How to charge for services is always a hotly debated topic amongst professionals!
No different for interior designers- there are so many ways to run a business and no right or wrong way. It depends on your goals, size, growth potential, personality type, location and experience level. I get asked about flat fees a lot so thought would be good to write about it here- just from our perspective. If you think it might work for you or your type of business model then read on!
For my firm, we do a flat fee + minimum expenditure almost exclusively.
For the design concepts, construction documents and final execution portion of what we do it makes way more sense for us and the client. You need to project income when you run a firm bigger than just yourself. For example balancing our work load is a tricky wicket most of the time so we have to pay sharp attention to the jobs we have onboarding, ongoing and on the fence!
Why a minimum expenditure?
If we were to say–take on 3 large new home builds all at once, this would require us ramping up staffing to balance these sorts of intense full service jobs with the other project we work on that may be smaller but as important or with remodels that can be very intense so we need to know in advance the $$$ we will have coming in. This is harder to do when you do hourly or do not know if client will purchase from you or not – and we need to know these projects will not be pulling out.
We had this happen a couple of years ago for a 290k job ( expenditure +fee) – this meant we had to scramble to fill in with smaller projects- now our contract verbiage is tighter on this aspect. And you know what? Clients understand this when you explain it- they can relate to losing a large project when you are paying for the infrastructure to handle jobs that size.
This is why we require a minimum expenditure on most projects. This is set individually based on the client and their scope of work and most importantly- items they will need to execute the project in the way of materials or furnishings. But it is not a budget per se but just a minimum- meaning we do not say we can execute for this amount- it is a value that we put on the project to take it on. (We make exceptions to this requirement when it is larger scale ” plans only” for new build or a remodel but we limit these types of projects.)
For the clients – and us- it is a win/win.
The clients get the creative design work we deliver and professional execution but also we are managing most of the products going into the project- this way we are troubleshooting and taking responsibility as well for all of these elements. Easy and less stressful for the client. Our pricing is competitive to any place else so what is not to like about that? We even state this in our contract- no need to shop us- because we shop ourselves! The internet has been rendered as a non- issue.
We also want to maximize profitability along with providing a great value–and less anxiety– for our clients.
Estimating fees up front takes some experience and finesse but it ultimately best for our clients too. They may have initial sticker shock but best to get this out of the way on the outset of the project anyway- and then they too can plan accordingly for the fees that will come along with the other costs associated with the job. This causes less friction or possible problems during the project and will alleviate client anxiety about a bill they did not anticipate- making them enjoy the process so much more- and this is one of our brand promises!
Planning and knowing what they are getting into is most comfortable for the type of busy professional who typically hires us.
And sometimes people want to roll some of the fees into the loan if they are able to do so and this is an added benefit.
For project management in most projects ( and still sometimes is included depending on scope of work) we charge by the hour simply because we cannot control subs or contractors as much as we can our own internal team nor can we predict issues or conditions that might arise on a job site either.
Why do you not hear more about flat fees or per project pricing?
It is simple really- charging hourly has always been the “go to” method of compensation. Times have changed though! Business models have changed too- profitability must be balanced with value for the “product” you are bringing to the table. And people are scared too- it is again the reframing your thinking exercise that has to be done BEFORE you decide hourly is the best- ask yourself WHY do you want to do hourly? Always best to ask why before how.
Too much talk about raising rates instead of increasing your profitability!
When coaches talk about an hourly business model, they are typically speaking to the majority of designers who work alone- not always clarifying this however and so others think this is best too. It is only recently that flat fees seem to be discussed in all the forums I belong to- and now more and more designers are asking about it- I get several questions a week on this topic and it has been a popular topic amongst those designers I work with as a consultant too.
But the key component to discussing income projections should be about profitability not simply a higher rate.
Regardless if you charge by the hour or cost plus or flat fee or a combination of the above- and yes for sure raising your hourly rate can accomplish this but it is sort of like looking at just one component of a business- and not the entire business model- so many components to running a successful business poised for growth. Issues far more than just an hourly fee structure. Flat fees allow you to project better and planning ahead is essential when you want to scale your business.
