Two years ago, I was teaching a freelancing course just as the pandemic hit – which meant a lot of questions about how to handle a sudden downturn in business. Back then, as the economy seemed like it was collapsing, we agreed it made sense to reduce rates in order to bring in whatever business we could – and to allow struggling clients to stay on board.
Fast forward to February 2022, and we have the exact opposite problem.
As the economy has come back online, a glut of spending (due to stimulus checks and more people spending money on goods rather than services while they were stuck at home) has caused prices to increase about 7.5% compared to this time last year. The number varies depending on which products you look at, but the general trend is that physical products are more expensive today than in the past.
First, it’s good that people have more money and that the stimulus checks allowed us to weather the pandemic better than we would have otherwise. My agency benefited from Covid relief loans, and I think everyone appreciated receiving some extra cash when things were looking especially bleak. That said, we also do have a real challenge with rising prices, and since we all sell services (web design and development), it’s time to think about how to handle this economic change. Here’s what we’re doing so far…
We gave all our employees a 5.9% raise on January 1
And we’re pegging future cost-of-living adjustments every calendar year to the Social Security Administration’s Cost-of-Living Adjustment. This really wasn’t a big deal the past 10 years, because there was so little inflation, but now that it’s an issue that’s on people’s minds, I felt it was important that we ensure our employees always have the same spending power, even if the economy around us changes.
We increased our prices for new clients
Since we’d dropped prices by 10-20% for some new projects during the pandemic, this was a natural shift for us. We’re also growing (and, like many tech companies, have been fortunate to grow during the pandemic), so a price increase goes hand-in-hand with our other initiatives, like training more team members to scope projects and aiming for a more stable profit margin on every project we do.
We’re slowly stepping up rates for existing clients
When you raise your rates as a freelancer or agency, it’s important to prove those new rates are acceptable first – and the best way to do that is by offering them to new clients. Your existing clients benefit from a longstanding relationship by not being the first ones to feel your price increase. Instead, once you’ve “saturated” your business at the new rate, you can talk to longtime clients, explain that everyone else is signing on at your new rate, and make a plan to step them up to that rate over 6 or 12 months. 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.
Inflation isn’t a crisis, but the past 10 years may have lulled us into a false sense of stability
Since the 2008 financial crisis, the American economy has grown very slowly – and this has been a drag on everyone and every business. What we’re seeing now is a shock from Covid and a surge from financial stimulus and the fact that everyone is eager to get back to normal life. That said, the Federal Reserve has a lot of tools it can use to “cool down” inflation, including raising interest rates on bonds and loans (something they’ve hardly done at all since 2008). Since rates are so low now, they have a lot of leeway to raise them if they think that will help the overall inflation picture. Without diving too much into the (sometimes controversial) economics of it all, I think it’s fair to say that our current situation is not a catastrophe, but is definitely cause for the typical web design or development agency to pay employees more, and charge clients more to cover the difference.