As agencies grow, they naturally raise their rates to reflect the higher demand for their services and, hopefully, the higher value they can provide. However, many agency owners are sentimental when it comes to the clients that helped them get started.
If you have been serving a business for 5+ years and have a great relationship with them, it’s hard to tell them you want another $1,000/mo because you don’t want to risk losing everything you’ve built.
However, if you have 10-20 clients paying you $500-$750/mo when your current retainers are all happily signing for the same service at $1,500+/mo, it can cause some issues.
For one, you may start to resent them and provide them with less and less attention and/or quality of work. You may also find that the employees you assign them to will resent having the “little” accounts because they view them as less impactful or like a punishment.
In the end it’s best to bite the bullet and raise your rates with your existing clients. It helps prevent resentment and simplifies billing, to say nothing of the increased revenue and profitability.
So if you want to approach raising your rates in a way that softens the blow as much as possible and increases the chances of keeping your legacy clients, here are a few tips:
How To Announce A Price Increase
1. Measure your available value over time
As agencies grow they tend to increase the value they can offer in various ways. This value can be a bigger team that can offer more dedicated attention, better software to offer improved capabilities, partner programs for access to broader platform features, or even just better talent and more experience.
It may feel like you’re just raising your rates because your expenses are increasing and you need to maintain margin, which is valid, but the truth is that you’re also more valuable to businesses than you were when you started.
Regardless of the reasons, you should list out all of the ways you can provide value that you’ve added since you last raised your rates. While clients you have a strong and long-lasting relationship with are likely to understand the increased cost of living and inflation as a reason for raising rates, they are more likely to accept a cost increase if the value has increased than if you’re just asking them to pay more for the same service.
2. Measure your business impact over time
Measuring the value you can provide is a good start, but it’s all subjective if you can’t back it up with something your clients can feel in their bank accounts.
This one can be a bit tricky, especially if you’re not asking for the info needed to calculate revenue or profit per conversion, but it’s well worth nabbing those metrics if you can. After all, you’ll likely have a better reception when asking for more money if you can prove you’ve made more money for your client, rather than just driving more leads.
Some clients can feel the business impact and readily share their gratitude, but a lot of smaller businesses don’t really pay attention to their numbers as closely as they should. If you can bring them a report of increased lead flow and revenue over time, or even better, profit increase, it could be eye opening.
3. Give advanced notice (2-3 months is better than <1 mo)
Unless you’re trying to get rid of the client (not always a bad thing), you should give your clients ample time to process the change, discuss it internally, and decide how to proceed. Dropping a rate increase on them a couple of weeks before your invoice goes out will put them in fight-or-flight mode and create confusion, anger, and fear.
If you provide them with the notice far enough in advance, the likelihood that they’ll decide it’s worth staying goes way up. Sometimes clients leave as quickly as possible after hearing about a price hike because they are mad at the unexpected increase in expenses. The less notice you give them, the more frustrated they’ll be because they don’t have time to react. In their minds, they are thinking about reaching out to other agencies, getting quotes, sharing all of their business info and goals all over again with new vendors, and all the stress that will come with this.
You’re creating an ultimatum for them between forced change of the comfortable (for them) status quo or paying what may be a significantly higher amount each month for the same services they’ve been getting. This is why it can be so helpful to soften the blow by following the above steps of explaining how your value has increased over time, demonstrating the impact you’ve had on their business, and giving them plenty of time to process and react or adapt.
4. Have a cheaper agency ready in case they can’t afford your new rate
If they do decide to leave, or if you know they won’t be able to afford your new rates (hence your letting them straggle along for the last 3 years for $250/mo), you can show them that you care and take a lot of stress of their shoulders by recommending a trusted agency with lower rates.
This also helps the smaller agency by sending referrals their way and building their book of business, which I’m sure you would have appreciated when you were in their shoes. This kind of generosity has a way of coming back around and it’s a way to make sure the clients you served for so long are in good hands (there are a lot of bad agencies out there).
How To Increase Your Agency’s Rates
I worked with an agency with an average retainer of $3,000/mo and they still had clients paying $750/mo. They were fine with losing the legacy clients if need be (though they were awesome and many clients were happy to pay it to stay with them), but not everyone has clients willing to 3.5x their bill.
If you’re worried about losing your legacy clients, but need to stop losing money on them, here are a couple of options:
1. Increase Gradually
There’s an old adage that says you can boil a frog without him jumping out of the pot if you turn up the heat slowly over time. This is pretty morbid and you should definitely not cook your clients, but the idea of letting them get used to a higher rate isn’t a bad one.
If you were increasing your rates from $750/mo to $3,000/mo, you could increase the rate by $250/mo every month for 9 months, or by $375/mo for 6 months, or even $750/mo for 3 months. You could even give them a few options to choose from for how quickly they want to ramp up.
In most cases, you probably won’t be asking for this much extra, so an increase of $50-$100/mo may be a reasonable option that is more palatable to your clients. This may soften the blow and give them time to adjust and find ways to increase revenue to cover the extra costs.
2. Referral Deferral
If they really like you and are motivated to save money, you could offer a special deal. For every referral they send you that signs as a client, they can keep their current rate for another month. If they add 12 clients to your book of business, they just bought themselves a year of their current rate. If they send you 12 unqualified leads that can’t afford you, they’re going to have to pay.
This is a bit of a twist on a classic “refer a business that signs and we’ll give you a free month of services” referral program, but it’s not a bad option if you don’t want to ramp up rates slowly over time or just drop a bombshell on all of your legacy clients. It gives them the chance to earn their lower rate and gives you the potential to grow your agency for no added cost.
You can take any of the above ideas as prompts to create your own solution to this age-old problem, or you can combine all of them.
I would advise against just offering less to those paying less, though, as this may decrease the quality of service you provide and hurt your reputation and the business of the client that could otherwise get full-service from a smaller agency or freelancer to which you can refer them.
With all of these options, know that you probably will lose some clients when you announce a price increase, and that’s ok. If you’re aiming for 50% margins and you now charge $2,000/mo for your services, clients paying less than $1,000/mo are costing you money to service.
As a for-profit business, you can’t afford to lose money if you want to continue to operate. Your livelihood, as well as that of your employees, depends on your ability to turn a profit every month and the business owners you serve should understand this.
However, the goal is to lose as few as possible and increase revenue at the top and bottom-line. My hope is that these tips help you do just that and continue with long-lasting client relationships for many years to come.