STOP SELLING YOUR CREATIVITY AND EXPERIENCE BY WATCHING THE CLOCK
We are selling a custom “product”
And that product has had a a lot of R and D for years prior to ever seeing the project you are “customizing” with a client. I do not charge for my TIME, I charge for my experience, expertise and creative vision. Whether it takes me 2 hours to attack a problem because I am on a roll or 4 hours because I am stuck on a concept- same flat fee.
BONUS—When you focus on the “product” you plan to deliver it helps a client focus on end results and not the million tedious- and important- steps we need to get there- This sets the stage for a good working relationship and focusing ahead and not on minutiae that can get in the way of decision making and creates the experience we want for our clients.
We want to make the often stressful process fun -and taking away the hourly anxiety it opens us up for more client personal relationships which for us, is a key component to how we want to work. This does not mean we are besties with everyone but we do like to work with fun people we want to drink wine with and who care about us being stuck in the snow for 19 hours and who we care about genuinely too.
Life is more interesting to me this way and my team embraces this as well. It is part of the happiness quotient!
And- our ideal clients don’t want to hear about the process- 15 steps to blah blah!! Personally I do not think it does any good to put this on your website either- we talk about the process one on one but a website should be about the product! Our clients are buying a product or a result not a process. Truly it is about the experience. The process verbiage is valuable and can be used to create confidence in handling the project management end- but our goal is to help people buy the end results!
Keep this in mind as it is a key “reframing” concept- you are not selling your time but your expertise, creative vision and experience!
Flat fee or by the project billing is a mindset shift in a big way if you have not done it before. But do the exercise of analyzing your past projects and you might be surprised at the results and how much more control you feel in determining your profitability and being able to project into the future is a big deal if you have long term goals of growth.
It is important for your team to be on board with how you charge and of course STILL track their time for use in analyzing a job at the end.
How do flat fees make you a better business owner?
Is this crazy talk?
No- it really is not crazy because the process needed to determine a flat fee is not as easy as throwing out an hourly rate- it means knowing your business very well and being able to calculate flat fees accurately so that you are profitable but also so that the client is content with the overall fee.
Balance is again such an important word here! You have to be able to dig into financials and each project and dissect some of the specifics of how you worked with a client to understand how to determine fees- but the end results can be more than worth it to the bottom line.
1.You have little to no issues with client communication because in a flat fee proposal you must hone in on the scope of work-
This is important but you should be doing this anyway even in hourly billing- no client likes an open ended design proposal with no deliverables discussed – and for your own work load you must know what you are going to be doing and the time frame it will cover.
2.Clients can understand a flat fee easily-
Whereas by the hour it can give many a bit of anxiety. Making proposals easy for clients to digest is important- we are constantly improving our proposals and asking for feedback but the flat fee and minimum expenditure is the core components of how we make money so critical to get right.
3.Hourly opens the potential for clients picking apart your time spent on invoices-
This is never fun and I have found with my personality type I spent too much time on the time tracking to the nth degree and then reporting it. My accountant was shocked when I asked him for dates and details on his invoice so clearly some do not do this- but I did because that seemed to be the best way to “justify” the time spent which is really not a good mindset.
4.Charging flat fees is a more scalable business model-
Especially if you are in a mid to smaller market. Remember there is only 24 hours in a day- how many hours can you really work?
5.A bit more work on the front end to determine that flat fee but way easier once the project commences thus allowing the focus to be on the creative and not on harassing people to track their time-including yourself-
Of course you can hire more designers under you and charge hourly for their time- if they track it well that is- oh yes- this is a big problem. I cannot tell you how much time I have wasted in years past doing invoice review- either too many hours that are not ethical to charge a client because one of my designers did not track time well OR not enough time captured because they “forget”. True stuff here- I have done it all the ways!
