I know you are not a fan of hourly billing for designers. I have really tried to embrace flat fees, but I constantly find myself losing out. My design process is not so easy to systemize—I like establishing the big picture, but that might be followed by accessories, art, and even details like linen and china. Only then do we circle back to some of the larger items in the room.
Because of that variability, a flat fee has always seemed unworkable—or even risky—for me. That said, I sometimes feel like my clients are taking advantage of me and my staff when I charge hourly, because we are never really done. Help!
Dear Hourly Angst,
The reason I am not a fan of hourly is because it has the illusion of the rational, when it is anything but. Who says you are worth your hourly rate? Because other designers charge a similar rate? Even more important than that, not every hour is the same, and projects typically take so long as to make hourly charges incredibly uneven from month to month or quarter to quarter. Hourly fatigue matters to both you and your client.
However, given your creative process, hourly clearly works better for you: You feel like your time literally is not wasted, and it is the value you wish to capture. I get it.
With that in mind, I would propose two changes that address both my necessity—value paid for value delivered—and hourly fatigue.
The first is very straightforward: Double (or triple) your and your team’s hourly rates for design. If you are designing in stages, the beginning of each new stage would mark a return to design and then back again to the usual rates for production. By doing this, you will show your clients that the most valuable time (though certainly not the majority of the hours spent on a project) in your business is design time—figuring out what “it,” or the vision, is. Your client will know that extending the design time will become very costly very quickly and, therefore, will be on your side about making effective decisions as expeditiously as possible. It’s important to note that the pressure of increased rates will also demand that you offer your best ideas first.
The second step is to change how you bill for the hours worked. You need to charge for hours over the course of a project in order to pay for the overhead allocated to the job. But while overhead is an even number, hourly billing fluctuates—and you do not have the ability to reallocate resources (staff, time) to another, busier area until the project picks back up and then move the resources back.
To solve the problem, estimate hours and then create a buffer. If you believe that hourly billing for a project will be approximately 100 hours of total team time per month, billed $150 per hour, that comes to $15,000 in fees. But rather than charge the full $15,000, you will charge, say, $13,500 per month—to be paid upfront to cover your risk. If billable hours end up totaling $200 per month, your rates will double, thereby incentivizing clients to stay within their allotted hours and compensate you for the inconvenience if they do not.
The trade will be perfect: slightly less income (but still enough) per month in exchange for a manageable workflow and guaranteed income; or far more income per month in exchange for the extra work and stress. This framework honors the variability of your design process while eliminating the possibility of being taken advantage of.
Are my fixes the panacea for hourly billing? Definitely not. But ensuring that you address the issues that prevent you from doing your best work while billing hourly is a worthwhile effort. In the end, it will always boil down to your two promises: that you’ll do only your best work and that you’re willing to stake your reputation on the work. If hourly gets you there, then I will never stand in your way other than to help make the solution more effective for you. Good luck.
Sean Low is the go-to business coach for interior designers. His clients have included Nate Berkus, Sawyer Berson, Vicente Wolf, Barry Dixon, Kevin Isbell and McGrath II. Low earned his law degree from the University of Pennsylvania, and as founder-president of The Business of Being Creative, he has long consulted for design businesses. In his Business Advice column for BOH, he answers designers’ most pressing questions. Have a dilemma? Send us an email—and don’t worry, we can keep your details anonymous.