From: Cynthia
I am a newer designer and I have 5 clients right now (which I m very happy about). I charge a 20% mark up from my net pricing, along with an hourly fee ($85). Vicente, in your excellent opinion, what do you think of this pricing “system”? The majority of my clients do not have large budgets. But, we go room by room and they keep asking me to come back.
BTW – Thank you for your mention of Sean Low, his blog is great and very helpful. You are a gift to us newer designers – Your insight is priceless and unbelievably appreciated! xxoo
Vicente Responds:
Cynthia, how can you survive on 20%? Here’s an exercise I think you should do: if you can track one of your jobs, have a look when it’s finished to see how much money you made in total. Then figure out if you had charged 30% if you would have made the same amount as the 20% and hourly fee combined. If it’s almost the same, I would change the system to only charging that one straightforward percentage commission. For me it just makes it easier and keeps it very clear and open for clients. I can’t believe that 20% could cover your time and effort and I’m sure that you do not get to charge for all the hours that you actually spend thinking about this job, which makes me think that you are shooting yourself in the foot.
#1 by scone on April 21, 2010 - 1:02 pm
I agree– 30% markup from net is perfectly clear, and it’s still a savings over the 100% markup you often get in a retail furniture showroom. The only downside I see is, now the design time and creative thinking is “folded” into the total, so the clients might think they are getting that “free.” It puts some pressure on the designer to keep design time as low as possible, because it’s no longer a clear and visible billable hour.
The other possible issue is the perception by the client that your incentive is to design around more expensive items, picking up a higher commission to cover the “hidden” design time. And you have no incentive to go to thrift shops, consignment, etc. because you can’t recover your costs there.
It’s complicated no matter how you slice it. Back when I was running my own business, I went with a flat hourly rate for this very reason– simplicity. The hourly rate kept the focus on my value added, and the client paid the suppliers, with me handling the paperwork. All office overhead was included in the hourly rate. Of course, I had no employees, so that made it easier, too. And I worked out of a home office. Cutting overhead to the bone helps competitiveness, obviously.
#2 by Karena on April 21, 2010 - 3:45 pm
Great points Vicente. I think keeping it simple is the best for clients and designer!
Karena
Art by Karena
#3 by Nancy on April 21, 2010 - 5:04 pm
I think as new designers, individuals will need to create their specific pricing methods, based on their clientele. For more of a higher end clientele, I do believe the 30 % is the most simplistic (and the easiest to explain to clients). But, if designers are not in the high end market, I think there is a safety net with the hourly wage being charged for design services.
#4 by Things That Inspire on April 21, 2010 - 5:10 pm
Based on discussions with blog friends all over the country, I have come to the conclusion that the ways designers charge is highly regional.
Here in Atlanta, most designers seem to charge by the hour (it ranges from $75 to $350 based on the designer) and an upcharge that ranges from 20% to 35%. 35% is quite common for the higher end, published designers.
A few Atlanta based designers charge a flat fee for their time, plus the mark up for their purchases. As a client, I much prefer this approach because it takes the feeling of ‘watching the clock’ away from both the client and the designer.
#5 by todd haley on April 21, 2010 - 8:03 pm
vicente:
curious about how you handle your time + staff time for oversight with contractors in the field etc – and all of the work that leads up to the client presentation -
#6 by katiedid on April 21, 2010 - 10:28 pm
Design concept – can be flat fee if scope is well defined. Hourly if consulting.
Product – net plus 30% to cover all time associated with purchasing process. If item is exceptionally high in price % can be less.
Contract Administration (time for project oversight) – hourly because it is unpredictable.
Commercial Work – Flat fee with mark-up on product
This works very well for me.
#7 by Daniel Hale on April 21, 2010 - 10:38 pm
Again, I think that any discussion that demystifies the way that creative people make their money is probably a good thing and could help more creative people be able to actually make money for the value that they provide. I agree that it is better to take the “watching the clock” feeling out of the equation on both sides. I think that if you charge by the hour you should be prepared to be able to estimate pretty well how much time will be involved and make the client aware of that before it goes too far down the road. I have not seen it work out very well for client or designer when charging by the hour. I believe that the time involved will vary but the quality and impact of the end result is not likely to be linked or proportional to the time factor. Some of the best things can be intuitive and flow fast and furious. Does that mean that you should get less money for that better product/result when that happens. I DON’T THINK SO. Nobody likes to feel like they are getting ripped off, no matter how deep your pockets are. Keeping things professional and clear is vital to getting a creative endeavor to its realization.
