Raising your rates for inflation: 4 months later

What I got right, what I got wrong, and how we are handling inflation at our WordPress agency.

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Sometimes, when I’m alone with my thoughts, I like to pretend I’m in a zombie movie. I’m the guy who just woke up in a hospital bed from a long coma, having somehow survived as the apocalypse unfolded around me. I assess the new world I’ve been thrust into, make a plan of attack, and race heroically toward danger.

If I woke up today, I’d find a world where the price of pretty much everything – with the possible exception of Shopify and Bitcoin – had risen dramatically. The world is suddenly at war, gasoline and groceries have gone through the roof, a Covid lockdown in China has destabilized manufacturing, and venture capitalists and tech companies are bracing for the worst. Although MasterWP and our web development business have been running smoothly, the macroeconomic situation certainly seems worse than it was in February, when I wrote about raising your rates because of inflation.

So today, I’ll look back at that article and talk about what worked, what didn’t, and how we’re handling economic uncertainty at our WordPress agency.

Stabilizing employee salaries

The first thing we did in response to inflation was give all our employees an across-the-board 5.9% raise, which was based on the Social Security Administration’s annual cost of living adjustment. We also committed to doing this every year, forever – which effectively eliminates any risk that our employees might lose purchasing power due to inflation. I don’t think I’m going to be invited to speak at any business schools for giving everyone a large, unsolicited raise, but it fits with our focus on employee retention and quality of life. Since inflation hasn’t been an issue for the past 15 years or so, this was never on my radar as a business owner before. Now that it is, it’s simply built into our system, just like equal pay and profit sharing.

The side effect of this that I did not expect is that it has made us significantly more competitive against other tech companies in recruiting. With Silicon Valley companies laying people off and struggling to raise additional rounds of venture-capital funding, there is speculation that a glut of tech workers will result in stagnant or lower wages at companies that have historically paid very well. Since we are profitable, agile and not venture-funded, we’re in a strong position when we do our next round of hiring.

Raising project rates

Although that 5.9% raise could come out of our profit margins without a huge sacrifice (I’m the sole owner of the company, so our profit is effectively my income), we’d all prefer that it be covered in part by clients so that we can continue to make the business even more profitable over time. Although I don’t have a large enough data set to say this definitively, I believe that I overshot a bit with our price increases back in January, and this resulted in a slowdown of work (on top of what was probably a natural slowdown due to people being hesitant about the economic conditions). After losing a few bids that I felt we would have won at our previous price point, I scaled back our price increases a bit, settling around a 10% increase for fixed-fee projects and not increasing our exposed hourly rate. (The hourly rate is such a strong price anchor that it’s always very hard to change, and why I recommend fixed-fee projects in most cases.)

Since settling into a still-higher-but-not-super-high new price structure, we’re scoring new projects at a similar rate to last year at this time and have a solid pipeline of new prospects coming in. I think web design and development services have very high price elasticity – after all, we often see quotes for $10k and $100k for the same exact scope of work – but I also think that the shock of lots of different prices going up across the board has led clients to be a bit more cautious and skeptical in their buying decisions. In other words, it probably would have been easier to raise our prices three years ago, when inflation wasn’t on everyone’s mind. Now that everyone sees the world through the lens of inflation, every price tag is more closely scrutinized.

In my original article on raising rates, I made the opposite assumption (that clients would expect and easily accept rising prices since all prices were rising). My experience since then suggests I had it backwards:

“Since your clients are likely dealing with inflation-related price increases everywhere (and perhaps raising their own rates), they won’t be surprised and will appreciate your candor and the slower pace of the change.”

Me, in the past, being incorrect

Geopolitics affects everyone

In the past month or so, we’ve also received a handful of new inquiries from clients who are being forced to move away from web developers in Ukraine or Russia because of the war. While I do not frame this as “positive” in any way, shape or form, it may act as a counterpoint to other economic challenges for some companies. We never would have competed with developers in Eastern Europe or Asia in the past (our price point is much higher), but what we are seeing is that some American clients who were previously relying on developers in those regions are now moving upmarket in search of increased stability.

What’s next?

In my previous article, I ended on an optimistic note, suggesting that “our current situation is not a catastrophe” and that the Federal Reserve had a lot of tools at its disposal to combat inflation. Since then, the war in Ukraine and a precipitous drop in the stock market has complicated matters, and many people (including, it seems, pretty much everyone writing for The Wall Street Journal) are extremely pessimistic about the near future.

I don’t put a lot of stock in polls and anecdotes from gloomy business owners – I think there’s a tendency to focus on the negative in any newspaper piece about the economy – but I do think that business owners should prepare to be scrappy, agile and creative as strange things happen to the economy and world in the coming months. During the pandemic, we saw a tech boom, so we were in many ways insulated from the worst of the economic damage. Now, that may be reversing, and the companies that survive and thrive in the next few years will look much different from the ones that rose to power in the 2010s.


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Rob Howard is an editor at MasterWP and the CEO of Howard Development & Consulting, the company behind WP Wallet.

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MasterWP contains no affiliate links. We’re entirely funded by the sponsors highlighted in blue on each article. In addition to MasterWP, we own WP Wallet, Understrap and Howard Development & Consulting.

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