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Tiny Budget; Big Dreams: How To Tell Your Client You Need More Money

Money. Without it, we wouldn’t be able to keep a roof over our head or buy coffee, and Pink Floyd’s ourvre would be missing a killer track. If you’re anything like me, you’re quite a fan of money, especially when it’s flowing from your clients into your business.

Unfortunately, clients are often inclined to hang on to as much of their money as possible, for as long as possible, even when their projects demand a bigger investment. There are many situations where you might find yourself having to go back to a client to ask for a larger budget, and it can be difficult to know how to approach the topic.

Never fear, we are here to help! Here are 5 situations where you may need to ask your client for more money, and some tips to approach each:

1. The job is running over-budget

You’ve started a new job for a client and – at first – everything’s going smoothly. But it soon becomes clear your initial estimate was way off base. Usually this is because the client continues to make changes to the project scope or plan, or has a million questions that need answering or reports they want you to make.

All these additional changes and added communication time eat into your profit margin, and can quickly turn a job into a complete loss. If things get bad, you’re going to need to go back to the client and explain that change doesn’t come for free.

Tips:

  • Explain that your original quote only covered certain items, and that additional items or reports incur an extra cost. Make sure you reiterate this after every change or conversation.
  • Be honest: don’t try to gloss over your charges and let the client be caught unawares at invoicing time. Let them know as soon as possible if their change are going to cause issues.
  • Offer a solution: instead of letting your client’s behaviour continue, suggest a single in-depth meeting where you can go through the project scope together. A regular communication email or 15-min catch up each week can help curb constant questions or requests for updates.
  • If the client is difficult or argumentative about being charged for their changes, point them back to the wording in your contact. This helps them to recalibrate to understand exactly what they’ve paid for.

If project scope issues continue to occur, it may be an indication you need a better methodology for accurate quoting. The more accurate the initial quote, the less likely this situation is to crop up again. Using a quoting and job management software like WorkflowMax where you can track every detail of a job and the run reports to see where you’ve underquoted enables you to adjust future quotes to reflect your true expenses.

2. You’re raising your rates on recurring monthly jobs

Like many service business, you provide regular work for clients on a monthly basis. The client pays the same amount every month for the same service or monitoring. If it’s time to raise your rates for these monthly recurring jobs, then here’s how to approach your clients about the change.

Tips:

  • Assume most clients will be happy – after all, you’re all in business, so you all understand the changing nature of pricing.
  • Be prepared with specific reasons for why rates are going up. If the client asks, they will want to see concrete results with numbers. Simply saying ‘we haven’t raised our rates in X years” isn’t enough if a client is resistant.
  • Ring each client and speak with them personally, especially if they’re a longstanding, high-paying client. Don’t opt for the impersonal email.
  • If you’re worried about a rates rise causing clients to leave, consider introducing it incrementally – first to one batch of clients, and the next month to another batch, until all clients are on the new pricing schedule.

3. You’re raising your hourly rate

Hourly rate changes can be a little different than simply raising the price of a package the client is paying for monthly. Clients like the security of knowing exactly how much they pay for a certain service, but hourly rates can make them worried about project blow-out. If you work for clients on a mostly hourly basis, here’s how you can best communicate a change.

Tips:

  • Be assertive and confident, but not confrontational. Present a rates-increase as a win-win, outlining the skills and expertise you bring to their business.
  • Back up your change with solid data from your successful projects.
  • Offer an estimation of the cost of a common job under the new pricing structure.
  • Consider moving away from hourly pricing into a value pricing structure. You can read more about value pricing here.
  • Be assertive and confident, but not confrontational. Present this as a win-win, outlining what

4. You believe the project will have more success with a bigger budget

The client’s project is underway and going well. You’ve recently experimented with a new technique on another client, and it’s been wildly successful. All your research suggests the client’s current project could benefit from this same technique, but it would cost more to implement.

This is a hard subject to tackle, as it can easily backfire if the client isn’t receptive and takes your suggestions as a grab for more profit.

Tips:

  • Present this new option as a win-win – explain that you’ve been conducting some research, or have seen a particular component work well on another project, and wanted to discuss the option with them.
  • Reiterate that it’s the client’s choice – state your opinion on what will work best for their brand, but leave it in their hands to decide. Allow them 1-2 days to discuss with colleagues and get back to you.
  • Be prepared – backup suggestions with hard data from other campaigns or projects.
  • Be confident and helpful – be clear that you’re not trying to pressure them into anything, but that you want to give them the best options available.

5. You’re adding new features to a service package

If you’re like many other service businesses, you create packages from different services, in order to offer a streamlined experience for clients.

From time to time, your packages need to be updated, to reflect the latest trends, technology and research within your niche. As you incorporate new features into your packages, you will need to adjust prices to reflect the higher workload or additional value you bring clients.

How do you communicate these changes to clients in an effective way?

Tips:

  • Thank your clients – express your appreciation for their patronage thus far. Make them aware that even if they decide to no longer use your service, you are happy to have had them as a customer.
  • Sell on value – don’t focus on the new pricing, so much as the value you’re adding with new services and ways of doing things.
  • Include 3 Tiers – If you’re creating packages, the sage advice is to create at least three tiers, and understand that the majority of clients will opt for the middle tier, so make sure that’s as profitable as you can make it.
  • Introduce at the right time – timing can be everything. Introducing new packages during a busy time in your client's business will likely annoy them. Instead, wait until busy seasons – such as Christmas or Summer – are over, to give the client more time to adjust.
  • Offer an alternative – if customers are reluctant to move on to one of your new, higher-priced plans, you may be able to offer an alternative with less options.

General tips for raising rates and prices

Informing clients about raising rates is a challenge all services companies face several times during the course of doing business.

No matter why you’re raising prices, when talking to clients, it’s important to:

  • Over-deliver first: Before any discussion about prices going up, it’s important your client understands the value you provide. Do the best damn job you can, all the time, and your clients will remain loyal whatever your price.
  • Be transparent: explain why prices are going up and exactly what services are changing.
  • Plan ahead: Time rates increases to your business calendar to ensure clients are less likely to jump ship. If you’re worried, raise rates incrementally across different departments or levels to avoid a mass exodus of clients.
  • Be confident: don’t allow clients to push you around or demand to remain on previous pricing. You have a right to adjust pricing in your business.
  • Don’t apologise: This is business. You don’t have to apologise for doing what’s right for your company.
  • Speak in person: If you have regular clients who’ve been staples at your company for months or years, it’s better to call or chat in person to discuss major changes, instead of communicating via email.
  • Get it in writing: Follow-up personal conversations with a written notice of changes and agreements. This ensures you’re covered if a client wishes to challenge you later.

Rates increases – however you choose to go about them – are part of doing business. If you don’t continually adjust your pricing according to market factors, inflation, profitability, and value, then you will be unable to grow as a business and continue to support your clients.

Your pricing reflects your value as a service provider. But how you communicate pricing changes, add value for your clients, and celebrate their wins speaks to who you are as a businessperson. With a little careful planning and a bit of tact, you will be able to explain pricing changes while keeping clients loyal and happy.

Have you recently raised your rates? How did you communicate the change to your customers and clients?

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