I’m getting really fed up with how the economy is impacting my projects. I’ve tried to tell clients that the prices we quote are subject to change, but even I find the fluctuation frustrating. You get a price from a GC, present it to your client, get approval—and sometimes in the course of just three weeks, the price has jumped enough that we have to go back to them for approval all over again. It’s not that my clients don’t have the money (most of them do). Their frustration—and mine—stems from the uncertainty and the fluctuation. Is there a way to simplify the process or alleviate the frustration?
Dear Seeking Stability,
There is a huge difference between price fluctuations and inflation. I appreciate your frustration and certainly can imagine your clients feeling like they are dancing on quicksand. I will answer your question in two parts.
The first is a message I have been preaching since Covid came to dominate all of our lives. What you and your firm cost and what “it” costs (the materials and labor for your project) need to be two completely separate things. While you might say your quotes are subject to change, you are also saying you are making money on those changes. It means you will make more on those price changes—most likely for doing the exact same work. No client is going to be happy with that result. The first step, then, is to separate your firm from the situation. You do that by charging what you charge regardless of what is spent on materials and labor.
Now on to the bigger issue: The Federal Reserve has been aggressively raising the borrowing rate since March 2022 (almost 5 percent), and the effect has been to significantly slow down our economy and thereby inflation. As an example, the price of lumber futures has dropped almost 70 percent during this time. No doubt, from late 2021 to early 2022, prices soared and inflation was incredibly real. Not so much today.
What you’re really talking about has everything to do with leverage. For almost 15 years, we have all enjoyed low interest rates, which never rose higher than 2.4 percent. Today’s 5 percent rates have not been seen since 2007, which means that there is an entire generation of business owners who were able to effectively rent money (or access leverage) for almost nothing. Taking this for granted is very tempting if you ignore history—and why wouldn’t you if you’ve never experienced the true cost of leverage in your career? And it is not like we went gradually to 5 percent—that type of increase in just over a year is a nanosecond if you have never experienced the cost of leverage before.
In response to this proverbial punch in the face, all of your vendors are trying to pass this new expense to your clients and are asking you to fight their fight for them. The easiest solution is to simply not. However, in reality, you are going to be hard-pressed to find vendors that are not leveraged, so you might have no alternative.
The next-best answer is to ask your vendors to extend the duration of their pricing—and guarantee that quote for a specific period. It will likely mean higher prices for your clients, but it will also offer certainty, which is what you seek on their behalf. That, of course, leads to the age-old question as to what your true purpose is—to provide amazing, transformative design given a certain spend, or to be a value engineer trying to “save” your clients money wherever you can? You might have gotten away with the latter before today’s chaos, but no longer.
This process is about clarity and consistency, not transparency to save a buck. Those vendors that will extend their offers are likely the ones least susceptible to the cost of leverage. You should honor the consistency they’re offering, even if it means that your clients pay more for “it” but the same for you.
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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.