Are you struggling to increase your rates for clients?
Increasing your fees is one of the fastest ways to grow your revenue as an established business. It's the lowest-hanging fruit.
However, it's not easy to raise your rates. Your clients don’t want to pay more for the same service. And the last thing you want is to lose your current clients as a result of raising your fees.
But with the right mindset and approach you'll be able to raise your fees — with confidence. By the end of this article, you'll learn three pricing strategies on how to increase rates for clients — and how to raise your rates with current clients without losing them.
Let's dive in.
How to Increase Rates for Clients: 3 Proven Methods
Before we get into how to raise your fees, I’ll just come out and say it: I don’t recommend using hourly fees.
Why? You're trading your time for money. And that doesn't scale well. At some point, you'll hit a limit on what you're able to charge per hour.
If you can deliver a result for your client faster, that’s a benefit for them, right? But with hourly fees, even though you can deliver a result for your client tomorrow, you’ll get paid less doing so, and will make more money if you work slower and deliver the result later. Crazy, right?
When you use the pricing strategies below, you’ll see there is no relation between the time you spend working on a project and your fee. Instead, you'll shift your rate based on the economic value you can create for your client.
1. Value-Based Pricing
The first principle of how to increase your rates for clients is to price your services based on the value you'll create. So instead of determining your price based on how many hours you work for the client — or by the project — you determine your price based on the results and value your client will receive.
For example, let's say you're a sales consultant who helps B2B software companies improve their sales team's performance. You could charge $400 per hour for your consulting sessions or $5,000 for a weekly consulting engagement.
But with value-based pricing, you would charge based on the economic outcome your sales consulting service creates for your client. Let's say the client is earning $40K per month in sales. You're confident you can help them increase their monthly revenue to $60K. That's a 50% increase in revenue. Over 12 months, that's an additional $240K in revenue. For the project, you'll charge $50K. How do you justify the price?
By investing $50K into your expertise, the ROI for your client is 5X. 5X (or greater) is a compelling sweet spot. What type of business owner wouldn't invest a dollar to get 5 dollars back?
Now, the hard part of value-based pricing isn't coming up with your price. It’s having the right conversation with your client to...
- identify the value you can create for them
- agree on the metrics of success
This is where the value conversation comes in. It’s a deep conversation (or series of conversations) where you talk with the client about their problem, the impact it’s having on them and their organization, and the reason why they want to solve it.
This conversation is designed to help both you and the buyer identify the best path forward and the real value that will be created for the buyer. You'll ask questions like...
- "If this were successful, what would the value of this be to your business?"
- “If you don’t fix it, how long can you manage and stay with things as they are?”
- “How would things be different if you no longer had to deal with this?”
You're not just talking about the work you'll do for them. Instead, you're focused on the client's situation.You're probing and identifying the levers that will create the greatest results for them.
Having this conversation positions you differently from the typical provider who says "I can do that for you." Instead, you're getting clear on the "why" — why the buyer wants to do this and what the outcome will be for them.
Having this conversation enables you to identify and agree upon the metrics for success — metrics on which you’ll base higher fees. In the vast majority of cases, your value-based fee will be far greater than your hourly or project-based fee.
2. Offer Options
A second way to raise your rates is to offer options.
When you send a proposal, don't just send over one option. Instead, provide three options. That way, the buyer will be thinking of how to work with you instead of whether or not to work with you.
And from a pricing perspective, this helps you harness the power of the anchoring bias — a cognitive bias that causes people to rely heavily on the first piece of information they see.
From a pricing perspective, you would include your highest price option first. Then, your buyer will compare your other options to that price — and they won't seem that high in comparison.
Here's how you would structure and present your options:
Option 1 - Best ($$$)
- Best results
- Shortest time to result
- Most value
- Highest investment
Option 2 - Better($$)
- Help them reach results quicker than option 3
- Provides more value than option 3 (ideally, without having to spend more time)
- Higher investment
Option 3 - Good ($)
- Basic offer
- Minimum effort required
- Provides value
- Lowest investment
You'll want to follow the value-based pricing principle with each of your options.
If you identify and agree upon the value you create for the buyer BEFORE you send your proposal, you’ll justify your higher fees.
And when you offer options, you allow the buyer to choose the level of value that is right for them.
3. Retainer Agreements
A third way to increase rates is to offer retainers.
A retainer is where you bill your client monthly. Retainers help you raise your fees by helping you generate a consistent monthly income and often increasing the lifetime value of that client.
There are two types of retainers:
- Pay for Work: you get paid for providing ongoing work for your client. It's like you're working on a project but on an ongoing basis.
- Pay for Access: you get paid for providing your client access to your expertise.
With the Pay for Work model, you're still trading hours for dollars. Often, the agreement will look like this: you'll spend X hours on a project, and you'll charge the client X amount. Your fee has nothing to do with the value you'll create for them.
On the other hand, with the Pay for Access model, you'll need to get clear on the value that the access to your expertise has for your client.
