I Charged $75/Hour for Three Years Too Long
When I started my IT consulting practice in 2019, I set my rate at $75 per hour. It felt generous at the time. I was coming from a salaried position making $85K, and $75/hour seemed like a massive step up.
For the first year, it was fine. I was building a client base, learning how to run a business, getting referrals. By year two, I was fully booked. By year three, I was turning away work. And I was still charging $75 per hour.
A colleague who did similar work showed me his proposal for a project almost identical to one I'd just quoted. His rate was $140/hour. He was booked solid too. Same market, same type of clients, same quality of work. He was making nearly twice as much as me for doing the same thing.
I remember the exact feeling. It wasn't anger or jealousy. It was embarrassment. I'd been leaving roughly $130,000 per year on the table for two years because I was too uncomfortable to raise my rates. That's $260,000. That's a house down payment. That's early retirement money. That's financial security I just didn't collect.
Five Signs You're Undercharging
If any of these sound familiar, you're probably charging too little.
Sign 1: You're consistently fully booked. This is the most obvious one, and the one most people ignore. If you have more demand than you can handle, your prices are too low. Economics 101. When demand exceeds supply, prices should go up. Being fully booked isn't a flex. It means you're subsidizing your clients with below-market rates.
Sign 2: Clients never push back on your pricing. When I was charging $75/hour, I won about 90% of my proposals. That felt great at first. But it also meant I was rarely being challenged. If every client says yes without hesitation, your prices aren't competitive. They're cheap. A healthy close rate for service proposals is somewhere around 40-60%. If you're well above that, you have room to raise rates.
Sign 3: You're working harder but not earning more. Your skills improve every year. Your processes get more efficient. You deliver better results faster. But if your rates haven't changed, you're actually earning less per unit of value delivered. Five years ago, a website project might have taken you 200 hours. Now you do it in 120. If your rate is the same, you're getting paid 40% less for the same deliverable.
Sign 4: Your margins are too thin. If you're a solo consultant or a small agency and your profit margin is below 20%, something is wrong with your pricing. Most healthy service businesses operate at 25-40% margins. If you're at 10-15%, it's almost certainly a pricing problem, not a cost problem. You can only optimize expenses so much. At some point, you need to charge more.
Sign 5: Comparable providers charge significantly more. Do your research. Talk to peers. Look at industry salary surveys and consulting rate guides. If people doing similar work in your market are charging 30-50% more than you, your rates are out of date. The market has moved and you haven't moved with it.
How I Actually Raised My Rates
I'll walk you through exactly what I did, because the mechanics matter as much as the decision.
Step 1: I Set the New Rate
I went from $75 to $120 per hour. A 60% increase. That sounds dramatic, but remember, I was significantly below market. If I'd raised rates gradually over the previous three years (say, 10-15% annually), I would have been at $110-$115 already. The big jump was just catching up.
For your situation, I'd suggest researching comparable rates in your market and aiming for the middle of the range. If peers charge $100-$150, set your new rate at $120-$130. Don't aim for the top of the range. Give yourself room for another increase in a year or two.
Step 2: I Told New Clients First
New clients got the new rate immediately. No explanation needed. They had no context for what I charged before. To them, $120/hour was just my rate. Period. If they could find the same quality for less, fine. Most couldn't.
My close rate on proposals did drop. From about 90% to about 65%. Which means I was working fewer projects but making more money per project. My overall revenue went up 25% in the first six months while my workload went down. I'm not exaggerating. Those are the real numbers.
Step 3: I Communicated with Existing Clients
This was the scary part. I had eight active retainer clients, and I needed to tell all of them that their rates were going up. Here is almost exactly what I sent (adjusted for specifics):
"Hi [name], I wanted to give you a heads-up about a rate adjustment starting [date, 60 days out]. My hourly rate will be moving from $75 to $120, effective [date]. This reflects the market rate for the level of expertise and service I'm now providing, and I want to be transparent about it well in advance. For our ongoing engagement, I'm happy to lock in a transitional rate of $100/hour for the next six months as a thank-you for being a long-term client. After that, the standard rate of $120 will apply. I really value our working relationship and wanted to give you plenty of time to plan for this change. Happy to chat about it if you have any questions."
Note a few things about this message:
- 60 days' notice. Give clients time to adjust their budgets. Springing a rate increase on someone with two weeks' notice is disrespectful.
- Transitional rate. The six-month bridge at $100 shows good faith and gives clients a gradual on-ramp. It also means you start making more money immediately, even if it's not the full increase yet.
