Setting an hourly rate is an issue contractors and freelancers need to tackle before working with a client.
After a while, a new problem can arise: how do you raise your rates, and when should you?
When you reach the situation where the money you're paid is no longer commensurate with the impact of your labors, the only real solution is to find a way to get paid what your work is actually worth.
Look out for the tell-tale signs that tell you you're not charging what you're worth…
You find yourself dealing with a large quantity of clients or jobs, but you're not given enough paid hours or incentives that will allow you to deliver the highest quality services for them all.
The customers you attract are the kind who are always looking for a bargain, which means they want to milk as much out of you for as little money as possible.
You always find yourself working overtime hours, but not compensated with overtime pay.
The value your work generates for your customers will far exceed the wages you get paid.
The goal when raising your rates is to attract high-value clients so you can provide them with the solutions they need.
You're actually going to see a reduced number of customers by raising your price, but you'll be keeping and attracting the clients who recognize the true value of your hard work.
The trick is to find a win-win situation where you avoid pricing yourself out of these ideal clients' budgets, without leaving money on the table or devaluing your work.
And of course, you certainly don't want to join the ranks of unemployed Americans.
If you want to get compensated fairly for your hard work, expertise, and commitment, you can do it by raising your rates.
Keep reading for some great tips about what to do (and not do!) when you're looking to raise the rates you charge for your work.
Follow some of these tips and you could soon find yourself getting paid more and feeling great about it, while enabling yourself to elevate the services you're providing to your customers.
This will attract even more high-value customers who are willing to pay you what your work is truly worth!
When You Shouldn't Raise Your Rates
Pure greed is not the right reason
The worst advice flying around is to "charge what you're worth."
If you hear that, you might start to think you are worth more money simply by sheer entitlement.
But it's the value of your work that you should be charging for, not your value as a person.
You should charge what the quality of your work is worth, not what you think you're worth.
Wanting to earn more money isn't the same as deserving to earn more. People who want to make more money have great intentions.
My own hard work and commitment is motivated by my wife and kids, and I've done everything I can to provide them with the kind of great life they deserve.
Wanting to earn more money is the right thing to do for you and your family.
But the desire to earn more money alone is not a good enough justification to raise rates for the same services.
When You Should Raise Your Rates
You've become an expert in your field and the results prove it
When you first started out in your chosen field of work, you probably did a scan of the prices people charged.
It made sense to low-ball at first. Since you were still very new to the industry, you set your prices well below your more established competitors.
Offering similar services at a lower price was a great way to attract your first customers.
The problem is, as time passed your experience has grown and your level of expertise has increased, but your pay hasn't risen at the same rate.
People with the same level of skill and expertise as yours are likely charging more than you.
You're easily worth a six-figure salary, but you're still getting paid in the mid-five-figures.
In high demand, but for the wrong reasons. Since your rates are so low and your skill is so high, you're in higher demand.
Except the people who are demanding your services are the kind who are looking for a low-budget option.
By now you've become a recognized expert and authority in your field, yet your wages are still close to entry-level.
According to American earning statistics, the difference in income for a person without a high school diploma (probably working for minimum wage) and a person with an advanced degree is nearly $50,000 a year.
If you've increased your level of education, you deserve an increase in your pay.
Delivering more value at the same price. Over time you've also been an innovator, developing solutions and injecting efficiency to give your clients a better return on their investment and achieving higher-value outcomes.
But as the outcomes increase in value, the amount you get paid stays the same.
Less buying power. Another indication that your wages are not keeping up with your work's value is when you notice the price of everything has gone up, but the income from your job has remained stagnant.
The minimum wage rate and the pay received by salaried workers usually increase each year to keep up with the rate of inflation, and so should your wages.
When income can't meet expenses, debt is usually the result.
If you're living in constant debt and can't seem to get on top of it, the reason might be you're not getting paid what you're worth.
Do any of these symptoms sound familiar?
