Archive for June 28th, 2012

When they baked your cake in little slices,
Kept your eyes on rising prices,
Wound up winning booby prizes;
I’m sure you’d like to think you know what life is

Lyrics from the Song “Valentines Day”, By ABC

Rising your freelance or small business rates can seem like a double edged sword.

On the one hand, inflation means that your costs are going up and therefore you should be charging more to maintain your profit level.   On the other hand, it may seem like there is a risk that by increasing your prices, it will make selling harder.

But then, if you are selling based on cost, there will ALWAYS be somebody willing to do it cheaper.  So are these the sort of clients you want to be attracting anyway.

Whilst it may be tempting to put off rate increases in these troubled times, delaying a rise could be the worst thing you could do.

Small Verses Big Rises
Inflation in the UK currently stands at around 3%, and at around 1.7% for the USA.

The rate of inflation seems to always be in the news at the moment – everybody knows that prices are rising because of inflation.  Therefore your customers will know that your prices will be going up (whether they admit it to you or not).  A letter of pending rate increases in line with inflation should be relatively easy for your customers to understand.

But, let’s assume that you decide to skip the rate rise for 2012 because you don’t want to hurt sales.   Come 2013, you could increase your rates by the rate of inflation, but that means you’re effectively taking a pay or profit cut.   Do this enough times, and you will soon be out of business.

On the other hand, if you find in 2013 that you need to get your profit levels up to the previous levels, you are writing a letter with your rates up by double the rate of inflation.

You customers will soon forget there was no rate rise in 2012.  You will have customers dropping off of your pending work book faster than you could deal with.   Imagine if you got a letter from one of your utility providers saying that their prices were going up by 6 or 7 percent – you would soon be shopping for an alternative supplier.

Get The Rise In the Diary
I would therefore encourage you to get the rate rise dates set into your calendar as reoccurring yearly events.   I have two dates in my diary for each year:

1. 26^th June – I write to all my current, old and prospect customers with the new rates, stating they will take effect from the 1^st September.  I find this is normally a good way to spur them into raising the orders.
2. 1sth September – Is the date of the rate rise.  I update my price list on my accounts system (Freeagent), my web sites and my printed material.   I also mark any outstanding quotations as void in my accounts system, so that I do not accept quotations with an old out of date value by mistake (good housekeeping in itself).

These dates are in stone.   It’s in my contract, and my customers are used to the dates.  Come the end of June, they know that a rate rise in line with inflation is on its way.

A good source of rise letter
Of course, there is a fine art in creating a rate rise letter.   I find the two stage approach (warning letter followed by the actual rise) works very well and rarely scares off prospects or customers.

Whilst the format of the rise letter is a topic for another time, there is an excellent resource of wording for such letters on the Intuit money form.