Got a letter from my solicitor last week that I’ve been dealing with for 2 years now.
“We advise that at the beginning of each financial year we undertake a review of our schedule of charges and hourly rates. This review takes into account increases in CPI and the costs associated with the operation of our practice over the last twelve months.”
It’s got me thinking – most of us are reluctant to increase our own rates, yet other professional industries that we “aspire to be like”, i.e. accountants, solicitors etc., this is common practice. We in the SMB IT Professionals industry like to think of ourselves as professionals in similar ilk to Accountants and Solicitors. Yet it seems we’re paralysed in fear about increasing our rates lest we lose a client due to the rate rise.
Why are we so scared of increasing our rates?
Why when our staff demand pay rises due to CPI, should we NOT raise our rates?
What are you doing about it and how would you handle something like this?
I’m not so sure SMB IT Professionals are scared but maybe they are unaware of how to increase their rates whilst still being able to deliver the same amount (or more) value.
Anyone looking at this problem now should go back to basics and see if they can ‘upgrade’ how they set their pricing structure. For too long, we have allowed vendor pricing models to dictate how we calculate margin and profit and it typically comes down to cost + x%.
IT Professionals need to take a broader calculation of everything that drives their business i.e. training, management, overheads, future growth plans etc… and price from that. It may mean that IT businesses lose some of their clients in the process but chances are, if they’ve calculated and communicated it correctly, they’ll only be losing the clients they didn’t want in the first place.
As a result it leaves space for the business to seek new clients who they can have more meaningful and respectful relationships where there is a shared vision to mutually grow their businesses. This doesn’t necessarily mean by size or revenue but could also encompass the need to retain quality over quantity in terms of clients.
Being scared is unnecessary especially if it’s about the unknown. To stay in this market for the next five years (at least), you need to be on top of the ‘unknowns’ and the ‘knowns’ and make strategic decisions based on them.
Make sure you charge what you’re worth so that the decisions clients make about you are fair and informed.
My clients are exclusively nonprofits. I have a sliding scale which I determine: poorer or more progressive nonprofits (those criteria tend to go hand-in-hand) I charge a bit less. Nonprofits which aren’t trying to change society, just provide a service (i.e., less progressive) get slightly higher rates, as they tend to have more money.
I up my rates every 2-3 years, by something like 5-7%. Because I like round numbers and don’t want to be nitpicky, I wait until it makes sense to raise my rates by $5/hour, then I do it (so the timing varies by client). Honestly I sometimes just forget to do this, because I dislike negotiating about money. I am reminded when it’s time to renew contracts, though, because I *always* review not only the scope of work, but also all other terms, before I send a contract to a client (my contracts started out with boilerplate but I have customized them incrementally over time with ‘lessons learned’ and continue to do so).
Now that some of my clients are being audited more closely (due to the global financial situation, I believe), they are paying more attention to having current contracts on file. So we re-up more often, and I am reminded more often.
When I raise my rates, I often inform the client verbally, a month or more before it goes into effect, since I have a 30-day termination clause and don’t want a client to be caught out (although I have *never* had a client balk at rate rises; once I had one insist that I raise my rates with them!). I try to always follow up with a written notice (email) so that I have a record, in the event (which has also never happened) that my rate change is challenged or questioned. Also it reminds *me* when I did it, if the change did not coincide with a contract renewal!
Basically I conduct business in an organic and somewhat old-fashioned way; if a client is reasonable with me, I am reasonable with them. I am interested not just in my income (although of course I have to care about that), but also in their success (I choose only groups whose mission I support). The contract is a formality we put in place to protect both of us from surprises and worry, so that we can get on with the business of collaboration. I consider my rates part of being reasonable and allowing the work to proceed.
I should say that I’m a sole proprietor and bill only for my time; I do not believe in taking profits on reselling, because I don’t want my choice of vendor or product to be influenced by my profit. Instead, I charge for the time spent in procurement (which, as I always tell clients, is never trivial! Think spec-ing out a server; there is always something you can’t configure on the website — like two RAID arrays — and always a new component you want to talk with engineering, not sales, about — like the newest controller features). So it’s a different business model.
Thanks for your considered comments Karen – it’s sharing real information like this that made me want to start this blog in the first place 🙂
Time to increase your rates?
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