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Pricing Your Work: How and When to Increase Your Rates

raise ratesWhat’s your ideal hourly rate? I bet it’s higher that you’re charging today, right? You should start charging that ideal future rate today.

Before I explain why and how first let me say that I strongly advise my clients against charging by the hour at all. For a variety of reasons, this is a self-defeating practice. (Engage me in the comments if you’re interested in why.) But whether you charge by the hour or just use an hourly rate as a benchmark for quoting your projects (as you should), you might want to consider starting the process of increasing your rates today.

Now you’re probably thinking something like, “I can’t do that, my clients would object,” or “I’d price myself out of my market,” or “I’d lose opportunities.” And you’re probably right. Increasing your rate will require change and adjustment—it will take time. And that’s exactly why you should start this today. If you wait until it’s absolutely necessary to change your rates, you will no longer have the luxury of time–and changing your rates suddenly will create some serious stress.

In order for your design practice to grow you need to maintain a healthy profit margin. And for freelancers and small firms this margin will come largely, if not entirely, from your hourly rate. Growing your firm will always add costs and increase overhead. And so your rates will have to go up. But increasing your rates will upset the pricing precedents you’ve established with your existing clients, and with your referral network. Significant changes to your rate may trigger exiting clients to start looking elsewhere and prospects to be surprised by your fees.

Nevertheless, increasing your rates is a necessary part of growing a professional design practice. And part of this progression will always include the acquisition of new (hopefully better) clients, and moving on from the old.

The Paralyzing Fear of Disappointing Clients
Transitioning clients is hard for emerging design firms. Designers build close relationships with their clients. In fact, many small design firm websites make this a selling point: direct communication, personal attention, no middle-man. These are often touted as advantages in hiring them as a freelancer or small firm. But eventually your costs will go up, and rates will have to increase, and clients will transition.

At a personal level this is hard for a designer, because it’s not just business, it’s not just about necessary rate increases—it’s knowing that your client Jane, with the twins, trying to run her gift shop, or Joe the semi-retired granddad managing a non-profit—that they will be negatively affected by your increase. And those are the hardest transitions. But of course you also probably have clients who can afford higher rates, but knowing a bargain when they see it, they keep you busy with lots of work—so long as they keep benefiting from your low rate. I hate to put it this way, but these kinds of barriers to building a successful design practice come from the reality that most designers are just too nice.

The solution, or course, is not to be mean, or hard-nosed, but to simply become more professional. Professionals can be very personable and nice. And if you can become more professional (which requires being profitable), then you can continue to help the entrepreneurial mom, or the altruistic granddad. If you are genuinely profitable then you can afford to willingly cut your profit margin for clients like these. But you need to be a profitable first in order to have the time and money to give away (or discount). You can’t keep giving away what you don’t have—working at unprofitable rates will eventually catch up with you. When it does, these clients will be equally disappointed—when you go out of business. If you’re going to remain in business you’ll need to increase your rates.

And you need to do this proactively, intentionally, and in a planned way.

Continue reading at HOW Design.com

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