Raising Rates

28 April 2008 at 8:14 pm Leave a comment

There was a recent article in the NYTimes online about the tricky process of raising your rates in a soft economic climate. The most straightforward approach was given by a small business consultant, Marc S. Jacobs:

There is a simple formula to calculate a minimum hourly rate, he said,
but it cannot be done in a vacuum. It is imperative, he said, for these
entrepreneurs to write a business plan first that states clearly what
they want to do, how they intend to do it, and foresees revenues,
expenses and profits for the first several years.

Once they have done that, Mr. Jacobs said, they should add up weekly
living costs and business outlays and divide by 20, which is the number
of billable hours to shoot for. “Now you have what you need to charge
per hour, and you can compare that to the marketplace rate,” he said.

But for the business with existing clients that wants to raise its fees the recommendation is:

First, he said, increase them for new clients only, and use the exercise to explore how high you can push the rates.

Then, he said, the consultant should inform existing customers in
person — not in writing — that he plans to raise rates by 5 to 10
percent. “Have a conversation as part of a regular visit,” he said.
“Make it casual. Tell them why you’re doing it. Say something like
‘I hope we can work out an agreement.’ ”

Some customers will say there is no way they can afford to pay
more, he said. In that case, the consultant have to decide whether
to let them go.

It’s a short but interesting article, you can check out the whole thing here.

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Entry filed under: Client Relations, Pricing. Tags: , .

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