What is a good systematic approach to increasing the rates I charge?

Question

In the past year, I have been getting more and more freelance projects along with my work as a graphic design teacher. I've been working in the graphic design field 10+ years. Because these contracts are not my main revenue, I have not been too concerned with raising my fees and I'm now facing the situation where I should be outsourcing some of my work to collaborators (either because I can't keep up or because I want to take on more teaching work temporarily) but I am also not charging enough to afford them. So I am thinking of hiking my rates but I don't want to scare the clients away.

Just to put some hypothetical numbers and give more context, if I charge 5$/hour on a project and take 5 hours to finish it but I'm too busy and I need to hire someone who charges me 2$/hour but takes 15 hours to do the same (and I still need to charge an hour for checking out their work and giving them feedback), things just don't add up.

I use flat rates most of the time but for some small things like corrections or when I am working for agencies, I'll charge an hourly rate and this is where the hike is likely to show more.

I know raising gradually is likely to be what will be recommended but how often and how incremental is gradual?

Also, do you have a systematic approach to raising your own rates? (following cost of life, as you acquire new skills, etc.).

Do you email all your clients or wait for a new project to come in?

Do you raise a certain % each year? When do you consider stopping to raise?

Unsure if this question belongs here or in the freelance SE but I'm mostly interested in what fellow graphic designers would have to say.

Answer 1

In reality, as a designer freelancing, my hourly rates are really unimportant beyond what I need to cover any overhead. Truth be told if I stuck strictly to the standard (overhead + 20% profit) I'd be barely surviving. I have very little overhead.

A more realistic approach to pricing is value based pricing. See THIS QUESTION for a few answers on how to price. Which is related to your question.

Sure I have an hourly rate I can tell clients. However it's largely unrealistic. If a client insists upon knowing an hourly rate I adjust project time to meet my pricing.

I detest bidding anything based on an hourly rate. I much prefer per-project bids. It prevents any surprises the client may experience when invoices are sent and it's solely up to me to ensure I'm bidding enough to cover my living. Once you get into "time" bids or hourly bidding you are leaving it up to the client to estimate how much time it will take you to complete something. That's not a viable situation for me. I don't work at the same rate that Bill, Bob, Jane, and Tom do.. I work at my own rate. So there's no possible way the client could ever know how long something truly takes me to complete.

For example (similar to your question), if a client insists on knowing my hourly rate I tell them $10/hr. Then they ask how long will it take to complete [Y]. I tell the client it'll take 5 hours. So, I get the work for $50 and the client is happy. Now does the client need to know that I can actually complete the project in 30 minutes of pushing a mouse around? Hell no! I spent years and years and years learning my trade so that I can only spend 30 minutes pushing the mouse. What about the creative phase where I'm considering how to design things or choosing an appropriate color palette, or typeface, or researching competitors so I can ensure my creative is correct? Or the years I've spend honing my sense of aesthetics. All that can not be quantified. Your rate should never be restricted to only the time you touch a mouse. It's simply wrong to penalize yourself due to experience.

If the same client simply asked me "How much to complete this?" I'd simply state $50.

True hourly return = $5, Added value return = $50.

You can often tell a client a project costs $5,000 and they are fine with it. But if you tell the same client the same project will take 20 hours and your hourly rate is $250 (equalling $5,000) they'll almost all fake a seizure.

How I raise rates.....

I simply bid higher on new projects. If last month I would bid $X to complete something, this month I bid ($x + 10%). Thus increasing my return on the same project by an additional 10%.

If a client asks about the price difference, I explain that rates have increased due to rising costs of living and overhead. If pushed, I will at times stick to previous rates for the first project for an existing client immediately after I've raised rates. But only the first project.

For existing, ongoing projects....

If, for example, I have a client who I've been doing virtually the same thing for, repeatedly, and pricing has always been the same. i.e. Project Y costs a flat fee of $10. And it cost $10 every time the client has requested it over a period of months or even years. At that point, I will send an email to inform the client of an increase. Usually I send it with a proof or final file for the last request of the project. Something along the lines of:

Hi [client],

I just wanted to make you aware that work on [project], which has customarily incurred a fee of [$x], will be increasing to a fee of [new $x] in the future.

[project] I'm currently completing will be billed at the previous rate of [$x], but I wanted you to be aware of the increase moving forward.

I realize I've completed [project] for the [$x] for several [months/years/weeks] but it has become necessary to increase the fee to [new $x] in order to offset business overhead and the rising costs of living.

I hope you understand and I'm always available to discuss the matter if you'd like.

Thanks!

Then I simply invoice the new cost in the future.

As for when to raise pricing....

I find a schedule for price increases is both unmanageable and generally unsatisfactory. If I set a schedule to raise rates every year, what about when I'm experiencing a low in work in the previous quarter? Raising rates certainly will not help that situation. What if it's mid-year and there's no possible way I can complete all the work I'm getting? Should I wait 6 months to increase rates? Of course not. I need to alleviate the cacophony of requests now, not next year. I need to raise rates immediately.

