In the last part of our Pricing Guide for Freelancers, we’ll talk about when and how to raise your rates.
Before you start raising your rates, however, it’s important to understand the economics - the supply and demand - of your business.
Supply is the number of other freelancers who can do the exact same thing as you. The more of them there are, the less you’re going to have to charge to compete. Demand is how badly clients want your services. The more they want to work with you, the more you can charge.
To charge more, you need to have a strong position in at least one of these two factors:
- the supply by offering service that few people other offer, or
- the demand by doing really good work - and telling people about it!
Pricing models and raising rates
Technically, you can raise your rates on any pricing model. Partners in big law firms charge $1000+ an hour without blinking an eye. But in reality some models are more conducive to raising rates than others.
In an hourly model, it can be a bit of a challenge to raise your rates. That’s because once you’re really efficient and provide great value, your hourly rate can get so high that clients won’t be able to see past that number. They’ll balk at paying a high hourly rate, often without realising that your efficiency is built into that rate.
Packages and fixed price offerings are easier models for raising your rates. That’s because your time is an input, not an output. Clients aren’t buying your time - they’re buying the finished product you produce. Your time, plus your skills, plus your experience are all things that go into that finished product.
This is why it’s easier to raise your rates when you’re offering fixed price or package services. When you’re working under these pricing models, your time isn’t a consideration for your clients - all they need to do is figure out if the price you’re charging is worth it to them.
So if you want to raise your rates, your first move should be to move away from hourly pricing. This just makes everything easier.
Address the supply by dominating a niche
You can’t change the number of other freelancers you’re competing against. But you can change the way you position your own business.
Let’s say you’re a graphic designer who does all sorts of things - brochures, web pages, sales presentations - you name it. You’re competing against a huge number of other graphic designers. In other words, the supply of graphic designers is really high. You’re competing against everyone who is offering to do these things.
Completing against all graphic designers
Instead, let’s say you decide to focus on a niche. For the sake of the argument, say you’re going to focus on sales presentations for software companies. By doing this, you have effectively reduced the number of other designers you’re competing against! Now, if a marketing manager at a software company needs a sales presentation designed for the sales team, they know exactly who to call - you are one of just a few people who can solve this narrow problem.
Our premium pricing will cost us clients from time to time; but if we are not losing business on price occasionally, we are not charging enough.
-The Win WIthout Pitching Manifesto
Competing against a small niche
Of course, this is a simplified economic view - in reality there’s a tradeoff here. If you promote yourself as a sales presentation designer, then people may not get in touch with you if they need a brochure or a landing page. Obviously the market’s demand for your niche services will be less than the demand for all graphic design work.
But the trade off could still work in your favour - depending on your industry. As a niche specialist, your work should be valued at a higher rate by members of that niche. If your new niche allows you to raise your rates enough, you should be able to compensate for the smaller amount of work you’ll get.
At the same time, remember that you’re just one person. You don’t need to take on that many projects per month to stay busy.
Address the demand by building your skills
The other side of this is demand. Let’s stick with the sales presentation designer. That designer is still going to have some competition - there will be other designers who specialise in sales presentations, as well as agencies and other freelancers who don’t necessarily specialise, but do offer the same service.
While focusing on a niche helps a bit, that designer also needs to show how they are not just a sales presentation specialist, but is also the best sales presentation specialist. This allows even more room to charge premium rates.
There are a few different ways to do this:
- Make sure your portfolio is up to date with your best work.
- Get proof of results from happy clients, and turn these into testimonials. A nice-looking sales presentation is good, but a client saying you helped increase their sales by a significant percentage is better.
- Put together in-depth case studies showing your process and the results that process achieved.
These things can help to increase demand for your services. And if you can increase demand, you can command a higher price.
Don’t forget the value triangle
When you’re doing this, don’t forget the value triangle. Any testimonials or case studies should be in the context of that value triangle. Someone who reads one of them should walk away with a clear idea of the revenue you generated, the costs you saved or your emotional contribution. Or, of course, a range of these three.
This is how you reliably charge high rates - be very clear about the value you offer, and take deliberate steps to increase that value.