When you need to raise prices, clients will react more favorably if they understand why you need to do so, or if they see how they’ll get more value. Use these 5 tips for raising your prices successfully and communicate them to clients.
As you gain experience and inflation rises year to year, you’ll need to increase your service prices to remain in business and receive adequate compensation for your work. Just like employees at a company who rely on annual raises or bonuses, you’ll need to adjust your pricing accordingly as an independent business owner. This is why the worldwide average hourly freelance rate is $28, up from $21 only two years ago, according to a Payoneer survey.
It can be uncomfortable to change your prices since it might push away previous clients — which is why many freelancers undercharge. In fact, a report by Upwork found that 67% of freelancers are concerned about receiving a fair rate.
Ideally, you shouldn’t have to worry about losing clients. Your ideal clients who understand your value should recognize fair and accurate pricing. To feel more confident about raising prices and communicating them, here are five tips you can use.
- How to know whether you’re undercharging
- Pay attention to competitor prices
- Proactively share your prices
- Raise rates periodically
- Upsell or cross-sell services
- Consider alternative pricing options
- Help clients understand your price increase
How to know whether you’re undercharging
If you think you may be undercharging, ask yourself a few questions:
- Is your close rate at almost 100%?
- Do you feel like you’re too busy and have too much work?
- Is your hourly rate per project decreasing?
If your answer to these three questions is yes, you probably charge too little for your expertise and have to take on more work than you should to compensate. These are all signs that you should increase your prices so your business can keep growing, instead of stagnating.
But knowing that you need to raise your prices is unlikely to reduce your anxiety over how clients might react. Here are a few tips to lighten the impact of your price change so you can feel more comfortable raising prices and get paid fairly.
1. Pay attention to competitor prices
When you raise your prices, you don’t want clients to feel like you’re suddenly spiking them. To make sure they feel like you’re providing them with services that are worth the new prices, take a look at the prices your competitors have set. Consider how their offerings compare to yours. This can help you set competitive prices that still feel reasonable to clients.
2. Proactively share your prices
Being proactively transparent with your clients makes them feel like you value them more. This means letting them know that the prices will increase before you raise them so the change isn’t a surprise. It also uses the psychology of pricing to help them understand why you have to raise the prices, so they won’t assume you have the wrong intentions.
When you share your prices, be direct. Tell clients that you’re raising prices, rather than saying there will be a “price adjustment” or something similar. Clients know what these vague terms mean, anyway, and they’ll appreciate that you respect them enough to be honest.
You should also be open about the reason, whether it’s higher costs of providing services, needing to keep up with the market, or whatever your reason may be. If you’ve recently added value to your services, feel free to list those and make them clear. You may have upgraded your offerings or completed a course to uplevel your skills. Whatever it is, providing tangible reasons can help your clients understand why your prices are increasing.
It’s also important to emphasize the results clients will get with your new prices. You want them to focus on the benefits of using your services, not on the new costs.
3. Raise rates periodically
If you let clients know up front that you usually re-evaluate your rates at a similar time every year, they’re more accepting of the change when it happens. Clients also generally understand that costs can vary from year to year because of economic trends like recessions and inflation, so most of them should find this policy reasonable.
This approach can also deepen your relationship with clients if you stick to your price increase schedule while competitors raise their prices unpredictably.
Pro Tip: We recommend evaluating your pricing and raising them by 3-5% each year. The exact amount should depend on your current sales success, client retention, cash flow, and more. But, feeling mentally prepared to raise your prices can help you make it more of a habit.
4. Upsell or cross-sell services
By increasing the value clients get out of working with you, you can convince them to pay more.
You could do this by upselling — adding a complementary service to your current one. For instance, if you’re a web designer, you could include one or two premium plug-ins with your services. If you offer multiple services, you could also cross-sell them by recommending that clients purchase a bundle of services that complement one another.
5. Consider alternative pricing options
You could use different price models to give clients more perceived value while shielding them from the rising costs. Here are some options to consider.
You could try adding a VIP or loyalty program for regular or longtime clients, offering them something extra or free based on how much they’ve spent or some other benchmark that makes sense for your business. This additional offering can offset the price hike, though you should make sure you offer something that clients will find useful or valuable.
Another option is to switch to a monthly subscription model if you currently take payments by the hour or per commission. This obscures the price increase and guarantees ongoing monthly income.
This is a pricing strategy that breaks your services into different price tiers, depending on factors like the amount of work the client wants you to do and your turnaround time.
By offering additional services at each tier, you can entice clients to purchase your highest tier because it feels like that will provide the most value for their money. For instance, if you’re a freelance content writer, you could offer three tiers: four blog posts for $150, eight blog posts with keyword optimization for $280, and 16 blog posts with keyword and search engine optimization for $520.
Pro Tip: Your competitor and market research should help you figure out how to price each tier. It helps to identify the tier you expect the majority of clients to use, figure out a good price point for it, and then build out the other tiers from there.
Help clients understand your price increase
The bottom line: You should always communicate the value behind your pricing, whether you’re enticing new clients, retaining current clients, or introducing new prices. Providing them with a pricing guide that outlines your new prices will help give them clarity on this.
HoneyBook helps independent business owners create dynamic, interactive pricing guides that they can send to clients online. Beyond standard file templates, these files go a step further to connect your clientflow. If you want to create a more streamlined process, you can create a HoneyBook pricing guide that allows clients to select services and pay online in just one step, instead of going back and forth with you over email.