If you work as an independent contractor, then you already know how important it is to maintain a good rapport with clients—so they stay happy, and you keep getting work from them.
Of course, as inflation and the cost of living increases—not to mention your skills and services may be expanding—you soon realize that you need to raise your rates.
It’s normal to feel some trepidation over the idea of revisiting, or re-negotiating, your existing contract agreements with clients.
In this article, we’ll discuss when and why contracts need to be revisited—as well as how to navigate the process for future success.
4 Reasons to Update a Contract Agreement
There are several reasons why you may need to revisit a contract with a client, including:
Name Change: Should a business undergo a change in name, a contract’s wording must be updated to properly reflect the change.
Change in Ownership: If a business is sold to a new owner, the contract will need to be updated. Two standards used to account for potential changes are novation and assignments.
- Novation is a substitution, such as one party or obligation substituted for another in a contract, should one of the original parties be bought by another business.
- An assignment is a formal transfer of duties, rights, property, or ownership to someone else.
Bankruptcy: Should a business with whom you have a contract file for bankruptcy, the amount owed to you under the contract falls into the bankruptcy process. Therefore, you become a creditor of the bankrupt business. The debtor business then agrees to a plan creating new contract rights.
Raising Contract Rates: As a contractor, it can be tempting to take on as many clients as possible. However, you never want to spread yourself too thin. Should you find you’re taking on more work, or responsibilities, or that your role has evolved due to experience, certifications, or higher learning, it might be time to revisit your contract and consider raising your rates.
Best Practices for Raising Your Rates
Every employee has the right to ask for a raise, but contractors have the more delicate task of negotiating an increase on their own. When you focus your approach on the financial value of your skills/services, and how they benefit your clients, you will be more successful.
Have a Good Reason for the Raise
Ensure your job title reflects your actual role. If your role has changed or evolved since you started working with a client, you should request a raise—particularly if you’ve taken on more responsibility, tasks, or projects.
Research Industry Rates & Know the Number You Want
Industry standards recommend increasing your rate by 10-20%. You can also offer tiered packages as an alternative, as this provides more options for those clients that can afford an increase.
Plus, many contractors apply annual rate increases around the same time each year. Having this annual consistency keeps you ahead of inflation, and maintains a predictable schedule for clients.
Ask in Person, If Possible
It’s always easier to have delicate conversations face-to-face. If you’re a contractor asking an employer for a raise, preparing an in-person “pitch” shows that you’ve given the matter serious thought. Consider doing so when your contract is almost due for renewal or performance review, as clients are usually more prepared for project changes to come up at that time.
Draft an Announcement Email
If you run your own small business and have made the decision to raise your rates, notify your clients with a formal announcement via email. Include the increased amount, the reason behind it, and when the increase will go into effect. Always give at least 60 days’ notice before the increase. Keep the tone of your email unapologetic, or clients may think there’s room for negotiation.
Have an Exit Strategy & See Your Contract Through
Having other clients or work options lined up will boost your confidence in negotiation and will also grant you a safe exit strategy—should your clients not be able to accommodate a raise.
Whatever happens, always maintain professionalism and see your contract through to the end.
Need Help Updating Your Contract Agreement?
As a contractor, you’re also a business owner, which means you need to treat your work and relationships like a business. Having a professional attorney help you draft contracts and modify as needed is a good place to start. This ensures you stay protected, so you can focus on providing the best service possible.
Contact us today to schedule a consultation.