Raising rates with existing clients

Before deciding how to have the conversation, work out how many clients you could lose and still come out ahead. The number is almost always higher than it feels.

That single figure changes the conversation from a fear into a decision, and it takes about two minutes to compute.

The break-even churn

So a 20% raise breaks even at one client in six, and anything less than that leaves you better off with fewer clients and more capacity.

The general shape: a raise of r breaks even when the share of clients who leave is r / (1 + r).

Losing a third of your clients to a 50% raise is break-even on revenue — and strictly better on time, because you are producing the same money in fewer hours.

The part the arithmetic misses in your favour

Break-even on revenue understates the case, for two reasons.

The clients who leave are rarely a random sample. The ones who go over a 15% increase are usually the ones who were slowest to pay, most prone to scope creep, and most expensive in unbilled time. Losing them raises your utilisation, which lowers the rate you need in the first place.

Freed capacity has value. A departed client is time available for better-paying work, or for the sales effort that finds it. Break-even on revenue with 17% more capacity is not break-even.

What tax does to the decision

Less than people expect, and it is worth checking rather than assuming.

A raise increases profit, and profit is taxed at your marginal rate. But self-employment tax is nearly flat at about 14.13% of profit until the Social Security ceiling, irs.gov so the marginal cost of the extra income is the income tax bracket plus that — not some escalating penalty.

And if the raise pushes you past the wage base, the marginal self-employment rate drops sharply rather than rising. Tax is not a reason to avoid earning more.

Mechanics that matter

Give notice, in writing, with a date. Sixty days is a reasonable standard. A rate change arriving with an invoice is a surprise, and surprises get disputed.

Do not justify it with your costs. Your rent going up is not the client’s problem, and framing it that way invites a negotiation about whether your costs are reasonable. The rate is what the work costs now.

Do not apologise. A raise stated as a fact is easier to accept than one stated as a request, and an apology signals that the number is negotiable.

Offer a transition, not an exemption. The old rate through the end of a current project is a courtesy. The old rate indefinitely for one client creates a rate you can never raise.

Raise everyone, or be able to explain why not. Different rates for similar work is defensible when the work differs. It is corrosive when it just reflects who negotiated hardest.

Annual increases in the region of 5-10% are usually absorbed without discussionnot measured, and are far easier than a single large correction after three years of standing still. The freelancers who find raising rates traumatic are usually the ones who have not done it in years.

When not to raise

Mid-project on a fixed price. Finish it at the agreed price. The new rate applies to the next engagement.

When your utilisation is already low. If you are billing 50% of your hours, the problem is pipeline, not price. A raise on too little work is a smaller number multiplied by a bigger one.

When you cannot say what changed. “I am more experienced now” is true and thin. “I now handle the deployment as well” is a reason the client can evaluate.

Related: what to charge · utilisation · hourly vs project vs retainer · the rate floor calculator