When to Raise Your Rates
How do you make more money? The two obvious ways are work more hours or charge more money.
Toward the end of last year, I was debating whether I should raise my rates and, if so, by how much. I had not raised my rates for client work in three years. My goals were to stay relatively affordable and to select a rate that reflected the value I brought to my clients.
What Does My Competition Charge?
I started by attempting to take a look at my competition’s rates. Lawyers’ rates generally are not public knowledge. We don’t post them on our websites. Prospective clients can’t compare prices like they would with products in a store or on Amazon.
However, every three years, my state bar does a survey on what lawyers charge and asks respondents for their practice areas, hourly rate, firm size, and the county where they practice. The results of this survey were particularly helpful when I was first starting out.
Unfortunately, the most recent results left much to be desired. Only a small sample size of intellectual property lawyers responded to the survey, and the results only included the mean and the median hourly rates (both of which were $350 per hour). When I requested additional information about the respondents, the bar refused. Without context for these numbers, they provided little help.
I considered sending an anonymous survey to my contacts who practiced intellectual property law in my state. It would have included the option to provide an email address, and I would have shared the data with anyone who completed the survey who provided such information. Ultimately, I decided against this, given the amount of work involved and the fact that I was debating raising my hourly rate a mere $25, from $250 to $275. It didn’t seem worth the effort — although it would have been a worthwhile excuse to reach out to my contacts and potentially expand my network.
What Am I Worth?
What is an hour of my time and mental focus worth? Some entrepreneurs might answer, “Whatever the market is willing to pay.” This is the theory that you should increase your price until the number of people declining your services results in you having less than all the work you need.
As a person who experiences imposter syndrome, I sometimes find it challenging to be comfortable with my rate. I cringed when I attended a business mastermind event where the speaker told everyone in the audience to “raise your prices by 25 percent.”
At other times, I have no issue thinking that I spent three years and over $60,000 on an education that I’ll share with clients for a fraction of that price.
However, a valuable lesson I’ve learned about pricing is once you quote a price, you can’t raise it. You can always come down on your price if your prospect claims they can’t afford it, but you can’t go up. So if you’re going to err on your rate, it’s better to make it too high than too low.
There is also research that indicates that customers perceive greater value when a product has a higher price tag. This suggests that lawyers who price themselves too low may be perceived as providing lower quality services. Conversely, clients who pay more may attach greater value to your advice.
Name Your Own Price
If you don’t want to set the rate for your services, you can let your clients decide what to pay you. In May 2011, Minnesota lawyer Alex Bajwa let his clients set their own fees for the month, asking that they name their price based on the value of his work, the quality of the service they received, and their ability to pay. He risked the possibility that a client could say he deserved nothing.
It’s a bold move, but it’s one way to gauge how clients perceive the value you bring them.
Rolling Out the Price Increase
In the end, it became easy to decide to raise my rate when my firm’s newest associate, who has three years less experience than me, announced he was raising his rate to $250. If I endorsed him raising his rate, surely, I deserved a raise, too.
My new rate went into effect in the new year, and I used the increase as leverage. In December, I gave clients notice of the price increase for new projects starting in January. Any new projects for which I received a signed engagement and retainer payment by December 27 (when the firm closed its books for the year) would still be priced at my lower rate. A few clients took advantage of this offer and swiftly locked in the lower rate.
Since announcing the increase, all the feedback has been positive — even from clients who knew they’d be paying more. When my biller said, “I’m glad you’re charging more,” I interpreted that to mean, “I’m glad you see you’re worth more.”
What about you? How did you decide your hourly rate and when was it time to raise it?