Tax Day just passed. And many of us got a fresh reminder that not every dollar you earn actually stays in your pocket. Especially if you’re self-employed. Solo business owners often bear higher tax burdens than their corporate employee counterparts. But many new solopreneurs fail to fully factor this in when setting their prices.
I remember my first couple years as a freelance web designer. After plugging in my 1099 income information into Turbo Tax, I’d watch and wince as the estimated tax refund ticker took a tumble – sometimes into negative numbers.
But even after I realized my mistake, it took me a long time to do anything about it.
I was stuck in a price pit.
The Price Pit
Many freelancers are uncertain of how much they should charge for their services, so we err on the side of underpricing ourselves early on. We’re just starting out, we lack confidence, we haven’t done the math to fully understand what our time is worth, and we’re not sure of how we’d handle pushback on our pricing (something that will rarely happen in reality, but freaks us out anyway).
This is all perfectly normal – an entrepreneurial rite of passage even – and not a bad way to get your first few gigs under your belt and start generating business referrals.
But once you get the ball rolling, you need to raise your rates.
The problem is, many people don’t. They get stuck in a price pit (like I did).
Instead of raising rates, they scramble to take on more low-paying gigs, quickly leading to burnout and financial stress.
And that’s not great.
How to Climb Out of It
Here are few simple steps to help you start digging your way out of the pit and into profitability:
- Crunch some numbers: Know exactly how much you need to earn to comfortably support yourself and your family. I created a freelance rate calculator and tutorial to help you pinpoint your baseline rate. When you’re clear on your numbers, you can discussing pricing with clients with much more confidence. “Why are you so expensive?” ”For starters, because I that’s what it costs for me to make sure my kids don’t starve.” (Don’t actually say that though…)
- Pretend this is normal: You’ve been living in the price pit for so long, it’s probably going to feel weird climbing back into the sunlight. Until your eyes adjust, put on some sunglasses and pretend you’ve always been this cool 😎. I’m not suggesting you should fake being worth a higher price. I’m saying your notion that you aren’t worth the higher price is what’s fake. Go on, try it out. And expect that most people will understand and accept your new rate.
- Don’t flinch: If you do get pushback on your pricing, hold your ground. At your discretion, you can offer a discount, or allow existing clients to temporarily continue paying their current rate. This allows you to accommodate specific situations while still communicating you are worth a lot more than you are charging.
- Be ready to go your separate ways: Some clients may leave—and that’s okay. If you double your rate and lose half of your customers, you’re still generating the same income (but in half the time)! You’re also creating space to provide better service for better clients who value quality and are less focused on just getting the lowest price.
- Deliver: If you’re still doubting whether or not you are worth a higher rate, become worth it. Use that insecurity to drive you to do everything in you power to deliver the best possible experience for your customers. They’ll be delighted, they’ll talk about it, and drive more business in your direction. And you’ll grow. Because you were scared into being awesome.
You Have Permission to Charge More
Just in case you need a little nudge or some affirmation, you now have it. It is perfectly fine and fair to increase your rates. It’s fair to you, and it’s fair to your clients. Staying stuck in the price pit isn’t sustainable. If your business can’t support you, eventually you won’t be unable to support your clients either. Give yourself – and your clients – the gift of a sustainable, thriving business by charging what you’re truly worth.
Not sure if your current pricing reflects your value?
I’d love to hear what you’re wrestling with—whether it’s a fear of losing clients, questions about how to communicate a price increase, or just needing a second opinion on what to charge.
Shoot me a message and tell me what’s on your mind. Let’s talk it through together.