For example, let's say you're a sales consultant. You ran a training program for your client where you helped their team increase their closing rate by 25%. That resulted in an additional $20K in sales per month. You've proven to your client that you can get them results — results that they'd like to keep.
You could offer them a $4K per month retainer where their sales team has access to you for help and expertise. By continuing to engage you in a monthly retainer, their sales team can continue to improve their sales performance — and generate more revenue. Unlike charging for “X amount of calls,” the retainer is based on the economic value you create for your client.
Use the value-based pricing principle to position your retainer based on the results you can create for your client. Whether that's Pay for Work or Pay for Access, you'll drastically increase how much you can charge for your services.
Sending a Rate Increase Letter to Clients
It will be far easier to raise your rates for new clients than it will be for existing clients. You can usher new clients into your higher pricing options right away. They don’t know what your previous rates were. This is straightforward.
With existing clients however, you'll want to take a more delicate approach. First, decide how valuable their business is and how much you value your relationship with them. Consider your current pipeline of business. Do you have a healthy flow of leads coming in?
If you do, then you can feel more confident in letting your existing clients know that you’ll be increasing your fees. If they decide it doesn’t work for them, you have plenty of new leads coming in to replace that old business. This time at your new higher fee level.
If you don't have a strong pipeline, you might not want to rock the boat with existing clients right away. If they say "no" to your higher fee you need to be prepared to stay with your current arrangement or lose a chunk of your revenue.
Have a conversation with a client about a rate increase where possible. Otherwise, you can send a rate increase letter to your clients.
Say to them: "Effective this date, we'll be increasing our fees."
Then, explain WHY you're raising your fees. Your reasons may include …
- You're building up your team that can provide better support
- You're adding additional reports or a new service that will increase value
- The demand for your services has increased and it’s been a while since you’ve increased your fees and even at the new rate it’s still going to be a great ROI for your client
"With this new fee structure, you'll get these additional benefits and results..."
Explain to them why your higher fee will create greater results for them. This is critical. Your client doesn't want to pay more for the same thing. But if you can add more value to your service, many clients will agree to your new, higher fee.
The key principle here is to focus on value. If you want to raise your rates, raise your value.
As you improve your skills and expertise, you owe it to yourself to raise your rates.
Some existing clients might say no. That's ok. You'll find new clients who are willing to pay you what you're worth.
Raising Rates Case Study: Vince Rath
Vince Rath, the owner of Optimum Retail Solutions, provides executive coaching and consulting to jewelry retailers. Prior to working with our consulting business, he was charging a daily rate. However, when scheduled trips got canceled or the client had to reschedule, Vince didn't get paid.
We showed Vince how to change his pricing strategy and increase his rates. Instead of charging an arbitrary daily rate, we encouraged him to begin having meaningful conversations with his clients. He started asking his clients questions about their product, price, promotion, placement, and people. These were the five key levers he identified for his target market.
Then, he identified the value of improving these levers. For example, if he could help his clients figure out better placements to sell more jewelry, that would directly impact their bottom line. He figured out the ROI of improving each of these levers — and then, switched from a daily rate to a value-focused rate. His new rate came directly from the significant ROI he created for his clients.
As a result of this new pricing strategy, Vince's firm generated an extra $600K in revenue per year. He's been able to add three additional consultants to his team. And most importantly, he's gained confidence around his offer and what he brings to his clients’ businesses.
Here's what Vince has to share with other service providers about how to get paid what you're worth:
"One of the most important things I learned … is that we often undervalue our own services. If you provide value, if you’re professional, and if you’re personable, clients will pay what you’re worth.”
Imperfect Action: Raise Your Rate
Jay Abraham said there are three ways to grow your business:
- Increase the number of clients
- Increase the average transaction value
- Increase the frequency of repurchase
In this article, you’ve learned how to do #2: increase the average transaction value.Three of the best ways to do this are value-based pricing, pricing options, and retainer agreements. And you can combine any of these strategies to raise your rates even higher.
As for raising your rates with current clients, you'll have to be confident and firm. Find ways to create added value for them. Offer options. And make it clear that they'd be losing more by not continuing with your services.
For your next project, try one of these strategies to raise your rate. With any new pricing strategy, practice makes perfect. Don't expect your clients to offer you more money out of the goodness of their hearts. Instead, take initiative. Raise the value you create for them — and then, raise your fees based on that increased value. You'll generate better results, win better clients, and grow your revenue to new heights.
About the Author
Michael Zipursky is the CEO of Consulting Success® and Coach to Consultants. He has advised organizations like Financial Times, Dow Jones, and RBC, and helped Panasonic launch new products into global markets, but more importantly, he’s helped over 500 consultants from around the world in over 75 industries add 6 and 7 figures to their annual revenues. Over 35,000 consultants read his weekly consulting newsletter. Michael is also the author of the Amazon Best Sellers ACT NOW: How successful consultants thrive during chaos and uncertainty, The Elite Consulting Mind and Consulting Success®, the book.