.

Three responses cover almost all the pushback.

• "That's a big jump." It is. "It is. It's where the rate should have been, and I held it too long. It takes effect on the first."
• "Can you do anything on that?" Not on price. You can reduce scope. "At the old rate I can do X and not Y." Never discount the rate. Cut the work.
• "We'll have to look at other options." "Understood. I'll make the handover clean either way." Then mean it, and do it well, because that client will come back or refer someone within eighteen months more often than you'd think.

The four ways people wreck it

Grandfathering everyone. One or two long-standing accounts, fine, and put an end date on it. Grandfather the whole book and you've done nothing except promise yourself a harder conversation later with the same people.

Discounting quietly. You hold the rate publicly and then hand out exceptions to anyone who frowns. Within six months your real average rate is back where it started and now you've also spent your credibility.

Over-servicing out of guilt. You raise the price and then start doing extra work nobody asked for, to justify it. You've just recreated the old margin with a bigger number on the invoice.

Waiting for a reason. A new certification, a rebrand, a better portfolio. There's no permission coming. The reason is that the work is worth it and you're running a business, not a favor.

Build the next increase into the contract

One line: rates are reviewed annually and may increase by up to a stated percentage, with 60 days' notice.

Nobody reads it and everybody accepts it. It means you never have to do this from a standing start again. A small annual step is invisible; a 50% correction after six years is an event.

Take five minutes with your accountant before you make big changes to how you bill — a shift in structure or timing can move your tax position more than you'd expect, and it's a cheap question to ask.

The part that isn't about money

You've been funding other people's businesses out of your own household. Out of the hours you weren't at dinner. Out of the vacation you didn't book because December looked tight.

The client who leaves over the increase was never a partner. He was a very good customer of your generosity.

Pick the number. Put a date on it. Then go and say it out loud to the next person who asks, without flinching, and notice how little the world changes.