As an independent contractor, your days of automatic raises are over. No longer can you sit back and wait for your supervisor to work up your annual performance review. Fortunately, that doesn’t mean you’ll be stuck at your starting rate for the next ten years.
Instead, you have to make your case and tie your new rate to what you’ve delivered. This shouldn’t be too difficult if you’re expanding your skill set and presenting your work as a solution—not just a service for the client. Let’s take a look at the conditions that can point you toward raising rates, and how to present it to your clients.
Good times to raise your rates
Don’t raise your rates just because it’s January again. You should raise your rates in response to certain circumstances, such as one or, preferably, more of the following:
- You’ve learned new skills that specifically increase the value of what you can deliver (to a specific client, not just in general).
- Your responsibilities for a client have changed, or the scope and nature of the work has been expanded. For example, your project was initially to do cookie-cutter Web design, and now your client wants you to analyze their site and then design applets.
- You have so much work you can’t handle it all—a sign to raise your rates, prune your schedule, and make the same money or better.
- The demand for your specialty has increased, and there aren’t enough contractors to fill it.
- You have an ongoing relationship with a client, and you’ve long since raised rates for everyone but them.
- A client is enthusiastic about your work and wants you to do another project, especially if several of the above are true.
Remember that you don’t have to raise your rates for all your clients at once. If you have a client who is easy to work with, pays on time, and always makes your phone ring when they need a project, you may want to exclude them (at least for a while) from your rate raise. But if you do so, make sure they know you’re giving them a deal—that will make it easier if you later raise rates for them, too.
How much and how often?
Unless the scope of your work has dramatically expanded, or you grossly undercharged last time, target your rate raise in the 10 percent range. Don’t bother with much less unless your rates are already high. Given that your client doesn’t pay taxes or benefits for you, this corresponds roughly to a 6 percent raise for an employee.
You may find it easier to raise rates for new clients versus existing clients. However, be aware of market conditions. Depending on the state of your industry and your competition, it isn’t always feasible to raise your rates.
If you can truly justify your new rates—such as with new certifications or changes in market conditions—you should be able to raise them as often as it makes sense. But don’t annoy your current clients with constant rate hikes. Unless you have a long-term relationship or the nature of their work changes often, try to avoid raising rates on the same client more than once.
How to handle it
Raising rates as an independent contractor requires a different approach than asking for a raise as an employee. You don’t want to jeopardize your relationship with current clients or price yourself out of the market for new ones. That’s why you need a good reason for raising rates, and you need to do it right.
Say it in person, but accompany it in writing
Prepare your new rate in writing, but don’t make that your messenger. My approach is to sit down briefly with the client, tell them the new rate and when it’s effective, and succinctly explain why I’m raising it.
Note that I don’t ask for a new rate. I keep the increase small enough to avoid sticker shock and then phrase it as a fact.
Once the client verbally agrees, I present the written notification and introduce it as a formality. With clients who’ve paid my invoices on time, I present the notification as a letter stating the new rate, making a one-sentence statement about it, and thanking the client for their business. That way, they aren’t pressured to immediately sign some piece of paper.
Then I work up a contract addendum or a new contract, as appropriate, and give it to them within a day or two. If they’re slow about signing it and I don’t want to hassle a good client, I make sure to submit an invoice with the new bill rate as soon as possible. Proof of payment works, too.
What if your client says “No”?
Be prepared for a “no” before you meet with your client. What will you do if they respond negatively? If the client has good reasons for not accommodating the full rate hike (your new NT certification may not be relevant to them), perhaps you can meet them halfway. However, this a rare instance in which I try to avoid compromise. I’m not selling a car. I’m providing a valuable solution to the client’s problem (that’s why they want a contractor), and because I know the market and the value of what I deliver, I price fairly for both sides.
A more palatable compromise might be to continue your current rate for now and increase your rate for the next project, deliverable, or set period of time. Of course, get it in writing now. If the increase is reasonable and you’ve provided good solutions for the client, a client that you want to continue working with will want to keep you, too.
It’s what you deliver, not what you think you deserve
From the client’s point of view, an increase in your rates is going to be acceptable only so far as your work has increased value for that client. If you are called upon to defend your new rate, be prepared with a specific example of the value you’ve delivered. Even working weekends on a special project doesn’t stack up to being the contractor who brings dollars in the door for them. Anyone can just show up.
For example, a client I’ll call Company A contracted with me to deliver a piece of documentation that was part of a much larger software development contract. Their client, Company B, found the document so helpful in understanding the system that they asked Company A to produce additional documentation that Company B had initially planned to create in-house. Company A asked me to do the job and then added a nice chunk of money onto their contract with Company B that more than covered what they paid me.
When I raised my rates on the next project, my client didn’t blink an eye. But if they had, I would’ve reminded them that my work allowed them to increase their gross on that contract by an extra 20 percent they hadn’t even anticipated.
Meredith Little has worn many hats under the broad term of freelance writer, including technical writer, documentation specialist, trainer, business analyst, photographer, and travel writer. To comment on this article, please post a comment below, or follow this link to write to Meredith.