Written by Tom Ewer on 20 May 2013
A freelance business' growth is determined by two things: billable hours and the hourly rate. Put simply, if you work more hours at a higher rate you'll make more money.
In technical terms, working more hours isn't scalable - you only have twenty-four hours to play with every day. From a more subjective point of view, I am sure you didn't become a freelancer to work all hours of the day. Therefore, your business' growth is driven almost entirely by your rate.
While increasing rates with new clients is easy in principle (in simple terms, just quote them a higher price than you would have before), getting existing clients on board with a higher rate can be more of a challenge. With that in mind, in this article I want to share a strategy I have used to great effect in the past. It helped me to increase my equivalent hourly rate and my net earnings while decreasing the numbers of hours I worked.
Clarification on Rates
I mentioned above that a freelance business' growth is driven by your rate. To be more specific, I am referring to your equivalent hourly rate; the calculation for which is simple:
Total Net Income / Hours Worked = Equivalent Hourly Rate (Total)
Total Net Income Per Client / Hours Worked Per Client = Equivalent Hourly Rate Per Client
Whether your charge by the hour or by project, you should always refer back to your equivalent hourly rate as a measure of business growth - it reveals the truth that some other means of measuring income and profit obfuscate.
The minimum-risk approach to increasing rates I am going to outline below relies heavily upon your equivalent hourly rate, so make sure that you know what it is (per client) before you proceed.
Step 1: Assess Your Clients' Worth
Your first step should be to figure out which clients are actually the most valuable to you. I mean this not only in a financial sense but in other ways too. For instance, a client might be more valuable to you if they generate a lot of fresh leads for your business. On the flip side, a client could be less valuable if you find them difficult to work with.
Having said that, the financial consideration is typically the most important. If you track the hours spent working per client then you can easily calculate your equivalent hourly rate using the formula above. If you don't track your time, my first suggestion would be to start doing it from now on. In the meantime you'll have to make do with an estimate of your equivalent hourly rate (per client).
Once this process is complete you should have a list of your clients, their associated equivalent hourly rates, and notes of any other reason for a client's worth (or lack thereof).
Step 2: Determine Tailored Rate Increases
In my opinion, freelancers shouldn't have a "general" rate. You might keep a base rate in mind when quoting for work, but in reality your final rate per client should be based upon a number of considerations, such as:
- The complexity and scope of the work
- The quality of the client (are they likely to be difficult?)
- The value of the work to your portfolio
- Your value proposition (i.e. how valuable your work will be to them)
- Their tendency to negotiate
This same logic applies when it comes to setting rate increases. With your list of clients and associated equivalent hourly rates, you now know which clients pay you the most and which pay you the least. At this point you should set new, higher rates based upon the considerations listed above in addition to any others that you feel are relevant.
If you feel that your highest-paying client is paying enough then you should look to bring your other clients up to that level. If you feel that even your highest-paying client is underpaying then you should look to increase rates across the board.
Step 3: Propose Your Rate Increases
At this point you will want to propose rate increases to your clients. There are two key things that you must do at this stage:
- Ensure that you propose increases to all clients (excepting those that you feel are already paying top dollar and would not be likely to accept an increase)
- Notify them that the increase will not come into effect until a point in the future (say 2-3 months)
The magic lies in those above two measures.
By proposing increase to all of your clients, the risk of losing a client or two is offset by the agreed increase in rates you get from others. And by not bringing the raise into force immediately, the client feels less pressured by an immediate increase -- it's something they can take time to get used to and adjust for.
My Results From Employing This Strategy
I employed this strategy near to the end of 2012 and it had a hugely beneficial impact.
I let one client go who was unwilling to pay more, but every single other client either agreed to the proposed increase or negotiated with me (still resulting in an increase). This resulted in me losing my lowest-paying client and achieving higher rates with all the others. The result of which was most pleasing: I worked less and earned more.
Perhaps the most important step in this process that I haven't covered is working up the courage to propose higher rates. Regardless of how much you factor risk into the equation there is always going to be a chance of failure, but business growth is rarely achieved without risk.