6.A better client experience with flat fees-
We are very client centric- I run a profitable business and do not pretend otherwise but we are in a service industry and I want to get the money aspects out of the way up front. Then we can focus on the creative development and the client experience. Most clients prefer a flat fee so they know what they are paying- in advance.
7.Flat fees for a project make you more efficient-
Truth. When you know you have a flat fee for each project, you find ways to become more efficient thus really earning more per hour and making your clients happy in the process.
To my way of thinking charging hourly is more task oriented not creative- or really based on delivering a product.
I want to be known as a creative genius- not a person who can just accomplish the task. Attorneys may charge for their expertise in hourly increment but they are not doing creative work- and many now also charge by the project as well!
Again the disclaimer- We do charge hourly for project management in some cases as this is something we cannot always control or anticipate up front- it covers sub communication on the job site, contractor meetings after initial design meetings have commenced, coordinating the subs when we are tasked to do so (and we do this a lot- is a strong suit of our experience) and any unforseen issues that arise on the job site that were not possible to anticipate in the design phase.
If it works for people to charge hourly then this is great- for many firms it can and does but if you want to scale a business or just grow with more people working with you- flat fees can be a game changer in profitability. I am not here to debate various methods- they all can work as each of us and our business models are different. I am explaining what works for my firm and we have been very successful for many years.
How do we determine a flat fee for each project?
This is part of what makes us better and savvy business owners. We have to understand our business and how each department functions fully, what tasks will be allocated to junior team members, the scope of work in its entirety, the client’s attitude towards the process, the comfortability with the project scope by the design team ( meaning is this in our wheelhouse or is a bit out of it or what), and what is on our plate overall.
Our “Post Mortem” analysis gives us rich data to help determine future fees
A “post mortem’ is the method I devised a few years ago to analyze each job for overall profitability and job satisfaction. This is completed after every job and helps determine our flat fee structure for the next job. We do a thorough review of every single project based on many factors. We analyze three key areas to help us determine fees for similar jobs.
These areas are based on a square foot number, a percentage of overall budget for our expenditure, and by the individual room. So I have the data for every job going back 10 years just about! This is a huge reservoir of key numbers that help determine future fees.
In our post mortem, we also ask ourselves how the client liked the overall process, how we felt about the client in general, what were their key complaints if any and so on. There is more!
This post mortem analysis helps us determine the future project fees- and we assess each new job on the 3 costing methods listed above and then also internally calculate the team contribution in anticipated time spent doing the implementation of the design.
Protections you need when doing a flat fee contract
Ok so downsides- yes you can get a client that becomes indecisive, someone who decides mid way through to cancel, the scope changes, and the project goes on longer than anticipated. How do you address these concerns?
Adding an addendum for “additional services” out of the original scope of work. This means you need to clearly and with zero ambiguity outline the deliverables you will be providing- again, making you a better business owner! But then add a provision for the project going over a certain length of time, scope changing, or a big departure from the established design concepts. ( think if you finalize a farmhouse kitchen design and right before you begin execution your client decides no she really loves French industrial)
Adding a set number of revisions to creative concepts- we usually limit it to 2. But we also may present a couple of ideas initially anyway.
Adding a clause about making decisions in a timely manner so that you do not have people who lag in the decision process causing you to lose track of momentum.
Adding a cancellation clause or requiring entire design fee up front and is non refundable. We do not do this as my experience with clients has been overwhelmingly positive and we do 70 % on repeat client jobs or referrals. But we do collect each phase prior to commencing on that phase so we are covered. On our minimum expenditure though this number is absolute or there is a penalty for not making it.
Never a right way or a wrong way but sometimes a better way…
Charging a flat fee + expenditure can be very dependent on your goals- all I can talk about is what has worked for my firm. So many ways to structure a business that it can be overwhelming to many people and this is something I feel strongly about so hoping it has shed some light for those who have not considered it and for those who have, some good reasons to make the change!
And if you need more help with implementing these ideas, I work with other designers or decorators on their business or creative goals as my schedule permits and am enjoying it more than I thought possible! Please contact me for more information and rates. I think I am a good bargain! 🙂
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