How to tell clients about a price increase without losing the good ones

How to tell clients about a price increase: put it in writing, name the new rate and the date it starts, give one honest reason in one sentence, and stop. Before you write it, work out what each client actually pays you per hour worked. That number decides who gets the letter and how big the increase is.

Templates skip that step. It is the step that shows which client is quietly your best paid, and which one gets six hours a month free.

What is your effective hourly rate per client?

Your effective hourly rate for a client is what they paid you, divided by every hour you spent on them. Not the hours you billed. Every hour: the status calls, the email threads, the revision you absorbed because arguing felt worse, the forty minutes chasing the invoice. None of it is invoiced. All of it came out of your week.

Your headline rate is what you quote. Your effective rate is what you earn. They drift apart in three ordinary ways:

• Hourly clients drift through unbilled time: calls and admin that never reach the invoice.
• Retainers drift through scope: “up to twenty hours” quietly becomes twenty-six.
• Fixed-price projects drift either way, depending on how well you estimated.

Use a quarter of records; one month is noise. Count unbilled hours against the client who caused them: if you only track time you intend to bill, you miss exactly the hours that make a client expensive. Where billable hours go missing covers the usual leaks.

Which clients are underwater? A worked example

Take a freelancer with a headline rate of $85 an hour and three clients over one quarter. Every number is an assumption, chosen to be ordinary, not dramatic.

• The agency pays hourly: 60 hours billed, $5,100 paid. Your records show 14 more hours that never reached the invoice: status calls, Slack threads, a rework you absorbed.
• The retainer pays $1,700 a month for up to 20 hours: $5,100 for the quarter. Actual hours: 26, 24 and 29.
• The fixed-price project was quoted at $4,250 on an estimate of 50 hours. It took 38.

Client	Paid this quarter	Hours actually spent	Effective rate	Against $85
Agency (hourly)	$5,100	74	$68.92	19% under
Retainer	$5,100	79	$64.56	24% under
Fixed-price project	$4,250	38	$111.84	32% over

The best-paid work per hour is the fixed-price project, the one invoice that never shows an hourly rate at all.

“Underwater” needs a line, and the headline rate is the wrong one: it is what you would like, not what you need. The right line is your floor, the lowest rate at which your year still works once costs and unbillable hours are counted. If you have not worked yours out, the freelance hourly rate calculator does it from the income you need, your costs and the share of your hours clients pay for.

Assume the floor comes out at $75. The agency and the retainer are underwater. The project is not.

Which clients should get a price increase?

The effective rate says whether there is a problem. Where the gap comes from says what to do.

Situation	Move
Above your headline rate	Leave the rate alone. Quote the next project at the new rate.
Between floor and headline, and the gap is the rate	Raise the rate, with notice.
Below the floor, and the gap is unbilled or out-of-scope hours	Restructure first, then raise if still short.
Below the floor, and the client will not restructure	Let them go, with notice.

Run the agency through it. Raising them to $95 and changing nothing else gives $77.03 an hour on the same 74 hours. Billing eight of the stray hours (the status calls, which are plainly work) at the old rate gives $78.11. Both together give $87.30. The raise alone barely clears the floor, because the rate was never the main problem.

The retainer is the same lesson, louder. Getting it back to $85 an hour would take a 32% increase. As a rate rise, that is a letter nobody enjoys opening. As a retainer resized to the work it covers, it is a conversation about scope.

The project needs nothing. Letting go comes last for a reason: it is right only once the client has refused a structure that works.

How much should you raise your rates?

Enough to close the gap your own numbers show, and never less than inflation has taken since the rate last moved.

A rate unchanged for three years has been cut in real terms every year, without anyone sending a letter. Put your old rate and the year you set it into the BLS CPI inflation calculator, or the Bank of England’s inflation calculator if you invoice in pounds. Whatever comes back is not a raise. It is the rate standing still.

Beyond that, distrust the flat percentage: it overcharges the client already paying well and under-fixes the one who is underwater. Set one new headline rate for new work, then decide client by client how far towards it each relationship moves, and how fast. Use round numbers: $95 reads as a decision, $93.50 as a calculation the client will ask to see. And move each client once a year at most, or they learn to expect the next one.

Should you raise existing clients or only new work?

Both, but people judge the two very differently.

New clients have never seen your old rate, so the new one is simply your rate, from today. That is the easy half, and it needs nobody’s agreement.

Existing clients have a reference point, and classic research on fairness says that point drives the reaction. In a 1986 study in the American Economic Review, Daniel Kahneman, Jack Knetsch and Richard Thaler surveyed people by telephone on how fair various price and wage changes were. A shop cutting a current employee’s pay from $9 to $7 an hour was judged unfair by 83% of respondents. The same shop paying a replacement $7 was judged unfair by 27%. Same number, different reference point.

The study also split sharply on reasons. A grocer passing on a rise in the wholesale price of lettuce was judged acceptable by 79%. A hardware store raising the price of snow shovels the morning after a big snowstorm was judged unfair by 82%. Protecting your margin against rising costs reads as fair. Cashing in on demand reads as gouging.

Those were residents of Toronto and Vancouver judging shops, landlords and employers, not clients judging freelancers, so take the direction rather than the percentages: move new work freely, move existing clients with notice and a reason, and give the lettuce reason, never the snow-shovel one.

How much notice should you give for a price increase?

Start with the contract. If it fixes a rate for a term, the increase waits for renewal. If it sets out how rates change, follow it exactly. Only when it says nothing is the notice period yours to choose.