- No apology. I didn't say "sorry for the increase" or "I know this is a lot." Apologizing undermines your position. You're not doing anything wrong. You're adjusting your pricing to reflect your value.
- The door is open. Inviting questions shows confidence. You're not hiding from the conversation.
Step 4: I Dealt with the Fallout
Of my eight retainer clients, here's what happened:
- Five accepted without any pushback. Some even said it was overdue.
- Two negotiated. One asked for the transitional rate to extend to nine months instead of six. I agreed. The other asked if they could lock in the $100 rate permanently by signing a 12-month contract. I agreed to that too, because guaranteed revenue has its own value.
- One left. They said they couldn't justify the increase and would find someone cheaper. I wished them well. Six months later, they came back at my full $120 rate because the cheaper option hadn't worked out.
One client out of eight. And they came back. I lost zero net clients from a 60% rate increase. The fear of raising rates is almost always worse than the reality.
Grandfather Clauses: When They Make Sense
Some consultants and agencies offer grandfather clauses, keeping existing clients at the old rate permanently or for an extended period. I have mixed feelings about this.
On one hand, it rewards loyalty. Long-term clients who took a chance on you when you were less established deserve consideration. On the other hand, if you grandfather too many clients, your average effective rate stays low even though your published rate is higher. You end up in a situation where your best clients (the loyal ones) are your least profitable clients.
My approach: I offer a transitional rate for six months, not a permanent grandfather. After six months, everyone pays the same rate. This is fair, predictable, and sustainable. If a client has been with you for three years, they've already benefited from three years of below-market rates. A six-month transition is more than generous.
The exception is when a client represents a strategic relationship beyond revenue. Maybe they're a great reference. Maybe they send you referrals. Maybe the work is interesting enough to justify a discount. In those cases, a longer grandfather period can make sense. But be honest about why you're doing it. If it's because you're scared of losing them, that's not strategy. That's fear.
Value-Based Pricing: The Next Level
Hourly rates are simple, but they have a fundamental problem: they cap your earnings based on time instead of value. If you help a client save $500,000 per year, does it matter whether it took you 10 hours or 100 hours? Your value is the same.
Value-based pricing means charging based on the outcome you deliver, not the hours you spend. It's harder to implement, but when it works, it transforms your business.
I started experimenting with value-based pricing about a year ago for specific types of engagements. For example, I did a systems audit for a manufacturing company that identified $180,000 in annual operational waste. Under my hourly rate, the project was about 40 hours at $120, so $4,800. Under value-based pricing, I charged $18,000, which was 10% of the identified savings. The client was thrilled because they got a 10x return. I was thrilled because I made 3.75x my hourly equivalent.
This doesn't work for every engagement. It works best when: the value is quantifiable, the client understands the connection between your work and the outcome, and you're confident in your ability to deliver results. For ongoing retainer work or execution-heavy projects where value is harder to isolate, hourly or project-based pricing still makes more sense.
When NOT to Raise Your Rates
Not every moment is right for a rate increase. Here are the situations where I'd hold off:
- You're not delivering excellent work. Raising rates is justified when your quality matches the price. If you're still making rookie mistakes, inconsistently meeting deadlines, or getting mixed reviews, fix that first. Higher prices create higher expectations.
- Your market is genuinely contracting. In a recession or industry downturn, raising rates can price you out. Read the room. If clients are cutting budgets across the board, this isn't the time.
- You just lost several clients. If your pipeline is thin, stabilize first. Raising rates when you're desperate for work puts you in a weak negotiating position.
- You can't articulate what's changed. If a client asks "why the increase?" you should have a clear answer. Better skills, deeper expertise, proven track record, market alignment. If the honest answer is "because I want more money," you need to build more justification first.
The Math That Changed My Mind
Here's the calculation that finally pushed me to raise my rates. I share it because it might push you too.
At $75/hour, fully booked (about 1,600 billable hours per year), I was making $120,000 in revenue. After expenses, roughly $85,000 in take-home income.
At $120/hour, working 15% fewer hours (1,360 billable hours, because my close rate dropped), I was making $163,200 in revenue. After expenses, roughly $125,000 in take-home income.
I made $40,000 more while working 240 fewer hours. That's an extra $40K for 240 hours of my life back. Put another way, I got a 47% raise and six extra weeks of freedom.
Every year you don't raise your rates, you're making a choice. You might have good reasons for that choice. But make sure they're actual reasons and not just fear. Because the cost of undercharging isn't just financial. It's measured in the hours and energy you spend working harder than you need to, for less than you're worth.
