business advice | Mar 3, 2020 |
How do I navigate changing my rates with existing clients?

Dear Sean,

I
ve had the same rate for five years (which, I know, is far too long). But so much of my business is returning clients. After working with them for so long, how do I navigate changing my rates—and how do I know how much more I need to charge?

Ready for a Raise

Dear Ready,

For those of you who are parents, would you ever dress your 3-year-old toddler in a onesie? Of course not. So why would you not look to change your rate for your design business if your business has, in fact, changed?

Let me put forward a simple example: Say you needed $1,000 to live your life and only wanted one project that would take you 10 hours to complete. Put aside whether hourly billing is the right model for you for a second and just assume that it is. You would then need to charge $100 per hour for your services. Now, fast-forward five years. You still need the $1,000 to live your life, but you have gotten better (and faster) at what you do. You can nail the right floor plan in, say, one-third of the time it took five years earlier. That means your hourly rate needs to be $300 to demonstrate that you have, in fact, gotten better as a designer over the last five years. Remember, you have to get $1,000 one way or another.

But you have not changed your rates for your existing clients—and maybe even for new clients. What does that mean your business is saying to your clients? That you have not gotten better? That you are willing to work harder for them for less (which is factually what you are doing)? Doing work you should be outsourcing? That you owe them? By not changing your rates for your existing clients, you have gone down a very slippery road of not honoring the true value you offer today.

There are only two reasons that your price might stay the same for existing clients: First, they promise future projects when undertaking the current project; or second, you speak shorthand with them so that you can create and execute your design faster than you could with a new client. Both instances reflect the idea that existing clients can reduce your risk as a business and therefore deserve the benefit of that value. However, the benefit truly has to be there. (If there is no promise of future business or the client is a huge pain no matter what, then all that I said above applies and you are working harder for less—and should stop doing so immediately.)

If you raise your rates, you have to be certain of the value you offer, when you offer it and why. You must also know how much you need to make and how often you want to work. From there you can ask the question of whether or not the existing client has reduced your risk and how much.

In the end, the object is to always get what you need to do your best work.

Back to my example. If you now need $3,000 and want to work on three projects in the time it used to take you to work on one (i.e., you are three times faster than you were), each project would have to pay you $1,000 and you would need $300 per hour to do them. You can scoff and say that you could never get this amount—but the thing about math is that it does not care. If $3,000, for three projects at 10 hours total, is what you need, it’s what you need! Telling a business story compelling enough to merit your fee is the challenge, not trying to decide whether or not the number is, in fact, the right number.

If $300 per hour is the right number but you are still charging $100 per hour, how do you get to $300 for existing clients? If they do not reduce your risk, then treat them like any new client—you’ll quickly find out if they want what you do or not. (Remember, familiarity goes both ways; there is a cost for them to ramp up with another designer, too.) And if they do reduce your risk, you can show that you value them by explaining that, given the work you do, your new rate is $300—but because of your relationship with them, theirs will be $240. Yes, you will have to figure out how to make up the $180 in lost revenue, but this client makes that possible because of who they are. They made your life 20 percent easier by being them.

In the end, the object is to always get what you need to do your best work. Clients that make that effort easier deserve to be rewarded only as far as they reduce your required effort. Otherwise, you are breaking your promise to yourself—it is not possible to do your best work if you are forced to fill in the gaps just to make a living.

No matter what, your rate cannot be the same after five years no matter who your clients are. All things grow and need to be honored for that growth. Your promise, and that of all designers, is to be better tomorrow than you are today. You should be paid accordingly.

____________

Sean LowSean Low is the the go-to business coach for interior designers. His clients have included Nate Berkus, Sawyer Berson, Vicente Wolf, Barry Dixon, Kevin Isbell and McGrath II. Low earned his law degree from the University of Pennsylvania, and as founder-president of The Business of Being Creative, he has long consulted for design businesses. In his Business Advice column for BOH, he answers designers’ most pressing questions. Have a dilemma? Send us an email—and don’t worry, we can keep your details anonymous.

Homepage photo: Shutterstock.com

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