Today’s topic is something I talk to MSPs about all the time: Raising your rates. On today’s ramble we’re going to talk about some best practices for raising your rates. This needs to be a thing you do on a regular basis, so you might as well get good at it. Let’s dig in.

For this ramble I’m only talking about per hour rates, but I’m a firm believer that these rates should inform and probably drive the rest of your rates from fixed fee service to project rates, so I’m starting here. I’ll cover pricing agreements on a later ramble.

First, when can/should I raise my rates?

The answer is that it depends. If your contract with your clients is month-to-month you can pretty much do it whenever.

Same thing goes if you don’t have contracts. You should have contracts but with no contracts you can largely do what you want.

If you have one year or multi-year contracts without a price increase clause you are probably tied to the end of the contract.

Also, if you have more mature clients that do regular budgeting it’s a good practice to work with them and during their budget cycle. Working within their IT budgeting process shows the mature company that you want to be their partner and not just a vendor. If you know their budget cycle and choose to ignore it, you do so at your own risk.

How much can you raise your prices?

Unfortunately, the answer here is it depends.

The first factor here is: Are you charging at or close to market rates? Market rates are somewhere in the $165-225 an hour range. Your mileage may vary on these rates, but if you charge under $150 an hour in basically any market you simply aren’t charging enough. You are far better off getting your rates to at least $150/hr and losing a client or two than to increment it up.

If you’re close to or at market rates it’s pretty standard to bump your rates up at the rate of inflation +/- a couple percent. This could be a straightforward clause that says we are bumping your rates at a standard rate on Jan 1 of each year.

Will I lose clients if I raise my rates?

The short answer is no. Now, the reality is that you may lose a client or two and they may blame rate increases, but if you’ve been providing good to exceptional service they were likely just looking for an excuse to make a change.

This is especially true if you are raising your rates a modest amount, say 5% or so. If a client is paying you $1000 per month that’s only $50 per month.

Now, if you increase your rates a LOT it’s possible that a few clients walk away. That said, if your rates were WAY underpriced it’s likely that your competitors are charging similar rates to your new rates. Again, if you’re knocking service out of the park you may hear some grumbling, but it’s unlikely that you lose many clients.

It’s worth mentioning that if you are in a position to raise rates a bunch it’s likely your margins weren’t great. You will hear me talk about margins a LOT in my financial rambles. If you aren’t making a healthy margin you’re playing from behind all the time. So, as you increase your rates your new pricing will offset any client losses.

Note that if you raise rates across the board and you lose a client or two you will still come out ahead, so don’t worry about it too much.

How do I raise rates?

If rate increases are baked in your contract and your client knows to expect it, just raise them when they expect it. You could let them know if you want, but that’s up to you.

When you have no contract or a short contract as mentioned earlier it’s probably a good idea to give them a 30-60 day notice of the new rates and just increase them at the prescribed date.

If your contract is up for renewal and it’s time to raise rates it’s probably worth a quick discussion as part of talking through the new contract. If the increase is modest you could just include it as part of the renewal.

The short version is, if the increase is modest you can probably get away with just an email or a note in an invoice. If you are increasing it more than a few percent it’s probably worth a conversation.

Two things to avoid:

  1. Don’t raise rates too often (I’m talking more than once or in individual cases twice in a year). You’re better off with a higher increase upfront OR a graduated increase that they expect throughout the year. Raising it twice or more without sharing the plan with your client will raise eyebrows.
  2. You shouldn’t apologize for raising rates. In order for you to give your people raises, rates also must go up. If you raise them fairly and consistently you’ll be just fine.

So, while potentially uncomfortable, raising rates is something you need to do over time. Your clients should expect it, and the vast majority won’t leave you.

Thanks for coming on this ramble with me. I’ll see you on the next one.

By Adam

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