But when should you raise them?
Raise your prices when you have more work than you need 💪
When your pipeline is consistently full, and you have multiple projects booked into the future, this is generally a sign you’re onto something good. It’s also a sign that your clients are getting value from you.
Now you can stay this way and keep booking way into the future. Or maybe even grow the team to deal with work you will inevitably win.
As you accrue more and more ongoing clients who think you’re awesome, it’s a great time to raise your prices.
Raise your prices when you want to be exclusive 💎
Sure, raising your prices may mean you lose a couple of potential clients. But if you have already built up a strong client base and a solid reputation, then your total income will be increasing with this change, so overall it can even out.
I found that by raising my agency's prices, we actually attracted a different type of client.
At $80 an hour, we would attract startups, other agencies (outsourcing overflow work) - really anyone. Back then $80 per hour for software development in Australia was a bargain.
But 4 years later we had more than doubled our pricing, and we had a whole new type of client. Startups were not so interested, but big businesses were ok with it - and we were better at conveying the value we brought to them.
Sure, it meant having fewer clients, but the clients we did have, earned us a lot more money. This allowed us to be more exclusive and no longer take jobs that didn’t suit what we wanted.
Raise your prices every year 📆
As a rule of thumb, I think raising your prices every year is a good place to start.
Say at a 15% increase per year, if you currently charge $100 per hour, then you would charge $115 next year, and after 5 years you would be $153 per hour.
Now whether that’s high or low for your services I have no idea - but what I do know is that after 5 years of professional experience, you are worth a lot more than your first year.
You will hit a ceiling with this method, and as with any price increase you need to understand your competition rates. But it’s a nice simple method to follow.
In my agency, we raised our rates by around 40% per year initially, which was in line with the larger, more valuable clients we were attracting. After 7 years or so, the price didn’t increase so rapidly as we got closer to the top of the market rate for agencies.
Raise your prices when your business changes 🚀
When you first start out you can be super lean - but as you grow, more costs sneak in.
More monthly SaaS costs, increased costs for staff or freelancers, plus equipment and training costs. All of this contributes to building a better, more sustainable company, and because your clients directly benefit from this it’s not unreasonable that their costs increase as well.
But you can also raise your rates along with strategic business decisions.
For example if my agency wasn’t acquired, then a future direction I would have taken was a 4-day work week for the whole business - but kept everyone on the same salary.
I've always loved the idea of this, but it’s a 20% decrease in profit for the whole business. So in return I would have raised our rates to balance this out. Again, we may have lost some clients with this change, but I believe you owe it to yourself to build the business (and life) that you want.
But not all clients need to be on the same rate 💵
There are many reasons you may charge some clients more than others.
- Friends, or long-term valued clients
- A startup, that simply cannot afford your new rates
- A “for purpose” or charity organisation
- A strategic alignment or partnership
Although I often did blanket price increases in my agency, I also left some long-term clients on the previous rate for a few years.
Whilst I initially didn’t like having clients on different rates (it just seemed “messy”), I learned to realise it’s completely fine, and often how business is done.
It’s not all about money.
Now that’s a lot easier to say when you’re making money. But when your costs are covered, and you’re making a good profit, then the long-term value is often more important than short-term value.
I had startup clients for many years, and they paid around 25% less per hour than my larger clients. It wasn’t too hard to manage, everyone got value, and they appreciated the discount - which in turn built a stronger relationship.