magazine | Oct 5, 2022 |
Are you leaving money on the table?

It’s the greatest of industry debates: What’s the best way to bill for design services? There may not be one right answer, but there are plenty of great ideas out there. We’ve tapped designers across the country for a survey of the hows, whens and whys of what they charge.

When it comes to design fees and pricing structures, there’s one thing that is certain: Every designer does it somewhat differently. For a broader look at the wide array of options when it comes to charging for your work, BOH spoke to designers from across the country, who shared their pricing strategies in order to paint a clear picture of how they bill at every stage of the design process.

INITIAL CONSULTATION
The first meeting with a client provides designers with the first chance to charge for their services—however, it’s not an opportunity everyone takes. The decision hinges on a number of factors, ranging from the depth of the conversation to simple personal preference.

Those who charge for their initial consultation tend to reason that doing so sets the tone for a client relationship that places value on a designer’s time and expertise. That’s true for Dallas-based designer Juliana Oliveira, who always bills for the first meeting. (“All consultations are paid consultations,” she says simply.) Charging for the initial meeting can also help screen potential clients and protect a designer’s time, says Rhode Island designer Janelle Blakely Photopoulos. A prospective client who balks at a consultation fee before the contract is signed, she reasons, is less likely to respect the designer’s time—or the bill she sends them—once the project is underway.

Deciding whether to charge for the initial meeting may also hinge on the meeting’s agenda. In Sioux Falls, South Dakota, designer Megan Peterson makes a game-time decision on whether or not to charge for an initial consultation based on the quality of the conversation. “I typically do not charge for it unless we get right into discussing design decisions,” she says. If the meeting is more of a getting-to-know-you interview and doesn’t go beyond pleasantries and a general discussion of her services, she keeps it complimentary. If, however, the discussion stretches beyond an hour into a chat about paint colors and lighting ideas—and especially if it feels like a one-time visit rather than a long-term relationship—she’ll charge for her time.

That same thinking guides Tiffany Thompson, though she arrived at a different approach: She charges for all of her consultations—$500 for a virtual call or $700 for an in-person visit—because she commits to delivering valuable design advice on every introductory call. The Portland, Oregon–based designer also takes calls that aren’t always a stepping stone to a signed contract, allowing her clients to use the time as either a one-off design-focused meeting to troubleshoot their concerns or as the entryway into a larger project—or for any other guidance that falls somewhere in between. “You might already have a direction [and know] what you’re trying to do, and you’re just looking for an expert to help you get there,” says Thompson. “For this hour, you get to pick my brain.”

Are you leaving money on the table?
A sitting area designed by Chanae Richards features one of her original paintings from a series called “Neighborhood Rising,” which chronicles streets of significance in the BronxRebecca McAlpin

DESIGN TIMe
When it comes to billing for design time, there is no shortage of variation. In the most basic sense, designers typically charge a flat fee or an hourly rate for their creative work, or a mix both methods. There are good arguments for charging both ways—and either way, you’ll find designers who say switching to one methodology or the other boosted their profitability and eased their stress. (And if a flat fee is loosely based on an estimate of hours it will take to complete a project, the difference between the two should, in theory, be fairly negligible.) While the fact that there’s ostensibly no right answer can be frustrating, it’s also an opportunity to try various models and figure out which one jives with your firm’s process, clientele and bottom line.

Different approaches may also make more sense at different stages of your business. Philadelphia– and New York–based designer Chanae Richards suggests that designers start out charging hourly, which develops a data set for how long the design process takes and leads to more accurate estimates on future jobs. But as designers accumulate experience, it takes less time to do great work—and they may end up billing fewer hours for the same outcome. Sticking with an hourly system can lead designers to punish themselves for their own efficiency, argues Richards. “I encourage new designers to consider that over the years, as you sharpen your skills, it will take less time to complete what’s being asked of you,” she says. When she found herself at that tipping point, she switched to a flat fee.

While there’s no one formula to calculate a flat fee—some designers charge by room or base their rate on the project’s square footage, others don’t—looking at past projects and digging through old billing statements and invoices is usually the best place to start. In switching from an hourly rate to a flat fee, Nashville, Tennessee–based designer Lori Paranjape used her prior experience to formulate a fee that reflected the way she works. “I did forensic accounting,” she says. “I went back and looked at what I had charged for my previous projects, and then I looked at them a little bit harder and said, Did I really charge for everything? Was there anything that went without payment? Am I missing anything? Do I need to pick up any hours here?”

Designer Jacob Laws, who recently relocated his firm to Charleston, South Carolina, also charges a flat fee based on the scale, involvement, duration and budgetary requirements of each project, a number that’s typically 20 to 30 percent of the overall budget. “Since each job is its own individual entity, we govern them accordingly,” he says. It’s a procedure that best reflects the firm’s in-depth approach to design, the designer explains, because most of his projects stretch for years on end and include a complete conceptual overhaul.“In addition to designing and sourcing, hunting or custom-designing what is in my mind’s eye, or even the in-person meetings with clients and on-site visits at least weekly with GCs and subs, there is three times the time spent behind the scenes with the backend operational stuff that keeps the pieces coming in and the lights on,” says Laws. “To put a time commitment on this level of work on an hourly basis wouldn’t be possible.”

Are you leaving money on the table?
Juliana Oliveira melds angular and airy elements in a crisp dining roomMatti Gresham

In addition to being compensated for the project-specific legwork, Richards has also set her fee to cover the disconnect she sees between hourly billing and the off-the-clock work designers do to stay abreast of the latest resources. “The time you spend at trade shows, researching, building connections with vendors—where are you accounting for that in your hourly work?”

