How to Raise Rates (Without Ruining Your Client Relationships)

Author: Stephanie Taylor Christensen | October 1, 2015

When you start your business, you’re grateful for any customer willing to take a chance you. As you establish a presence as a legitimate outfit, you’ll probably find that it’s easier to command higher rates for your products and services.

But how do you handle the financial reality that the loyal clients who contributed to your early success are longer so valuable, or profitable?

Here are a few ways to go about raising your rates—without ruining client relationships.

Take baby steps. You probably have an idea of what your competitors charge and how you stack up in terms of rate–but be open to the fact that your customers may not be as price sensitive as you expect. Nellie Akalp, CEO of CorpNet, says she saw a 30% increase to her bottom line when she raised rates as part of a test, after being in business for just one year. “We surveyed our clients prior to raising prices on one package (and did not change the price on the other), just to see how people would respond,” says Akalp. “We found that people did not care about the price increase as long as they got the service they wanted.”

Customized landing pages, targeted social media campaigns, and inexpensive A/B testing tools like Optimizely are all cost effective ways to test different prices, packages and offer copy before you deploy a major pricing change. Generally speaking, Mike Schultz, president of leading global sales consulting and training firm RAIN Group adds that gradual price changes (such as incremental rate increases that take place once a year) tend to be a safer bet than making less frequent, but significant price increases every few years.

Explain the why. A little transparency can go a long way in making sure clients don’t perceive a rate increase as one that’s purely self-serving. Rachel Charlupski, the founder of The Babysitting Company, started her business from her Arizona State University dorm room in 2007, but has rapidly expanded it include a global presence. But such growth meant higher insurance, hiring fees, and costs for 24-hour sitter service—and the need to raise her rates by nearly double.

To announce the increase (which she did gradually), she emailed her clients explaining the reason for higher rates—and why they would ultimately allow for value-added benefit for clients. “We also offered a special on services in other cities for current members, so they knew we appreciate them, their families and their business.”

Give them time to digest the news. Your clients have budgets and bills to pay, just as you do. Allow them plenty of time to prepare for the rate increase—with a lead time of at least several weeks, and potentially, as long as nine months. (You can make the new rates effective for brand new clients immediately). Whether you deliver the news by mail or email, invite customers to contact you directly to discuss any questions or concerns.

Make your loyal customers feel valued. Your first clients may no longer be your most profitable, but showing your gratitude for those who’ve helped you grow is good business. Schultz recommends going the extra mile to let longstanding clients feel ‘grandfathered,’ despite a price increase. (For example, when you notify them of a price increase, you may let them know that while their rates are going up, they’ll continue to receive lower pricing than new clients).

Know what you’re willing to give up. Not all clients will stick with you through a rate increase. Be prepared to negotiate if needed—and walk away when a client’s expectations no longer work with your business model. “Leave yourself options to add more value (such as a free ‘upgrade’) or change the price if someone gets upset,” say Schultz. “Allow them to feel like you worked with them to make them happy.”

Likewise, do the math on how many customers you are willing to lose. “Often, your bottom 10% of customers are marginally or not profitable; don’t beat yourself up if you lose them,” says Schultz.

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