If they do, you definitely need to increase your rates.
Here's a story you might relate to
Meet Bob the carpenter.
Bob chose the trade of carpentry when he was in high school.
He did his apprenticeship under a master carpenter then worked as his assistant for five years.
Set out on his own. Eventually, he decided to go it alone and become a freelance carpenter.
The master carpenter Bob worked for was charging $75 an hour for his services.
Bob figured he wasn't at the same level as his mentor, so he charged $50 an hour.
A surplus of low-quality jobs. He was surprised how many jobs he received.
In fact, at times he felt there was too much work.
He was turning down better jobs because his schedule was already full.
The people he was working for seemed much more difficult than the customers he'd met while working for his previous employer.
They nickel-and-dimed him over materials costs, his hours worked, and dickered with him over every little thing.
Master of his trade. Over time, his skills continued to improve, and he continued to get training.
Eventually, he achieved the skill level of his former boss and reached master carpenter status himself.
High performance outcomes. His customers loved his work and told him he was the best of the best.
But he was still charging them the entry-level rate for the industry.
When he looked at his former boss' rates and the rates charged by other highly skilled carpenters he saw they were about 25–40% more than what he was charging.
No wonder he had so much work!
The Key to Raising Your Hourly Rate
The problem with hourly wages
There are only so many hours in a day.
When you're working by the hour, your earning potential is restricted by how much time you can commit yourself to work.
You can't clone yourself, and you can't be working (and earning from) two jobs at once.
If you work fewer hours, you make less money.
The only way to increase your earnings is to hustle all hours of the day and night, which is never sustainable (and your family will hate you for it!).
Scope changes are hard to manage. At times, the scope of the work might change, and you're stuck at the same low rate.
For example, you might have been hired on as a consultant but find yourself performing the tasks of a project manager.
Your work is worth more, but you're still locked-in at the hourly rate you've always charged.
Keeping track of hours is a logistical nightmare. Punching in and out on the time clock isn't as straightforward for a freelancer or self-employed person as it is for retail employees, factory jobs, or salaried workers.
Your time has to be tracked and micromanaged, which is a challenge, especially when you are probably working on more than one project at a time.
A high hourly wage is a tough sell. When your work is worth around $100/hour and up, customers may experience sticker-shock when you quote them on a per-hour basis.
The surprising solution: Don't charge by the hour
The best way to increase your hourly rate is to eliminate it.
Instead, quote customers for the whole job or project.
You're an expert, so you should know how much work it will take to complete any job thrown at you.
Use your hourly rate for your own reference only.
And use it to calculate a flat fee.
Do the math. Charge the customer a lump sum calculated by multiplying the hours it will take to do the job by the increased hourly rate your work is really worth.
Here are some actual salary levels you can use as a guideline, whether you're new to your industry or a recognized expert.
"Productize" your services. A good way to make the shift from charging hourly to charging by the job is to divide the tasks you provide into individual products with set price tags.
Let's say, for example, Bob the carpenter knows it takes 5 hours to build and install a kitchen cabinet.
Rather than charging 5 hours at $100/hour to someone he once worked for before at $50/hour, he can now quote a standard $500 flat fee (plus materials) for a custom cabinet.
How to Get New Clients at Your Higher Rate
Getting new clients and charging them at your increased rate is a sure-fire way to get paid more for the work you do.
But unless your specialization is marketing, it can be difficult to target new clients willing to pay the full value for your services.
The best approach is to work hard from the moment of first contact to cultivate personal relationships and understand personal preferences between you and your new or prospective client.
You'll not only get the first job, you'll also ensure you are the go-to for recurring work.
Nothing beats word of mouth. One of the best ways to get new work is through referrals from current or past clients.
Get in touch with everyone on your customer list and ask them if they know anyone who might be in need of your services.
Chances are you'll hear a few of them say:
I can't believe how good your timing is!
When you're quoting the new client the referred you to, offer your new increased rate (calculated as a flat fee).
