I was recently asked this question and thought it a good one. It’s something I’ve done and I believe there is an art to it.
If a business relationship isn’t working for you I think you have three options; live with it, change the relationship for the better, or separate. Let’s make the assumptions that you don’t want to live with it and that the heart of the problem with your customer is that you don’t make enough profit from the relationship to make it worthwhile or you no longer want to focus on the type of work you perform for them. Either way the next step is the same.
The first step I would recommend is to raise your rates to the point that, if the client does decide to pay up and stay, you would earn enough that their staying would be a good thing. This is actually the outcome a fair amount of the time and I think this a win win situation.
The other happy outcome (for you) is that the customer decides to end the relationship. If that is the case you should be prepared to offer suggestions on who might replace you. Yes I’m saying you should be ready to recommend one of your competitors. Keep in mind if you no longer want to do this type of work you’re not really recommending a competitor. If they aren’t willing to pay your reasonable fees is handing them off to a competitor really a benefit to that competitor? Probably not, don’t worry about it.
This is where I remind you that you want to take great care with all of your customers, even those who will soon be past customers. If handled properly they may continue to be a source of referrals and may someday change to the point that they want to come back. It’s not unusual for a customer to reject your rate increase, leave for another provider, only to learn that you were far more valuable than they thought. They just may come back happy to pay the higher rates for your superior service.
I’m NOT suggesting that you dump a former client onto a provider you know is incompetent, unethical, or unable to perform the work.
The conversation with your customer should be face to face if at all possible. It is best to thank them for being a customer telling them that you appreciate their past business. Further explain that your business model has changed and that either you no longer can provide what they need or that you can no longer work at your current rates. You may even what to cite some of your increased costs as why your rates are increasing.
If they are unable or unwilling to pay the higher fees tell them you understand, that you will miss them and that you have a suggestion on who may be able to help them moving forward. This is where you recommend another services provider. End the conversation by extending an invitation to come back should they ever want and let them know they would be welcomed.