When it is yours, the test is simple: no invoice should arrive at a rate the client did not know about when they approved the work.

• Hourly clients billed monthly: at least one full billing cycle, so the first invoice at the new rate covers only work done after they knew.
• Retainers and agencies: long enough to reach their next budget, because a rise that lands after the budget is fixed comes out of somebody’s contingency. Ask when they plan spending.
• Fixed-price work: no notice period in the usual sense. The current project finishes at the agreed fee; the next quote carries the new rate.

The timing to avoid is mid-project. The same study found that a grocer who marked up peanut butter already on the shelf, after hearing the wholesale price had risen, was judged unfair by 79% of respondents. Work you have already quoted is stock on the shelf.

What should a price increase letter to clients say?

Six things, in this order, in under 150 words: the new rate, the date it starts, what stays the same, one sentence of reason, an offer to talk, and thanks. Put the rate in the first two sentences. A client who has to hunt for the number assumes you were nervous about it.

Always send it by email: the email is the record. For a client you badly want to keep, call first and email the same day.

Template 1: rate increase email to an existing client

For the agency: a stale rate and unbilled calls.

Subject: My rates from 1 January

Hi Sam,

From 1 January my hourly rate will be $95, up from $85. Anything quoted or started before then stays at $85, including the current phase of the rebuild.

From the same date I will also bill our weekly status calls, which I have been leaving off. They will appear as their own line on the invoice.

My rate has not moved in two years, and the work has grown in that time. This brings it into line.

Happy to talk it through if it helps with next year’s budget.

Thanks, as ever.

Alex

Template 2: a long-standing client you want to keep

For the retainer: the rate is fine, the scope has outgrown it.

Subject: Our retainer from 1 February

Hi Priya,

Following our call: over the last three months our retainer has averaged 26 hours a month against the 20 it covers. That is the work growing, which is good news, but the retainer needs to catch up.

From 1 February I would like to move to one of these:

• $2,200 a month for up to 26 hours, which matches what we actually do, or
• $1,700 a month for up to 20 hours as now, with anything beyond 20 billed at $95 an hour.

Either way, each invoice will show the month’s hours, so you can see which suits you.

Four years in, I want this to last another four.

Alex

This letter does not raise her hourly rate. Option one is still about $85 an hour. The increase is the six hours a month you stop giving away.

Template 3: fee increase letter for new work only

For the fixed-price client: nothing wrong with this project, a new rate on the next.

Subject: Rates for new projects from 1 March

Hi Jordan,

Before we scope the next phase, a heads-up: from 1 March I am quoting new projects at $95 an hour, up from $85.

The current project stays at the fee we agreed, and anything you confirm in writing before 1 March will be quoted at the old rate.

Nothing else changes: same process, same turnaround.

Looking forward to the next one.

Alex

The window at the old rate gives the client a reason to commit early, and turns the increase into a date rather than a demand.

What should you never say in a rate increase email?

“I’m sorry” or “unfortunately”. An apology tells the client something has gone wrong. Nothing has. Every supplier they have changes prices.

A paragraph of reasons. Rent, software, childcare, the economy. Every extra reason is a new thing to argue with, and a long justification reads as a request for permission.

“I’m fully booked” or “demand has been high”. The snow-shovel reason. It may be true, and it is the one people most reliably resent.

“If this is a problem, I can keep you at the old rate.” You have negotiated against yourself before they replied. Save flexibility for the conversation, and trade it.

Nothing, with the new rate on the invoice. Even a client who would have agreed will not forgive the surprise.

How do you handle pushback on a rate increase?

Decide your answer before sending the letter: for each client, write down the lowest outcome you will accept. For a client below your floor, the old rate is not on that list.

• “The budget is already set.” Timing, not refusal. Move the start date to their next budget, or keep the budget and cut the scope. Trade scope for price. Never trade price for nothing.
• “Can you keep us at the old rate?” Above your floor, you can phase it: part now, the rest in six months, both dates in writing. Below it, the answer is no, with the restructure offered instead.
• “Other freelancers charge less.” They probably do. Do not argue the market. “That may well be right. This is what I charge for this work” ends the comparison without a fight.
• Silence. Silence is not agreement. A week before the date, ask for a one-line reply confirming the new rate, so it is agreed rather than merely announced.

When the numbers say go and the client says no, let them go cleanly:

I understand. I cannot continue at the current rate, so let’s plan the handover. I will finish the current phase by the 28th, and I can suggest a couple of people who may suit the budget better.

It ends the work without ending the relationship. A client below your floor is not income you are losing. It is time you pay to spend.

If the pushback is really about whether the hours happened, that is a different conversation, covered in what to do when a client questions your invoice.

What to do this week

1. Pull the last three months of hours per client, billed and unbilled.
2. Divide what each client paid by those hours.
3. Set your floor and your new headline rate.
4. Sort every client into leave alone, raise, restructure or let go.
5. Set each start date around their contract and budget cycle.
6. Call the clients you most want to keep. Then send the letters.
7. Recalculate in three months. A client on a higher rate who now takes more hours can end up exactly where they started.

Step one is the one people skip, because it needs the unbilled hours. If you want to see where your time goes without maintaining anything, Stunda records it in the background, sorts it by client and separates billable from non-billable, which fills the hours column above. A spreadsheet works too: one honest quarter is enough to run the numbers once, and once is usually enough to change what you charge.