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Empowering Web Creativity

Is It Time to Raise Your Rates? (Part I)

Pensive woman

I watched her mouth tighten slightly, and her voice became a little tentative as she spoke.  This was clearly a difficult subject for her to talk about.  The seven of us, all small business owners and professionals, were seated around a small table.  We listened intently as she began to explain her problem.  "I’m considering a rate increase and need some guidance," she said.   This successful young counselor was asking us, her Mastermind group, whether she should raise her rates in the new year.  We started asking questions and she answered.  She had been practicing over 10 years and had never raised her rates.  Other professionals in her area were charging 25-30% more.  Her practice was respected and received many referrals.  "Would a 20% increase be too much?” she asked us.  The uncertainty in her voice and body language betrayed her anxiety about making this change.

As a financial advisor to small web and technology firms, I see a similar scene played out again and again as business owners wrestle with the core issue of “how much do I charge?”  For perspective, consider your CPA.  If she’s like most of her colleagues, she will start the new year with a new, higher rate for the beginning of a busy tax season.  Many other professionals also adjust their rates at the beginning of a new year.  How about you?  As a web professional, have you made plans to roll out a new rate structure in January 2012?

Through years of working with small web and technology firms, I have seen 5 recurring reasons professionals in this field to fail to keep their rates at current market levels.  They are:

  1. Benign Neglect – "Everything is going smoothly.  We have other issues to worry about."
  2. Fear of Loss – "I’ll lose clients."
  3. Misguided Strategy – "We want to be the affordable option."
  4. Uninformed – "I’m not sure what others charge, but I know we’re competitive."
  5. Trouble Communicating Value – "I’m not really a sales person."

During this week leading into New Years, we’ll be looking at each of these obstacles and practical ways you can overcome them.  Today we’ll look at Benign Neglect (Reason #1) and touch on the first key aspect of Fear of Loss (Reason #2).  In the next installment, we’ll look at how fear and misguided strategy (Reasons #2 and #3) work together to keep you from prospering in your practice.  Finally, on New Years we’ll talk about specific ways to make a rate increase less painful for your clients and how to successfully implement the change by better communicating value.

Reason #1: Benign Neglect

As many budding web and technology pros become established, what typically happens is that their attention is drawn to other management issues: "How do we schedule this project?"  "Should we add another person to our staff?"  "Do we need to attend this conference?  If so, whom do we send?"  It’s these sorts of issues that start to crowd their thinking.  As a result, the business side of their practice is slighted.  It’s easy in this environment to forget that the prices others are charging your firm for their professional services and goods have been going up while you have been neglecting your own.  I have worked with tech clients who have failed to adjust rates for as long as 10 years.

This sort of neglect might seem harmless enough, but consider some of the consequences:

  1. As your costs increase, you have fewer resources to grow the business and improve the quality of your client experience.  Over time, this puts your firm at a competitive disadvantage.
  2. As your rates fall further behind, some of your clients may wonder if anything else in your practice is stagnant.  "Do they keep current?  Are they keeping up with the latest software and hardware?"  Good clients will understand that staying current costs money, and that it’s an expense you need to recoup to do quality work for them.
  3. Not having the necessary resources to invest in your people and their professional development means it becomes harder to keep the best people.  Strong people often move on to better opportunities.  Over a long period of time, you can be left with mediocre talent – a sort of "reverse culling" of your staff. 

There is a serious problem with this kind of gradual erosion: the longer you occupy this place in the minds of your prospects, the more difficult and costly it will be to overcome it.  You will tend to attract clients who only want a cheap price and place a low value on quality.  If not checked, this becomes its own trap – a downward spiral.

Reason #2: Fear

If you’re new to the business and under-employed, perhaps some of your fears are based on a realistic appraisal of your value.  For example, if you’re not able to turn out quality work as quickly as your colleagues then you probably will not be able to charge what they charge.  If this is true for you, then your plan for the new year should be to work on improving your skills.  Take a course.  Build your technical library and work through it.  Do some pro bono projects for worthy causes to get experience (and visibility).  Do whatever it takes to increase your competency and speed.  Early on in your career development, the final arbiter of your value will be the level of your productivity – how much quality work can you get done in how much time? 

However, if you are established, fear is a much more complex problem that ties in with Reason #3 – Misguided Strategy.  We’ll address both of these obstacles and their interrelationship in the next post.

Greg Rohler specializes in providing accounting and controller services to small technology, IT and web firms. He also acts as controller for DWUser.com.

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