#8 by Daniel Hale on April 21, 2010 - 10:39 pm
And thanks again for the forum for discussions like these.
#9 by melissa on April 21, 2010 - 10:52 pm
VERY WELL SAID DANIEL….
M
#10 by Catherine on April 22, 2010 - 12:24 am
I am reader of your blog, and find the information and comments shared very helpful, though this is my first time posting a comment. I have had my own design practice for a little more than twenty years. Initially I charged an hourly fee, plus a 25% percentage on all purchases for my clients of furniture, fabrics, accessories, etc. Over time, I switched to a straight hourly fee for all time spent on projects, from design to product selection, consulting with trades, contractors, architects, etc. My reasons for doing this were several. I did not want my clients to have any sense of a conflict of interest when choosing materials for their project. For example, in recommending a fabric which is $125/Yd over another choice that is $75/Yd., I did not want the client to feel I was pushing the more expensive product because I’d earn more than if we used the less expensive product or item. I also found that my involvement with everyone on the project, contractors, trade workrooms, etc., often became extensive at the client’s request.
I find that all my clients appreciate the transparency – I have a very simple, straightforward two page letter of agreement covering the hourly rate and terms for purchases. Payment for purchases is 50-100% up front, with balance due prior to delivery, and I bill for my hourly fee monthly. However, based on much of what I’ve read here and elsewhere, I do wonder from time to time (and also factoring in the current state of the economy) if billing differently has greater advantages. Thoughts or comments? Thanks!
#11 by Gary Nelling on April 22, 2010 - 2:04 am
I think Daniel made a VERY important point here. Good design ideas have an intrinsic value that is not measured by your time, no more than a great song only reflects the time a songwriter put into it (though the execution of good design details may be correlated to time). Therefore, a comfortable commission that reflects that intrinsic value (or a comfortable fee where clients prefer that system) makes a lot of sense. Regardless of how you charge, if you choose a system that doesn’t assign sufficient value to your ideas from the get-go, you may have a harder time establishing it later. – Gary
#12 by Sally on April 22, 2010 - 3:33 am
In my design firm we are moving towards a flat fee as much as possible. We take into consideration the time we estimate for the project and the cost of goods and services to us. From there we determine retail and whether or not we’ll give a discount…often we don’t. I find that a client is happy paying a little more if they know upfront what something will cost. We’ve had good success working this way especially on goods. Consultations are billed by the hour, sometimes with a cap in place. Transparency is key to the client feeling secure. Then he trusts me and often adds to the project.
#13 by linda dubin garfield on April 22, 2010 - 10:55 pm
we met on the small plane leaving serra cafame when you hurt your arm in dec 2008. my friend’s daughter is making wallpaper and i thought of you since you are the only architect i even vaguely know. maybe you might someday want to use her charming paper. she was in house beautiful this month. she’s young and creative and could use a boost from someone like you. why not???i have an attachment to add but this is not a real e-mail. do you have one somewhere?? i’d like to send you the article and some of her images. i think you’d like them.
her name is este lewis.
thanks and hope your arm healed well.
all the best to you,
linda
#14 by abbeyk on April 22, 2010 - 10:55 pm
It’s a regional thing for sure. In Boston, I don’t know of anyone charging a flat fee. I know of one person who charges a design fee plus a percentage. Me? Hourly + a percentage. Whatever billing system you are working on, be consistent, be honest and be transparent. I always estimate for a client what I will bill hourly.
Whenever I am asked whether I stand to make more money whether I sell more expensive things, the answer is not always. I make the most money when my projects go smoothly and quickly, when clients are happy, hire me for more work, and refer to their friends. Plus the higher the budget, the more the risk…and the projects with the highest budgets are not always the easiest ones. You can loose your shirt in this business.
Once a budget is established, we consider good/better/best and then I stick to that. Once clients trust you, trust that you are with them, their advocate on a project, want their house to be beautiful, are honest and ethical, they are more comfortable spending.
