Why it’s Time to Raise Your Minimum Acceptable Rate
In our recent post we talked about the best ways to increase your agency rates.
We figured out pretty quickly that you can’t spring an increase on your clients out of the blue— it takes a solid plan and some homework before you can even attempt a price hike.
After all, you don’t want to scare your clients away.
But before you can act on the strategies in that article, you’ll need to figure out if this is the right time for your agency to increase its rates.
Which brings up the question: Is there ever a good time to raise your rates?
The answer may seem like an easy ‘No’, but that’s not exactly the case.
Therecertain times when a price increase is justified and even necessary for the growth of your agency.
If you don’t raise your rates, your business could risk losing more than just money.
For starters, you’ll add unnecessary stress to your best asset, your employees, and eventually you’ll drain other important resources in an attempt to stay afloat. And this path could snowball into a situation so bad that you may even be forced to close shop altogether.
Can you see why it’s important to raise your rates?
But a price increase is not warranted.
If you decided to rent the fanciest office downtown with full wraparound skyscraper views that tripled your rent, your customer is not going to care that you need extra money to cover your expenses.
The showy office is not going to produce a higher return on investment.
But if your costs have gone up because you hired more employees who can deliver more support, a price increase may be justified.
Your Team is More Experienced
As your agency grows, you’ll inevitably develop a solid team that can offer support to your customers.
What you were once doing yourself as a solopreneur is now something you’ve learned to outsource to improve efficiency.
Certain tasks allow you to outsource the project at a much cheaper rate, but if you’re looking for experts in your field, you can bet that they won’t come cheap.
Unlike the fancy office example, a specialist can actually deliver results that your client can see in the form of a return on their investment. Therefore, your specialist’s salary (and the subsequent rate increase) becomes justified.
Your clients get the results they want and you’re able to cover your costs accordingly.
So if you’ve hired some extra hands, your agency’s minimum rate should reflect the increase in expertise.
Your Expertise and Services Have Expanded
When your agency first started out, you may have provided your customers with a few service options that you knew really well.
You completed these services with ease and efficiency, creating a healthy profit margin.
But somewhere along the way, you started learning more about your specialty, picked up some tips at industry-specific conferences (which aren’t cheap), and used them to improve service for your customers… for free I might add.
As your expertise grows, your customers benefit from this knowledge and will grow and earn more money themselves because of it.
Your increase in experience is not the only thing to keep an eye on. Your time is another way you could be throwing money away.
If your customers are paying on a per-hour basis, your team needs to track their time. At the end of each month, you should review these time cards.
Compare what your customers are paying for versus what your team is actually delivering.
A common situation that comes up is when employees dive too deep into certain projects and end up short on time and attention to other, equally important projects.
Is your team stuck working on tasks that are out of the project’s scope?
This situation happens all the time in small agencies, but that doesn’t mean you should continue to hurt your bottom line by wasting billable hours on minor tasks.
While it’s great to give your current customers little tokens of appreciation, you should reflect these upgrades to your service offerings and the additional hours going forward for new customers by raising your agency’s minimum acceptable rate.
If your services have expanded, let’s say your agency now offers responsive website designs for all website projects, then your prices should reflect that.
Your Closest Competitors Are Charging More
It’s always a good idea to price shop your closest competitors.
I’m not saying you should spend a week on market research, but it’s helpful to gauge where the market stands every six months or so.
Are your competitors’ rates higher or lower than yours?
What about the services they offer? Do their customers enjoy the same benefits as yours, or do they get something extra for the same price? Maybe your competitors are offering even less than you do for the same price.
It will be a bit harder to price shop your competitors, but this information could prove helpful when considering if your agency is ready for an increase.
You don’t need to be the most expensive agency in town, but you certainly don’t want to be the cheapest either (think: Wal-Mart of websites). Taking on too many low-paying clients is a recipe for burnout and disaster when it comes to attempting a rate increase.
You’re Delivering Results
In the end, clients just want to know that you can deliver the results they’re paying for.
They want to trust you as the expert.
The best way to prove your value is to develop case studies around your most successful clients. A customer spotlight can be a great way to do this without it looking like you forced your customer into a 5-star review.
Feature one of your customers on your blog and grab a quote from them about how you’ve helped business. Chances are, your future customers will be able to relate to your current customers’ problems, which means they’ll need your help and won’t mind paying a premium for it.
Brainstorm with your team to discuss some of your biggest ‘wins’ for clients. Write down the problem that your client came to you with and how your team solved it.
Remember, a case study does not have to be long, drawn out, and hard to read. The simpler you make it the better.
If your clients see that you can deliver the results they’re looking for, they won’t question a higher minimum rate.
Now that you’ve determined it’s time to raise your rates, check out the article we mentioned in the beginning called: How to Raise Your Prices Without Losing Clients
With the right timing, and your agency’s ability to show results, customers won’t think twice about a rate increase.