Every time you get a new referral, consider it an opportunity to increase your rate.
Follow up with leads. If you had leads in the past that never worked out, dust them off and check in with them.
The customer might be ready to go forward with the original project, which you can quote at your new flat fee.
Get in touch with the members of your Hall of Fame. There are probably lots of happy customers from your past who would consider hiring you again.
Think of the very best jobs you've ever done and follow up with those clients.
Talk about your previous work and remind them how well it went, then ask them if they have any current need for your services.
How to Get Current Clients On-Board with Your Higher Rate
They say it is much easier to hold on to an existing client than it is to recruit a new one.
So you need to work as hard as you can to retain your current customers if you're gunning for a higher rate.
Demonstrate how valuable you are to your customers
Wow them with your work.
Remember, there are two main reasons your clients hired you (and you need to knock both of them out the park).
Problem-solving is at the core. First, they hire you to make their lives easier and solve their problems.
What are the problems your clients face, and how do you solve them?
Focus on the solution-oriented services you provide when you're working for these customers and do what you can to increase those outcomes.
They should feel proud to work with you. Secondly, you're hired to make your customers look good.
If you over-deliver on outcomes the client can hold up and show off as their own, your value as an employee is going to go up in their eyes.
Don't just quote your new rate, explain it
A client won't be very responsive if you simply tell them you'll be charging more for the same services.
They might simply tell you to take a hike.
Instead, you need to communicate clearly your value and the reason for the rate increase.
Jog their memories. Remind them of some specific, measurable outcomes you've produced.
If you exceeded expectations or targets, make sure you mention the relevant and specific numbers.
Break down the reasons for the increase. If you're finding yourself in higher demand mention it.
You could frame it along these lines:
I am getting more and more requests for my services. I want to give my existing clients the ability to lock me in before I'm snapped up by new work.
More training should equal more money. If you've reached a new level of education, expertise, or authority, let them know how your services are expanded and enhanced.
Be respectful and fair. You don't want to make your existing clients feel like they've been ripping you off by not paying you enough.
But you also don't need to apologize for your rate increase.
Make the client experience more high-touch
If you're increasing your price, you need to make sure you are making yourself more available and interactive with the customers.
Focus on improvements. Tell your clients the increase in your rate will also mean you will have more time and attention to give to them.
It's called being "high-touch," which basically means providing highly personalized service.
Meet your clients in person. Offer free estimates or free initial consultations.
Explain how the increase means better deliverability and higher impact.
When you talk to them, refer to them as your "project partner" rather than "customer."
Give them options. If you sense your customers might not be ready to pay you at the increased rate for the project you quoted, you can offer to reduce the scope of the work as a less costly option.
Be fair and compassionate. Business is always about relationships, and you don't want to jeopardize your business relationships by acting unprofessionally when informing them of your new rate.
Send personal emails to each of your customer telling them about the new fee format and project-based pricing.
Give them some notice—for example, by emailing them in September about the new rates that you'll be charging for the new year.
If convenient, offer to meet and discuss with them in person if any of your customers push back on your new pricing.
Raise your rates and get paid what your work is worth
Hard work and commitment are right at the heart of my core values.
I work hard to give my family the life we deserve.
I believe everyone should be paid the full value of their work, so they can do the same thing for their family.
If the value of the work you're providing has increased, you deserve to earn more from it.
You're an expert now, and thus you should charge accordingly.
It might feel awkward telling your regular customers they're going to need to pay more for your services.
As I mentioned earlier, you'll probably lose a few customers by raising your rates.
But don't be afraid to let go of clients who are no longer a good fit for your business and pay scale.
And it's probably good news too, since losing them will make space for you to take on more awesome customers who are willing to pay the full value of the incredible work you produce!
Do you have any stories on how you were able to increase your rates with clients?
Are there any success tactics we forgot to mention here?
If so, please share them in the comments below!