Artrepreneurs

Is it time to raise your rates?

December 10, 2021 Michael Der Season 1 Episode 50
Artrepreneurs
Is it time to raise your rates?
Show Notes Transcript

EP 50:  When was the last time you raised your rates?  Regardless of whether you're an employee or a full-time freelancer, consistent rate inflation should be on your horizon.  In this episode, I discuss when it might be time to start charging more, and what to tell yourself during this negotiation.  

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Michael Der  0:02  
You're listening to Artrepreneurs, a podcast that inspires photographers and visual artists to live their best creative lives. My name is Michael der and I am a full time photographer with nearly 10 years of experience in the freelancing world. And I'm sitting down with an amazing community of visual artists to talk about process, business, and the lessons that have helped them grow. So let's get to it. Artrepreneurs starts right now.

We are in a peculiar time. At the time of this recording, we are just a month out from discovering that inflation rates have nearly tripled in the United States. Yes, I said tripled what was once a mainstay average of 2%. Inflation each year has just hit 6.2% for the 12 months ended October 2021. Now, I'm not trying to be an alarmist here. It's not a pants on fire emergency per se. But that is significant, significant enough for you to feel the difference. You see, inflation is typically a silent killer, you're not typically aware of inflation, robbing you of purchasing power each year. But right now your cost of living your debts, your investments, your salaries, your social security, everything is impacted by this surge in inflation. I've already felt in my personal and professional life, I mean, look at the gasoline prices, my hotels and my travel, my rental cars, even the produce that I buy at the grocery store, they're all surging. And so with inflation being on the minds of so many people right now, along with it being close to the end of the year and time for annual reviews, it got me thinking about combating these perennial style taxes that chip away at our net worth. And so today I'm going to focus on just one aspect that I think it's overlooked by a lot of creative professionals, both freelancers and employees alike, and that is proactively and consistently increasing your rates and negotiating your salaries. 

Now, I do want to preface that just because inflation rates are at a height that we haven't seen in 30 years doesn't mean it's an open invitation to just start jacking your prices up like crazy, I'm merely using this recent surge as a jumping off point to reflect on why your rates have maybe stayed the same over long periods of time. So if you were to consider that over the past five years, your purchasing power has dropped anywhere from 10 to 15%. While your day rates have stayed exactly the same, you may come to the realization that there is a mathematical reason for why your business is not growing. And if your costs have increased to run your business over time, you felt that effect even more. So one of the greatest ways to fight off rising costs of business and increasing inflation is to increase your earning power. 

Now there are multiple ways to do this, you can pick up more work or add additional side hustles, you can pivot your career to more profitable situations. And you can certainly put idle cash to use and invest into any number of platforms. But the option that I think is the most direct, the most straightforward way to increasing your earning power is to simply negotiate your salaries and raise your rates. Now this is all contingent of course on you doing a good job at your jobs, I would hate for you to walk into your boss's office demanding a raise if you're the type of person that shows up late leaves early and produces below average work. But presuming you do a good job at what you do, you should be having these conversations with your employers about increasing your pay. And I understand this isn't necessarily a walk in the park here. Negotiating higher rates is no easy task, particularly if you demand it up front right away. So let's start off with employees here. 

First, if you're an in house photographer at a clothing brand, a staff photo journalist for the local paper, a team photographer or any other form of w two really, you may need to finesse your negotiations a little bit more strategically if an immediate raise is not possible. So if that scenario arises, what I recommend doing is presenting a six month plan to your employer to reevaluate your performance. And I understand this might be uncomfortable, but ask them seriously, what does outstanding performance look like? Ask how would you define what an excellent job is? Is it measurable? And imagine for a second that you're not a creative and instead you're in a sales position for a company? If you hit certain numbers for the company that your boss deems as outstanding? Do you not have more tangible leverage to ask for a raise? I think you do. So whatever your job is right now ask your employer what does outstanding performance look like and measure that over the next six months. And if you hit those marks, ask them if they'd be willing to negotiate a new salary. This of course opens you up to the possibility of not meeting those standards as well. So I'm not suggesting that this is a 100% foolproof negotiating tactic. But at the very least, if it doesn't get you a new promotion or a new raise, it does open up the communication between you and your employer and creates tangible goals are for you in the company. 

Now if you're a freelancer, what you won't receive is any form of passive raise which sometimes an employee can get a boss may come to you and increase your pay without you asking, or the company may have some written or unwritten rules about promoting from within after a certain amount of time on the job. But that rarely happens in the freelancing world. In fact, no matter how good of a job you do for your client, you can almost bet your livelihood that they will not come back to you with a higher offer the next time around, they will expect the same production for the same cost and occasionally they may even bargain with you. So it is my belief that as a freelancer, no one else is going to willingly increase your rates. The only person that has the power to do that is you. You are solely responsible for setting your prices and taking control of your brand equity. So if you're known as a $200, creative and you want to get to that $500 or 1000 or 5000 or whatever it might be range. You're the owner One responsible for initiating that charge. It's not happening from anyone else. 