My rates are dependent upon my general workload. In any given month I may have more or less work, I know that each week I customarily get so many new projects, edits to previous projects, and requests for quotes. I can tell in a matter of a couple weeks if things are slowing down or loading up. However, I don't react immediately to these fluctuations. Weekly fluctuations can happen, but if I start seeing a trend over several weeks, I look closer.

For example, FEB 2013 and the first couple weeks of MAR 2013 were very busy for me. Busier than I could handle without working 16-18 days 7 days a week. So I raised rates on any new project bids mid March. Oct-Dec of 2013 were even more busy for me. So I raised rates again in Dec 2013. So far, 2014 has been more along the lines of my preferred workload - steady and stable without being overwhelmed for more than a day or two.So I'll leave pricing as it stands until I feel overwhelmed again.

There's an old adage which states "If you get every project you bid on, your rates are too low." I expect to not get every project I'm requested to quote. Sometimes that takes a bit of getting used to -- hearing, "Sorry, you cost too much." and not altering your rates and being comfortable knowing more work will come in spite of losing that particular project.

• If you are getting enough work to keep you stable and consistent, without feeling overwhelmed or too busy, chances are your pricing is good where it's at.

• If you are getting more work than you can handle or are getting more work than you actually want, then it's time to increase your rates to weed out some of the clients unwilling to pay higher rates.

• If you are getting less work than you need to survive, it may be time to think about lowering your rates in order to acquire smaller clients.

EDIT:
I should add that if I have a client who insists on paying hourly, I do track the hours faithfully and invoice for only that fee without any value adjustment. These types of jobs for me are customarily edits to previous projects. In that sense, an hourly-based price structure makes the most logical sense. Because I'm not reinventing creative, I'm often merely editing text, there's no "value" in any edits from my perspective. Therefore hourly rates for editing save the client money and pretty much are just the time pushing a mouse around. It would be unethical to take on an hourly-based edit/project and then fabricate hours.

I'm always as transparent as I can be with pricing for my clients. I don't ever want any client to feel I'm being less than ethical with pricing. Sometimes my pricing means I don't get work, but in most cases its not an issue. In fact, in most cases, clients actually prefer knowing exactly what something will cost before I start working - that's often not possible via strictly hourly-based pricing due to unforeseen client demands. With value-based pricing I have a little wiggle-room to allow some minor changes to the scope of a project without being in a position where I must adjust pricing for any small addition. This flexibility is seen as beneficial to the client. They know that "Oh, can we change that to blue instead?" isn't going to cost them another $10.

Answer 2

Double your rates every time you get the urge. At least once per year. It will help you leapfrog out of bad situations and into more interesting ones. And force you to improve significantly each year because you know you're going to double your rates at least once a year.

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Clearly this is more controversial and edgy than most people are accustomed to. But if you have some talent, much persistence, a high intellect, challenge yourself to learn and improve - then your designs skills will improve at an exponential rate relative to the average person. And this means you are going to either be massively over servicing your local customers, or progressively climbing to a new altitude each year.

This is not for everyone, obviously. But if you have the pre-requisites this is utterly doable. At some point you won't be able to double your rates every year, diminishing returns will hit eventually. But that's a lot further off than you might imagine if you've got some of the prerequisites to keep at improvement and keep communicating with your clients, past and present, and future.

People that look for talent will see you coming, they will recognise your trajectory and mark you for future attention. This is no different than the path to becoming a great athlete, in this sense. But it's very different in another sense... in that you always control your destiny until you run of momentum, persistence, patience, communication skills, intellect and talent. Everyone has a ceiling on their impact on the world.

But what I'm suggestion is a systematic approach to not only improve your pay rate, but also the kinds of clients you're working for. You WILL be leaving clients behind. You must always TRY to part amicably (it won't always be possible) despite this increase being their first consideration. Explain to them how far you've come during the time you've been their designer. Show them the improvement curve. It will be plainly visible. They'll understand that you've become out of their reach. That it's in your best interests to move on.

Everyone in business has faced skill issues. Both an inability to attain sufficiently skilled people and also the loss of those that improve past their financial reach. It happens in every single industry. No business person worth dealing with is unaware of these eventualities. They will wish you the best, and aspire to find the money to hire you once again, to benefit from your designs and what they can do for their business.

And you must remember this. Design is about assisting business. The better you become at design the bigger the businesses you are able to assist in ever bigger ways. So the growth in income IS exponential if you're up to the challenge to increasingly assist in ever more influential ways.

Graphic Design can be production line work, like putting cars together if you want. Or it can be about changing the world through the brands and products, services and people you assist to put on their best image and identity.

Besides, doubling your price is nowhere near as brutal as telling someone you're too busy for them ;)