How to Decide Whether You Should Raise Your Rates

How to Run a Business

Time and Money

Periodically, businesses that sell physical products raise their prices to keep pace with the cost of doing business. The more they pay for materials and overhead, the more they charge their customers. Unfortunately, service businesses don't always feel empowered to do the same thing. But maybe they should.

"Like any job, there comes a time when you outgrow the pay rate that you're getting from a client. After all, you don't want to be earning the same amount of money for the rest of your life," author Taylor Gordon writes in a blog post for online payment platform Due.

According to Gordon, there are two circumstances under which service-based businesses -- including freelancers and consultants -- should seek a rate increase from their clients. The first is when said clients have increased your responsibilities and deliverables without increasing your compensation. The second is when your hourly rate is unjustifiably low.

"The general consensus among freelancers is that you should stay away from hourly rates. You should charge a per project fee that takes into account the overall value of what you deliver and not just the time you spend," Gordon says. "Sometimes when setting a per project rate you underestimate how much time it's taking you to do the work. Say you're charging $2,500 for a project. It sounds like great money. But what if it takes you 100 hours to do the work over several months? You're making $25 per hour before taxes and business expenses. If you're hourly rate is low compared to the work you do for a client, it's probably time to ask for more money."

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