Changing rates - Need advice

[scottay]

Hi all,

I started my computer business out of my bedroom in my parents house 4 years ago with little experience and just the ambition to give it a go. Since then I've grown this business into something pretty amazing (to me anyway) and it's time that I take the "next step." I've been a one man show since I started, but since I'm fairly consistently busy in the field and with in-shop work I have found myself getting completely buried in the day to day business operations (invoicing, making sure I get paid, keeping bills paid, marketing, etc, etc).

When I started I set my rates at $75/hr. That, to me, was competitive for my market. It was significantly less than the Business IT companies in town, but since I had little professional experience (just skills acquired through years of tinkering and helping family/friends) I felt very comfortable. I also had no expenses to speak of: car was paid off, no rent, $60/mo phone bill, little debt. If I didn't make much money one week, I just didn't eat at McDonald's that week... Now, however, I have business and personal rent, insurance, RMM fees, significantly more gas expense (as well as a car payment), and the list goes on. We all know the story. Despite the growth and increased expenses, I haven't raised my rates once in 4 years.

Bottom line is this: my rates have allowed me to kick this thing into high gear and gain a very robust and healthy client base that has allowed me to get a glimpse of the potential that's out there. In order for me to take the bull by the horns I simply need more cashflow to subsidize the growth. Since I've been moving more into the business market and now have 4 years of solid professional experience, it's time that I start acting like a "real business," and that includes fair rates. I don't have any certifications, but I have spent a lot of time studying for many of the tests. One of my main focuses right now is at least getting the CCNA and one of the Microsoft certs. I've got a little Cisco lab setup on my workbench with 3 switches and 2 routers, but I've been very busy and haven't had a ton of time to dedicate to it.

So, my biggest hang up is how much to hike up my rates and how to implement the change.
- What exactly is a fair rate? $95/hr? $125/hr? Join the big boys at $150/hr? Most of the IT companies don't advertise a rate, so it's tough to figure out what's "reasonable" given my experience, lack of certs (if it even matters, hasn't yet) and the needs of my business.
- Do I notify my clients with a friendly letter thanking them for their business and explaining my growth and thus the reason for the increased rates? Do I give them an X-month grace period of the old rates? Maybe tier it so they pay $75, then after X-months $95, etc etc? Or do I just say effective July 1 the new rates are X.
- Another thought I had was having different rates for different types of service. Bigger IT companies have their basic techs for virus removal, etc at a lower rate than their network engineers. I could do something similar. It doesn't make a whole lot of sense as a one man show, but it does lay the ground work for me to be able to hire an entry level tech that can deal with the basics...

I love this forum and have received a lot of helpful information in the past. You guys all rock, I look forward to seeing what y'all have to say.

Thanks for everything.

 

[TCG]

I just raised my rates this year, for the first time. I started at the beginning of the year with new clients paying the new rates, and business has been going very well so I've decided to bring everyone up to the new rate. I've been letting my clients know as they call me for an appointment that I've raised my rates since they last saw me, I haven't received any complaints yet. One person asked why, and I simply told them that I need to keep up with the cost of living. I raised my rates by 20%, and instituted separate rates for business and residential.

 

[seedubya]

Try to figure the average in your area for companies who do what you do. Set your rate a little above that. Charge this rate to all new client AND to clients you'd like to lose! Don't raise your rates for good existing customers by too much initially. You can do it in smaller increments over the next couple of years. Maybe go to 85 now and 99 in 6 months and 115 in another 6 months and so on. If you jump too much in one go you'll lose some clients, maybe quite a few.

 

[mrapoc]

I'm aiming to launch my own business soon and I will be charging what my current workplace charges plus more. I know the shortcomings and I know how to fix them. That way I can justify my prices easily. FYI most jobs here are £40. I'll be charging at least £45

 

[kwest]

I wouldn't slowly raise it. People want to know what your rate is. When they call up let them know you have had to raise your rate for the first time in 4 years. I went from 80 res 100 business to everyone at 100. Didn't get push back. For me I price it what I feel my time is worth not what the most I can get.

 

[Martyn]

I think many of us started off with low rates to get the work and to get word of mouth referrals. You are ij the same position as me. I started on £30ph and now charge £45ph 4 years later. If you can honestly say you are worth the full rate for your area then charge it. I think no matter what your experience unless you are in the business at your full time present job as the business you want to run then start off lower initially. The word of mouth is worth it. I just counted up my clients and I have 550+ and I cannot remember anywhere I haven't done my best and now I get referrals all the time. Charge whatever but if people are happy they will pay your rates within reason, it's getting started that is difficult.

 

[cypress]

Try to figure the average in your area for companies who do what you do. Set your rate a little above that. Charge this rate to all new client AND to clients you'd like to lose! Don't raise your rates for good existing customers by too much initially. You can do it in smaller increments over the next couple of years. Maybe go to 85 now and 99 in 6 months and 115 in another 6 months and so on. If you jump too much in one go you'll lose some clients, maybe quite a few.

Good advice. Like stated previously you need to keep up with the cost of living especially in your area. You also have a little more overhead then when you started previously. You have gained necessary knowledge and you need to charge for that accordingly.