So now that you know that it's up to you to initiate that charge, the question is, when should you implement a price raise, and there are several indicators to raise your rates. But to preface, the prerequisite for all of this is that you do a good job in the first place to even warrant the discussion. So that's rule number one, you have to do a good job. Now, outside of that, there are two reasons that really stand out to me, the first and most obvious time is when your demand is really high. So if you're booked completely solid with no breaks, and you need to manufacture more time for yourself, a well priced increase will create more freedom in your schedule without losing much if any income, while at the same time it's going to reduce creative burnout and human error. This, to me is an ideal scenario. Because if you are really in high demand, meaning clients are coming to you and you're filling up your schedule passively, then you can be aggressive on your price increases, instead of a 5% Bump, you can possibly two extra rates. After all, if you lost half your clients after doubling your rate, you'd still have the same income with twice as much free time. So remember that going forward if you're in demand, bump up your prices. 

The other scenario that I want to address is factoring in profit, which many creatives actually failed to do. And certainly none of my mentors even told me about when I got started. But profit is implied in almost every other business transaction. If you pay $20, for dinner at a restaurant, you inherently know that the meal did not cost the restaurant $20 to make, right, they have to take into account profit to manage inventory, rent, insurances, payroll marketing, so forth, profit is there to reinvest back into the business. And yet many creatives fail to implement that into their pricing. More often than not, they're gonna equate their value to hourly labor. And that's about it. And I haven't even gotten into intellectual property. But that's for another time. 

So if you want to build up your profit budget by 10%, let's say to reinvest into equipment upgrades, or personal projects, or even hired help, this is one of the most reasonable ways to do it. Keep in mind integrity is very important. So if you're going to cite increased rates to better manager staff, then you better have a staff. So with that being said, here's an example of an actual negotiation that I made over email last year with a client that I think illustrates how to impactfully articulate the importance of profit without using the word profit. So here's the thread. "Hi, Michael, I noticed you raised your rate by $300 a day, can you give me an explanation of why we are really tight on budget this year and are looking to cut costs whenever possible? We're not looking to cut your rate from last year. But this is a pretty significant increase that we'll need to be able to justify, is your rate at all negotiable?"

Okay, so before I give you my email response to them, this is a very typical reaction, people will ask you why? Why did you raise your rates, and it is your job to inform them in a way that makes sense. So here's my response that I sent them right after I got their email. 

"Absolutely, always happy to explain my pricing each year, I make it a point to increase my rates as a way to further improve my business and reinvest back into equipment and systems that serve my clients better. I understand all too well, the importance of sticking to a budget, and I'm happy to provide another offer that provides a win, win, hang tight, I'll get this over to you shortly, Michael." 

Okay, so I am no negotiation expert here. But I do think there are a few things that work in this response that you can take away. So one is short and sweet. I didn't waste their time telling them some sob story, I just went right into the justification to I made it about them, and not about me. So if you remember, I told them that I increase my rates to serve my clients better. That's them, how they just made it about me and my needs, I'd be met with far more resistance. And then lastly, I showed them that I cared, I immediately acknowledge their budgetary constraints, I ensured them that I was seeking a win win. And I even offered them a quick solution that would eliminate any unpleasant back and forth. So I set them a new rate where I split the difference to $150 Bump instead of a $300 bump to which they responded the following. 

"Hi, Michael, thank you so much for the understanding, I totally get why you need to raise your fees. And we really appreciate you being flexible with us on this project. Here's the agreement for review." 

And so that was it in a short exchange, I was able to get both sides feeling good about my increase in price. Now is $150 bump in pay going to change my life? No, of course not. But over time, the consistent practice of this with all my clients establishes two things. One, that this is a professional standard that my clients should be prepared for, and will hopefully respect me for going forward. And two, it allows me to flow more money into my actual business, which is exactly what it's designed to do. Instead of pulling from my income that is normally going to go to groceries or health insurance or mortgage payments, I'm simply using the profits to improve my business. Now it's not bogus, either. The profit I've kept adding in over the years during my price increases has allowed me to purchase a lot of things to reinvest back into my business. So for instance, I just purchased a mirrorless camera and gimbal to add video services to my job, which coincidentally then allows me to pop up my prices once again. And so I did this recently, I negotiated a $3,000 job to a $4,000 job to simply include video. And that was with me not even knowing what I'm actually doing it. Once I get good at video, the rates will go up again. 

Now understandably, not every negotiation is going to succeed. Sometimes the clients going to have all the leverage and you just have to decide whether to take it or leave it. But I do hope that you're always seeking out ways to improve your craft, and then opportunities to raise your rates according to your improved skills and services. And to illustrate that point, I want to actually say my farewells right now and leave you with a quote from Chris Doe, the creative entrepreneur and founder of the future, who is far more articulate than me and could have summed this whole episode up in one sentence he posted on his Instagram account an affirmation that stopped me dead in my tracks. He said, "the price I give today is the best price I ever give. As my experience grows, my knowledge expands and my demand increases, the price will only go up."

Hey everybody, this is Michael der thank you so much for making it all the way to the end of the episode. I hope you'll follow tag and engage with us on our Instagram account at Artrepreneurspod. We've also launched our website Artrepreneurspod.com. It is the central hub where you can sign up for our newsletter, read our blog posts, send us voicemails, and even access discounts from our amazing affiliates. It's also the perfect spot to shout out Artrepreneurs with what would be an immensely appreciated five star rating and review. And if you're feeling extra generous, you can even make a small donation that's really going to help accelerate the growth of this podcast. But no matter what you do, folks, I just want to say thank you so much for supporting this program. There are a lot of great photography podcasts out there and I am just grateful to have gained your trust even from take care of you will see you next week.

Transcribed by https://otter.ai