We know what it's like when you first start your business. You're anxious about signing on new clients and beating out the competition. You don't think you can afford to turn anyone away, even if their budget is a little smaller than you would like. And maybe there's still a tiny part of you that wonders if people would be willing to pay what you think you are worth.
Fast forward a few years, and you are stuck with loyal clients that are paying far too little for your goods and services. There's no way around it: You have to ask for more money. It's a conversation that no one likes to have, but an absolutely necessary one. In this lesson, we'll show exactly how you can tell clients they need to pay more, as gently as possible, as well as a few ways you can avoid underpaying clients altogether.
Always find out what a client's budget is upfront
It can be tempting to answer positively when a new client offers you an opportunity. However, before accepting the offer, take the time and establish the scope and the budget to establish whether or not you are financially satisfied.
One of the most significant risks a small business faces is scope creep. It is a project management term for projects that continuously change or keep growing after they begin. That usually happens when the project scope isn't defined, documented, or controlled. Continuous pivots or growth lead to extra costs for the service provider and the client, which is why you have to discuss numbers, options, and realistic deliverables for the price tag and timeline.
Of course, clients will probably not give you an indication of their maximum budget, but they'll have a budget range in mind. You can make it a little easier for them by breaking the options down into tiers for them.
For example, if you are a wedding photographer, you could offer a $2000 package, $5000 package, and $10,000 package. Each package should detail the number of hours you'll be willing to work, the number of photographs that will be retouched, and how many will be printed for each tier.
The client can opt for a single package and add additional services for additional fees until you both arrive at a solution you feel comfortable with.
Remember: If your client's budget is far too small, it's a good idea to refer clients to suitable suppliers that can work with them (and deliver a good service), and they can refer clients to you for more significant projects they may not be able to cover. Referrals can build a lot of goodwill and potentially lead to new business down the road.
Broaching the subject: How to ask for a client's budget
Many small business owners (especially newbies) are afraid to raise the topic of budgets because they don't want to come across as greedy or only caring about money. Rest assured, your client is probably already wondering what your services or products are going to cost.
Framing the question in the proper context is helpful. From a cost perspective, you need to know the budget to develop an accurate proposal that can solve as many requirements as possible, including clients' needs. Ask them to explain their pressing pain points and work together to determine cost-cutting solutions.
Besides, you're the expert, so you may know many workarounds and solutions your client hasn't even considered.
Start by explaining why you need to know an approximate figure.
For example, you can say something like: "If you can give me a ballpark estimation of what you've budgeted, we'll have a better idea of how to meet your needs, as well as the delivery timeline."
You can also use previous projects as a jumping-off point. "What sort of budgets do you usually set aside for these types of projects?" is a good opener. If the client hasn't worked on a similar project before, you can use your past projects instead.
For example: "So, we did something similar for XYZ Corporation, and it was around $15,000 for about three weeks of work. Of course, we can do it in two weeks with extra hands on deck, but that'll push the cost up to around $20,000."
Make sure you understand the clients' goals and that, in turn, they also understand what is possible. Clients must know the project is scalable according to their needs. Some businesses like using analogies: "We can build a Fiat or a Ferrari, or anything in between, depending on the budget."
Use the budget talk to educate your clients
Your client may have no idea what services like yours cost and may not know what a realistic budget looks like. In the early exploration stages, they may be evaluating dozens of vendors and receiving multiple quotes.
The budget discussion is an excellent opportunity to build trust with prospective clients and teach them about the business. So, explain how proposals are priced and what the hard costs are.
You can also discuss what similar projects have cost in the past and show them examples of your work.
Giving them a better understanding of how things in your industry work and the associated price tag will help you manage expectations and stand out from the competition.
How to tell your client you need more money
In a scenario where you've already provided a proposal or signed a retainer and need to negotiate for extra money, remind your client why you are worth it. Don't focus on the amount the client needs to spend. Instead, highlight the value they receive from you, your unique value proposition, and the return on investment they've already realized.
By changing the subject from price tag to value, clients will feel much more confident about their decision to keep working with you. Additionally, you should also provide, wherever possible, reasons for the price increase, including:
You need additional budget to cover extras
Most clients won't accept a price change without explanation. Start by explaining what services were covered in the original quote and why you need additional funding. Suppose your client is particularly demanding and requires multiple reverts or additional reports or check-ins. In that case, it's perfectly acceptable to say the extra time spent on these deliverables comes with additional fees.
If the client argues with your reasoning, simply refer to your contract and which services were included in your original quote. It's a good idea also to include an itemized list of services delivered on your invoice, especially if you are paid on an hourly basis.
You may reach an impasse where your client refuses to pay more, but be extremely clear that you won't deliver anything in addition to the work committed to in the original quote and cannot provide extra work requested.
And always be willing to meet the client halfway and explore ways and means of trimming costs in other ways, like dropping additional services or changing the frequency of deliverables. Before charging, though, ensure your client approves the changes.
You've increased your hourly rate
Everyone should raise their hourly rate to account for inflation. But, it doesn't change from month to month. Your clients may be worried about escalating costs, so always include a cap of hours in your quotation, so clients know what to expect.
Be assertive about your rates and the expertise you bring to the table.
If necessary, use junior staff to pick up some work for a lower hourly rate if your client can't afford all of your hours.
Your project will have greater success with additional budget
Occasionally you encounter an opportunity to improve the outcome of a project with an additional budget significantly. When that happens, submit it to the client in detail. Explain the cost (and the benefits) to them.
And keep reiterating that, in the end, everything is up to your client.
In fact, you may believe that it benefits their business, but the client may not see the value. So, give them a deadline to make a decision, but don't put pressure on them to choose right away.
Don't make your client feel as though the project will fail without the optional extras. They may not be able to afford the change, and you don't want them to feel as though they've wasted their money!
You've added additional features
If you've added new features or technology to your service suite, let the client know your pricing will change to accommodate the additional value you offer.
Again, focus on the benefits, not the cost.
Introduce your new features at a time when your client isn't under unusual pressure. If your client doesn't want the optional extra, try to meet them halfway with tiered packages.
Always include the changes with details about the new features when you generate your invoices.
General tips when asking for more money
When you are asking for more money, there are a few tips to bear in mind:
Be confident
Approach your client with confidence. You are worth the additional budget. If your client senses you are hesitant, they may try to browbeat you into backing down.
Be prompt
Don't catch your client off guard with your bill. If possible, give them advanced notice that your pricing will increase next year or renew your contract. Ideally, let them know as soon as you realize you need to push your pricing up.
Document the change
Once you've discussed it with the client (preferably in person or face-to-face via video chat), document the changes in an email and then send an amended contract to them to sign.
Don't be afraid to lose the client
There will be clients that won't pay more for your services, no matter how justified the increase may be. In that case, walk away. Charging too little for too long can damage your business in the long run. Losing that client opens up a slot for a new client willing to pay more for the same service.
Conclusion
Your rates are going to go up at some point. The market changes, technology changes, and your experience levels increase. If you don't charge more, you inhibit your business' ability to grow.
Good clients understand this and will be willing to work with you. Always be open to negotiation, but never be afraid to charge what you are worth. If you undervalue the service you offer, so will everyone else.
Lastly, use tools like Indy to manage your finances from A to Z. Draw up professional invoices with the Indy invoice generator, craft proposals, and quotes, share files, draw up contracts, and document all changes using a single platform.
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