Underpriced and Overworked: A Sober Method for Raising Your Rates

There is a particular kind of arithmetic that many sole traders avoid: working out what they actually earn per hour once every cost is counted. It is uncomfortable, and frequently the answer is lower than the person would earn behind someone else's counter. Yet the same owners will spend hours comparing insurance quotes or arguing with a supplier over a few pounds, while leaving their own prices untouched for years.

Undercharging is not a moral failing. It is usually the product of guesswork, habit and, above all, fear. But it has real consequences — for the business's cash flow, for the owner's resilience against rising costs, and eventually for the survival of the enterprise itself.

Why the Number Stays Too Low

Three forces keep prices pinned down.

Fear of the loss. The owner imagines that a price rise will send clients elsewhere. In practice, most clients tolerate modest, well-explained increases, but the fear is genuinely felt and it shapes behaviour long before any client has said a word.

Pricing by guesswork. Many micro-businesses set their rates by looking at what a competitor once charged, or by picking a figure that 'felt reasonable' when they started. Neither method accounts for what the work actually costs to deliver, and neither is revisited when costs move.

Unclear costs. You cannot price confidently if you do not know your own numbers. Software subscriptions, insurance, travel, equipment, the tax bill set aside, and — crucially — the hours spent on admin, quoting and chasing invoices all sit inside the true cost of a job. If bookkeeping is patchy, the real cost per job is invisible, and underpricing follows naturally.

Working Out What You Should Charge

A straightforward margin calculation puts you back in control.

1. Establish your target annual income — what you need to take home, after tax, to live on.
2. Add your business overheads for the year: insurance, software, subscriptions, training, accountancy fees, equipment, and a contingency.
3. Add your tax provision. A rough but honest estimate of Income Tax and National Insurance on your target income.
4. Divide by billable hours. Estimate realistically — perhaps 25 billable hours a week across a working year, allowing for holidays, sickness, admin and quiet periods.

The result is your break-even hourly rate. Anything you currently charge below that figure is a loss dressed up as a job. Your selling rate should then sit comfortably above it, reflecting the value and quality of what you deliver — not merely your costs.

For project-based work, apply the same logic per job: total your costs, add your margin, and check the resulting price against the hours it will consume.

An Annual Habit, Not a Crisis Response

We recommend a formal rates review once a year, ideally a few months before your year end so the new prices flow into the next accounting period cleanly. Ask three questions:

• Have my costs risen since last year — insurance, fuel, software, materials?
• Am I busier than I can comfortably manage? Full books are often evidence of underpricing.
• Does my hourly rate still clear my target income after tax?

If the answer to any of these prompts a change, adjust deliberately rather than waiting for a squeeze to force your hand.

Telling Your Clients

A price rise announced well is rarely a problem. Announced badly — or not at all until the invoice arrives — it damages trust. A few principles:

Give notice. Thirty days is a reasonable minimum for regular clients. It signals respect and gives them time to adjust their own budgets.

Keep it brief and factual. You do not owe anyone an apology. A short email works:

"Dear [Name], from 1 April our hourly rate for [service] will increase from £X to £Y. This reflects rising costs across the business and ensures we can continue to provide the standard of work you expect. Your current rate applies to all work commissioned before that date. Thank you for your continued custom — do get in touch with any questions."

Separate new clients from existing ones. New clients should simply receive your current rates. Existing clients get notice and, where appropriate, a period at the old rate.

Expect some attrition — and price it in. Occasionally a client will leave. If a modest rise loses a client, the relationship was probably marginal anyway; the capacity freed up can be filled at better rates.

What This Does for Your Cash Flow

Pricing correctly is one of the most powerful cash flow levers a small business has. It costs nothing to implement, requires no new customers, and compounds every month thereafter. Paired with disciplined bookkeeping and a clear picture of your margins, it turns a busy-but-broke business into a sustainable one.

If you would like help working out your true hourly cost or modelling a rate rise before you commit to it, we are happy to talk it through. A quiet hour with the numbers is usually all it takes to replace anxiety with a plan.