I did what was bolded in the quote, which was up my prices slightly in the new year and charged that for new clients and got rid of the clients I needed to. It has worked out alot better for me. You seem to know what you are doing so just be confident in your business and everything will work out for you.

BTW just saw your website and it looks very clean. Keep up the work!

 

[mrapoc]

What's your web address? Wouldn't mind a gander for comparison

 

[YeOldeStonecat]

- What exactly is a fair rate? $95/hr? $125/hr? Join the big boys at $150/hr? .

The answer to this here is based upon your skill. The "big boys" rates is typically for business network environments...those setups where a client will have full Windows servers..typically several servers, Active Directory, MS Exchange, application servers, etc. Do you feel comfortable with those? Fluent in banging out servers and supporting an active directory environment? Pushing out group policies, stuff like that? If so...go for it..aim high. If you're uneasy about active directory...and don't know much more than how to add a user and change a login script...find a medium price until you learn.

 

[scottay]

Thank you all so much for your replies. Definitely some great food for thought!

@cypress
Thank you for your compliment on my website!

@YeOldeStonecat
When I first started out I didn't even know what Active Directory was. Since then I've had the privilege to gain some clients running fairly basic Active Directory setups, which allowed me to learn the basics. Along with the time I've spent studying for various MS certs and a few years of tinkering and solving various problems, I feel pretty comfortable in it. I still wouldn't consider myself "fluent," but I definitely have a pretty sound knowledge installing, configuring and troubleshooting Windows Servers. In light of that I'll probably price myself in the middle of the big boys and the novices.

Based on the comments I've read I think what I'll end up doing is raise my rates a bit now (maybe $95-$105), get a few certs and more knowledge under my belt and raise them again in a year or so. I don't think a $20-$30 increase will scare many away. And the ones it does I don't want anyway.

Thank you all again. Your input is very valuable.

 

[pascalou666]

When you have higher rates... you get the best customers, the best pay and residual money to invest in your own training and in the business.

But you must give high quality service and great value to your customers.

I charge 25% more than every competitor... and everything is alright

 

[Rocco]

When I set my rates where they are, it was not to undercut anybody. I added up my overhead. How much am I spending on my business? I have no store front, so my overhead was and still is gas, advertising, and training. Then I said how much money do I NEED to live. Food, rent, etc. Added up all of it.

Then I said how many hours do I want to have to work to meet my needs, and I decided on 10 hours a week, so I divided up the total by 10. I rounded up to the next nice number, and came up with $65 an hour.

There are weeks I don't reach 10 hours, and there are weeks I have billed 25 hours. I now have funds to hold me over for the bad weeks, and enough to do more than what I need to survive.

If I ever get a storefront with employees, my rates will go up. When my costs go up, my rates will follow. I don't care if my competition is $20 over my cost, or $20 under my cost.

I also made a rule for myself last year when I opened my door that I would not work 30 hour weeks more than once a month. It would take away too much from my daughter. So I will never be rich in money. So maybe how I set my rates is not the best if you are aiming to do a lot more than survive. I am comfortable, and my family is happy.

 

[Krynn72]

10 hour work weeks?!

I really gotta consider breaking out on my own. I'm working nearly 50 hour weeks and I can hardly afford a studio apartment here.

 

[Rocco]

10 hour work weeks?!

I really gotta consider breaking out on my own. I'm working nearly 50 hour weeks and I can hardly afford a studio apartment here.

When I left the Air Force, I took what savings I had and bought a mobile home. So my lot rent is 375 a month. Gas/electric normally about 125. Internet is ~$45. So outside of food, I can live very cheaply. Work as much or as little as I want, and still be comfortable.

 

[scottay]

10 hour work weeks?!

10 billable hours per week, when you add in travel time, consulting time on the phone with clients, paying bills, invoicing, receiving checks, making sure the office is running, etc, etc turns into a 40 hour week in a hurry when you're a 1 person operation.

I ran my numbers, and I've been extremely busy over the past 2 months and I averaged ~40 billable hours a month. I need to delve into these numbers, but when I add in the above time I was absolutely maxed out. I actually talking to a bookkeeper today that I'm hoping will allow me to pawn off a lot of my added work, which should let me maximize my time much better... Hopefully I can squeeze out significantly more than 40hrs/mo.

Adding up my average billable hrs and dividing it into my costs gives me a rate of about $75/hr... Which explains perfectly why I feel like I'm working my a$$ off and barely making it. I added in what I'd like to see left over to allow me to grow and support my personal life and I end up with $115/hr, which is very fair given my experience. It puts me right in the middle of the newbies and the big boys. When I add in the recurring revenue from manages services and any products I sell, this should provide me with the capital to grow as well as actually start taking a little money home.

I'm finding that it's time for me to start assembling a strong team around me if I have hopes to really grow this business. A good bookkeeper and someone to stay up on client relations would free up SO much of my time. This time could then be used to find new opportunities and ensure the the best possible service is being provided to my existing clients.

Thank you all again for your input!