In a traditional employment setting, annual raises are common as a way to adjust to changes in living costs, industry factors, and job demands. Freelancers have as much right to consider adjustments to their rates to compensate for these things as do traditional employees.
The start of the year is a great time to increase rates, so the following is a look at factors to ponder as you weigh your decision!
Factors in Your Rate Decision
Before looking at specific methods for setting new rates, the following are a few of the most important reasons that the start of a new year makes sense for raising the bar on your prices:
- Client Financials: Companies normally set annual budgets that begin at the start of the year. Thus, a rate hike is not likely to cause as much concern as it would at the end of a tight fiscal year. Early notice also gives the client time to prepare for increased freelance expenses in their budget planning.
- Your Expertise and Experience: One of the reasons employees get raises each year is because their experience and expertise in their job grow. Over the course of a year, you gain a lot of experience in your freelance endeavors as well as in the client’s business. You should receive some sort of compensation boost, like an employee, to adjust to gains in these areas. After all, you can provide more value to the client in the upcoming year than you did last year.
- Competitive Analysis: Evaluate what is going on within your freelance sector. If the industry is booming and freelancers are charging higher rates in general, it makes sense for you to increase your prices in line with what others are making.
Setting Reasonable Rates
If you have made the decision to raise your rates, you next have to consider how to set rates that are reasonable enough, yet offer you the income you need and deserve.
Remember that clients prefer working with freelancers in many instances because the overall compensation costs are lower than those of an employee. Thus, you have some flexibility to increase your fees while helping the client maintain value.
While trying to stay competitive so as to not lose business, realize there are always people willing to low-ball the market. Competing on price will put you at a point where your time and effort are not fairly rewarded. Base your prices on industry norms and the value you provide. If you have proven your worth to clients, you have a greater capacity to raise rates because there is a risk to the client in bringing on someone new.
Notice to Clients
Naturally, clients need advanced notice to adjust their budgets and to contemplate the financial impact of your rate increase. At least 30 days is a reasonable timeframe to give.
You could send your notice at the start of the year, and let the client know that you are increasing your rates from the current rate to the new rate on a specific date. Though you do not have to go into much depth, you could communicate that you raise rates annually to adjust for living costs, increased experience, and any other relevant factors. As clients are familiar with these factors in adjusting employee costs, it helps them understand the reasoning behind the change.
Raising rates is sensible for freelancers, and often necessary, especially if you undervalued your services in the beginning of your relationship with your clients. The new year is one of the best times to notify clients of rate hikes so that you can get fair value for the work you provide!