How to tell your client your rates have gone up.
We've discussed it many times in this forum; To grow your business, your rates MUST go up. It's inevitable.
There are many reasons to raise your rates, and they have been discussed at length in this forum, but I don't want to focus on WHY you raise your rates. What I would like to talk about now is, how do you communicate your price increase to your clients?
Is it something you want to announce from the mountain tops?
Is it something you want to keep quiet about until your bidding on a project?
Has anyone had any bad experiences with clients demanding to pay old rates?
I'd love to hear some best-practices and other wisdom from the group.
ECG Productions - Atlanta
HD Production and Post
Well, we've done this a couple of times, and it seemed to work pretty well without much gnashing of teeth...
A couple of years ago we upped the rates in a couple of our suites... quite substantially, in fact.... from $150/hr to $225/hr. That really is a pretty huge increase (a whopping 50%), but it had been at a painfully-too-low rate for painfully-too-long, compared to what the market here will bear and considering the talent/equipment used and quality of the work.
For any brand new work with brand-new clients, it was easy... we just charged the new rate.
But for existing clients (which most of ours are), we basically deferred the rate hike for a while. I think this was early fall or so when it happened, and we explained to them individually that while we were being forced to raise our rates to the other clients in general, because they've been "such a good client," that we weren't going to spring an unexpected rate bump on them now, and that we would keep working for them at our old rate through the end of the year. I think it made them feel as though they were getting some kind of favored deal... which they actually were. It's just that all the existing big clients were getting the same one.
We wanted to give them time to find other production sources, we explained, if their future projects didn't have budgets that meshed with our new rates.
In the end, we didn't have any complaints, and we didn't lose any clients over it.
Fantastic Plastic Entertainment, Inc.
Todd's approach is good. I think I would also sweeten the deal by throwing some "added value" in the transition, like: "For your first gig with us at the new rate, because you're a favored customer, we're waiving the charges for the hours of the digitizing step, and just charging for the actual edit time". Or it could be something like A couple more free DVD dubs, whatever.
As to shouting new rates off the mountaintop, I an not crazy about that notion; let the tire-kickers come in and see what quality they can get, before they shop just on price. Unless you're so busy you just want to scare off the grinders and lowball clients, leaving only the committed and the rich.
During our first 8 or 9 years in business, we only raised our rates once or twice. Obviously...not a good way to do business. Our current accounting rep advised us years ago that to remain viable as a business, we'd have to raise our rates every year just to keep up with the cost of living. 4-5% each year is considered pretty standard, and there have been some years where we've raised it as much as 10%. That said, going all those years in the first decade and NOT raising rates has made our current average net profit margins very thin, typically 5-8% in most years.
So if you're not raising your rates at least a little every year, at some point it's going to catch up with you. We also have a couple of clients where we've negotiated per project fees. On those, we go back to them every 2 or 3 years, take them to lunch and tell them we're going to have to raise rates, typically just to cover cost of living increases. They've never objected and in fact aren't even surprised by it...even when the increases have been as much as 20% over previous deals.
I think a big reason most of these clients aren't surprised or don't object is because most acknowledge that we provide a level of service that they've never gotten before from other marketing companies, ad agencies or production companies.
Magnetic Image, Inc.
It's a very tricky situation. As your business grows you need to grow into newer and higher end clients. Raising rates is sometimes designed to eliminate what is costing you money. In other words the clients who have low budgets and you work twice as hard for, may need to be let go. Its very difficult, to move on from someone who has stuck by you, but so many creative businesses do not grow because their client base is holding them back from taking things to the next level.
Todd's tips are good, transitions are always good. But the most important key is to mentally prep for moving on from certain clients. It does not matter how dedicated they have been, the fact is often your business is growing in new directions and you are steering towards a new level of clients. The surprising thing, as mentioned here, is many clients will still be on-board. They will see the value and move with you. If they won't or can't, then they need to seek help elsewhere.
To me the biggest reason some businesses don't grow is dedication to existing clients. This sounds harsh and I certainly don't recommend dumping everyone, but when producers say "I want to grow my business and make more money" they are really saying "I want to move up from my current clients to advanced clients with bigger budgets". It's nearly impossible to do this with the same group of clients and the same existing price structure.
Franklin McMahon / Host
Creative Cow Podcast Page
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Media Artist Secrets Blog: FranklinMcMahon.com
[Franklin McMahon] "But the most important key is to mentally prep for moving on from certain clients."
I think Frank makes a good point there...
The interesting thing is, the last time we had a rate hike (a big 50% as I mentioned), we fully expected to lose clients. We wanted to a bit, in a way. We were wanting to lose the "schlock" work that was taking up our time and resources but not really bringing in much money... and limiting our time to do really high-end (and high-paying) work.
The surprising thing that happened though, is that none of those clients bailed on us... except one, who still comes occasionally, but takes most work elsewhere. And that particular low-paying commercial client was only here sporadically and bringing us the lowest-of-the-low-end crap work imaginable. I'd told them several times bluntly that we were overkill for them and I hated taking his money for what was absolutely no better than cable-grade commercials (which was exactly what they wanted), but they still stuck around. You know the type: the client who honestly didn't know the difference in videotape and film, legitimately belives that the more fonts you have the better (and that they should flash if possible), who gets positively orgasmic over a 3D fly-in or a cheesy explosion, and fully believes that a star wipe is the definition of "classy." They actually asked us one time why none of their stuff was on our reel, and why we never entered their spots in the ADDYs.
Some you don't mind seeing go. Maybe another rate hike is in order.
Fantastic Plastic Entertainment, Inc.
[Todd Terry] "who still comes occasionally,"
When you see their name on the caller ID, don't pick up the phone.
It's a dry heat!
Sony HDCAM F-900 & HDW-2000/1 deck
5 Final Cut (not quite PRO) systems
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2-Sony EX-1 HD .
Raising rates is the best way to weed clientele. If this is your intention, yes yell it from mountain tops or at least to the ones you are weeding.
It can be a mass email or better yet, a fliar/post card they get via snail mail. Celebrate is as growing services with better gear and more capabilities for THEIR bottom line.
Brilliant! Thank you! I plan on using that later this year...
Web and Video Design
There are a lot of great points here.
One of the ways I continue to raise rates without clients really knowing or caring is that I don't actually put the hourly rate and how many hours it will take to perform a particular task in my proposals anymore. The only part I list units on is the actual shoot days because its easy for the client to ask for more days if its not listed in the contract.
The clients I don't want are the only ones who actually ask how many hours it will take to complete the edit, scripting, whatever. The great and most profitable clients pay for the finished product and as long as the number fits within their budget, they don't really care how many hours or what tasks are required to deliver it.
Let me clarify that most of my clients are medium to large corporations. I'm sure it would be different if I were working for other producers or advertising agencies.
Executive Producer & CEO
Fire Eye Productions, Inc.