My clients want to buy directly from vendors to get the credit card points. They understand that some of our firm’s revenue comes from the sale of product, and have suggested a much higher hourly rate in lieu of paying my markup. Based on my projections, my firm would land in the same place financially for the project—and we may even come out ahead of where we would have. But I’ve been reading your column for a long time, and I feel like you might discourage me from changing the way I charge to suit the client’s interests. What do you think?
Dear Paradigm Shift,
Epictetus was right: “We have two ears and one mouth so we can listen twice as much as we speak.” And you are exactly right, too—it is up to you to determine how your design business runs, including how you make your money. That said, when your client shows you a better way (and in this case, I believe they have), you might want to pay attention.
Here is why their suggestion is better: They are distinguishing what you cost from what “it” costs and aligning incentives as they should be. Rather than making more if your client spends more on product, you will get what you need for the work that you do. (Whether or not hourly billing is the way to go is debatable—perhaps a monthly production fee and a day rate for on-site work might be more appropriate—but that can be the subject of another column.)
A few notes, though: First, remember that your business process is a Slinky. Be it compacted or twisted and turned down the stairs, the toy is the same unless a rib is bent or snapped. So, too, with your design business. The object is to never say no, and instead always find a way to say yes—but on your terms. For example, if you give up revenue from product sales, it truly has to be for the betterment of your Slinky. Otherwise, please do not do it.
Second, I strongly advise you to consider this a permanent change, and not flip between product sales and straight hourly. I suspect that you are not yet fully confident in expressing that the number is the same regardless of calculation—and, more important, that the value provided for the amount paid to you is also the same. Whether calculated by way of markup or hourly, the amount you receive for production is what is necessary for you to manifest your ideas in their house. It is a known number with an assigned and acceptable margin (about 20 percent net). Your production amount is fundamentally different from what it takes for you to create in the first place. I have spoken about this distinction many times, so we will stay focused on production here.
To make any model work, you have to know what you need to feel valued and satisfied with your work. If that number is truly reflected in your calculations of hourly versus markup, you are in good shape. If not, you are inevitably gambling with everyone’s satisfaction. The calculation is very straightforward: Start by identifying how much you need to live the life you desire, and how much it costs to get that amount (your expenses). Add those together and then divide by how much you would like to work (how many projects). The result is what you need to be paid for each project. How you receive that amount is based on your process as a designer. Value delivered for value received, always.
One final thought. Regardless of who pays, you need to control the purchase, storage and ultimate installation of the goods. The idea that clients purchase and therefore take delivery piecemeal is a nonstarter. You have to be able to install in order for your clients to see and experience your work as you intend. While it might not be the entire house at one time, it most certainly is never piece by piece. Simply, if your clients could see what you see, they would not need you. Respect the fact that they cannot, and give yourself permission to present your vision on your terms and your terms alone.
Remember: A better mousetrap is a better mousetrap only if you can see its value and use it to make your design—and your design business—better.
Homepage photo: ©Tierney/Adobe Stock
Sean Low is the 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.