If you are a service-based business owner, deciding what to charge for your time can be like looking for that elusive needle in the haystack. Because it is often so arbitrary, many small business owners undervalue their services when they first get started and don't charge the rates they deserve.
Undercharging for a short period of time isn't always a bad thing because it gives you a chance to make some needed income immediately, and it gives you the experience you need to support a higher hourly rate.
But once you have been doing what you do for a little while, and begin to learn the ins and outs of small business ownership, there is no reason why you can't raise your rates and charge more. Here are some tips to help you raise your rates without losing existing clients or turning away prospective ones.
1. Be Confident
The first thing you need to do when you are considering raising your rates is be confident that you are worth the amount that you're charging. If you truly believe you are worth $XXX (in many cases, your time is worth more than the amount you think would be too much to the client), then each time you interact with a potential client, it's not, "What should I charge?" But, "Is this worth my time?"
2. Do Your Research
If you are completely unsure about what to charge or how much to increase your rates, you will need to spend some time reviewing the market research you conducted when you started your business.
What does your competition charge? What do you provide that is superior to what your competition provides (i.e., your unique selling proposition)? How will you help clients understand the value of your services?
3. Stick with Hourly
Many times, clients ask for bids that are "all-inclusive." I don't blame them; they want to know up front exactly how much your services will cost them.
While you can certainly include an estimated total in your proposal, always calculate the final number by using your standard hourly formula, and include the anticipated number of hours in your proposal as well.
This not only outlines exactly what the client will be getting in term of your time, but it will also protect you if the actual time for the project exceeds what you estimated (your contract should explain these terms further, once the client has accepted your proposal).
4. Move Up Incrementally
If you have severely undervalued your services, and now want to catch up to what the market can bear, consider raising your rates incrementally over a period of time. This will help you gradually increase your rates without shocking your current clients with a new rate that may be as much as double what you are charging right now.
5. Apply New Rates to New Clients
As you incrementally raise your rates for existing clients, you can apply your new rates immediately to all new client work. This can be a great way improve your income without harming any existing client relationships. You can also use this method to test out your desired hourly rates for a while before moving your current clients up.
For example, if you don't win any new contracts after the rate increase, you may have to consider that your new rate is simply too high.
6. Always Keep Clients Informed
Whenever you raise your rates for existing clients, it's very important to keep them informed as to what is happening and when it's happening so there are no surprises. I wouldn't recommend justifying your rates with clients (that can imply that you are open to negotiation), but it is common courtesy and excellent customer service to keep your clients in the loop by giving them advance notice, in writing, about any rate increases. If you are raising your fees incrementally, you can even share your long-term increase plan so your clients know what's coming well before it happens.
Undercharging in your small business is dangerous because it can harm the longevity of your business while making you resentful because you know you deserve much more.
Be confident of the value you bring to the table and seek out the right clients for your business.
If you're not sure if a rate increase is in order, review: 6 Signs That It Is Time to Raise Your Rates.