I have no problem explaining my hourly plus commission. I think too many designers sell themselves short thinking that they cannot explain something.
Catherine, have you considered taking 100% of sales tax and all of commission up front? This minimizes your exposure.
Vicente, excellent converstation starter.
#15 by becky on April 23, 2010 - 3:04 am
I agree, great topic and discussion, Vicente.
Whether you select commission based, flat fee based or hourly, I am interested from Vicente, and all the designers reading this as to how much time on average it takes you to complete a room design from concept through installation? I am aware of the endless variables involved, but am curious how long it takes other designers to work on or complete an entire room like a living room or a bathroom?
#16 by Kari on April 23, 2010 - 6:06 pm
I also agree that pricing is done differently by region. If you don’t see value in your time and are only making money on the actual sale of product, then what if a client backs out or says they are going to purchase this piece or that piece elsewhere? You now have nothing to cover for your time spent designing a beautiful room.
#17 by Caroline on April 24, 2010 - 4:48 am
What a breath of fresh air it is to talk so openly about all this. I think there are many combinations that designers can use when charging, but do agree that anything fee based must be at least 25-30%, otherwise there is too much time spent ordering and dealing with problems that come up, and not enough money made to cover unexpected issues. I charge a flat design fee outside of the markup on goods because the budgets for my projects just aren’t large enough to make money on otherwise. What do others do when the budgets are not in the six-figure range?
#18 by Lizzie on April 24, 2010 - 9:24 am
Im not a designer but thought my experience in a parallel industry may be interesting. For many years I have worked in the events sector in the UK for corporations, public and private clients. Due to the cross over of the client type, we have worked with both markup (20% standard for private clients), fee (varies but each role priced) and combination of both. We have found that it has been far more successful to charge openly fees for specific projects with a small mark up on 3rd party services purely to cover bank and administration fees and insurance. Corporations struggle with markups due to their purchasing policies which have become increasingly more open book. Private clients have increasingly shied away from markups, we believe because they felt that they could buy better. Our choice to switch to a predominantly fee structure has turned out to be more profitable but kinder to clients who pay only for the actual service they require.
#19 by Linda Merrill on April 26, 2010 - 1:24 am
Excellent conversation. AbbeyK and I are both from Boston and she’s right, predominantly, we charge an hourly rate plus a markup. In the past, I have calculated that this method nets me a 25-35% profit on the project. I may earn a smaller % on larger jobs, but the $ is higher, and a larger % of smaller jobs, but the $ is less. I think the 100% commission only works really well if the designer has a minimum project budget that they accept. A $100,000 room can take the same hours as a $50,000 room, but should you earn 50% less when the creativity and hours spent are the same?
#20 by Daryl Wark on April 27, 2010 - 2:00 pm
Hello from Brisbane Australia.
We seem to have the same problems here as well. Very hard to say what is the best way to go! It is a huge learning curve and after 6 years I am still grapling with the correct formula. Depending on the job size what works best for me is an lower hourly rate and a “add on” to net retail cost of between 10% to 40%. The percentage is calculated based on what my net cost is. If a we find a item in another retail store which we buy for the client then I charge 10% as I am buying at almost full retail value. If I can purchase a itme at wholesale then I add on 40% and the client still makes a saving. This seems to work for the client but at times is not great for me if we continue to find many items they like in other retail stores. Some clients are a breeze to work with and trust your judgement and go with the flow making the hourly rate lower and less time consuming. Other clients take longer to confirm a selection and hence there totaled hourly rate is higher, (user pays). I also have a system where I charge a one off Design Consultation Fee then present the scheme, the client then has the option to go or not go with the proposed scheme in small or large bites and I charge a 90% add on to all net wholesale orders. This option only works if the client decides to take all or most of the proposed scheme. If they don’t you can leave your self short. Often if the client finds similar or cheaper products else where you are left short also.
Very difficult to decide which is the best way to go.
Love to hear more on what other designers do in similar senerios with clients buying cheaper or similar product to that in your selceted scheme.
#21 by Marija on May 3, 2010 - 12:49 am
Just the push I needed to change things up. Thank you for initiating the honest discourse! Marija