But designers who favor an hourly charging structure have their reasons for loving the clock. For one, the meticulousness required to charge for small time increments becomes a valuable way to ward off scope creep. For another, a well-kept timesheet is a useful tool for putting clients’ minds at ease when they begin scouring invoices. Maine designer Linda Banks charges hourly for all things associated with the execution of the project—including studio time, schematic design and procurement—and tracks her billable hours through the Harvest app, which then automatically produces line item invoices for clients and for bookkeeping purposes. For her, the switch from a fixed fee to an hourly rate was a welcome relief. With each unique project, surprises can throw a wrench in the works of even the most well-constructed flat fee, she says, and she has found that she prefers an hourly fee when accounting for additional work. “Back in the day, we used to do a fixed design fee, but it always led to other things,” says Banks. And if switching to hourly billing has not exactly eliminated scope creep, it does ensure that the firm is compensated fairly for the work without needing to renegotiate any contracts or agreements. That lack of friction has been a boon for Banks, especially when it comes to project management—and it is easy for her clients to understand, too. “There’s so little design in a design job,” she says. “Most of the work is the execution of it. We have to order things, track things, fix damages, meet with clients, travel to jobs—all things that take time away from other paying activities. So when we started charging for those, most people understood it.”

In addition to how you charge for design time, how much you charge is just as open to interpretation. Rates can vary wildly. Based on a 2021 study conducted by BOH that surveyed designers across the country, typical hourly fees range anywhere from $150 for one Denver firm with no budget minimum to $425 for the principal at a veteran Chicago firm with a budget minimum of $300,000. For firms charging flat fees, designers reported minimum budgets of anywhere from $30,000 to $400,000, with fees clocking in at 15 to 30 percent of the project’s total budget.

Are you leaving money on the table?
Inspired by a visit to Yakushima, a deeply wooded island in Japan, Tiffany Thompson designed this moody bathroom to catch the light in surprising ways and accentuate seasonal shifts Marni Mervis

Designers who bill hourly also need to set rates for their team members. After transitioning away from a flat fee, Boston-based designer Katie Rosenfeld set her own rate as the highest within her firm, followed by her team of interior architects and experienced designers, followed by the junior versions of those positions. “It took years of doing a flat fee and losing my shirt to make the change—I was spending so much time on jobs and not making meaningful money,” she says. “My bookkeeper finally said, ‘This makes more sense for your business to grow,’ and he was right.” By quantifying her team’s time (and linking it directly to the firm’s bottom line), the business quickly started turning a profit.

There’s also an argument to be made for charging the same fee for everyone. In Seattle, designer Brian Paquette started out billing different rates for each of his team members, but soon realized the approach made his bills unnecessarily complicated and detracted from the firm’s earning potential. “This was when it all started to get muddy,” he recalls. “There were three different hourly rates for the people working for me, a couple of different markup rates—whether it was product, services or shipping—and then an administrative fee. That was just an absolute nightmare.” Paquette decided to continue billing hourly but charge the same rate for everyone on his team. As he explains it, his team members’ skills complement one another’s strengths and weaknesses—some are designers, others specialize in project management—and it requires their combined efforts to facilitate a smooth process. Plus the shift made things more straightforward for clients, who no longer valued Paquette’s time more than another team member’s. In short, his new hourly rate represented what it would cost for his team to get the job done

TRAVEL
While the pandemic has made it much easier to take on jobs remotely, there are some tasks that require boots on the ground. Designers who bill for travel have the option of either invoicing clients for their various travel-related expenses (flights, transportation, lodging and so on), charging clients for their time during the trip (whether that’s regular billable hours or for a lower travel rate) or both. Rosenfeld, for example, charges at 50 percent of her billable rate for travel; Paranjape either bills a special travel rate or negotiates the cost of travel into her flat fee, then requests reimbursement for travel-related expenses. (In short: If you are not passing your travel costs along to your client yet, it’s time to start.)

But what constitutes travel, anyway? A project could be in your hometown and still take 45 minutes to drive to the job site. If you’re making the drive twice a day for three weeks straight, those hours can quickly add up—and so can transportation costs, especially as the price of gas remains high. For more and more designers, there’s a cost (whether it’s an hourly rate or a mileage-based fee) associated with spending more than 30 to 40 minutes in the car to get to the project.

PROCUREMENT
The phase of the design process that involves finding, ordering and sourcing product is often the most complex and labor intensive, prompting some firms to devote a special team member or department to procurement—and in some cases, additional fees or alternative pricing structures, along with a markup on products. What exactly that looks like, and where the added fees are applied, differs from firm to firm.

Rozit Arditi charges her clients separately for the design phase and the procurement phase of each project, with fees for the former covering inspiration, schemes, CAD drawings, budgets and renderings, and the latter covered by a markup on products once purchasing begins. The New York designer also has it written into her contract that the firm will charge an additional design fee if the scope of work changes during the procurement phase or the client delays the project—a response to the unpredictable nature of this phase of each project, which she’s found is often subject to shifting lead times that are out of her control. “The design phase encompasses a completely different set of deliverables than the procurement phase,” she says. “Breaking up these two phases made the deliverables and the expectations clearer for both parties.”

Pandemic-era supply chain disruptions, including rising freight costs and material shortages, were what finally inspired designer Linda Allen to adjust her pricing structure. The Las Vegas–based designer found herself consistently forced to re-select products and quickly realized that her flat fee was no longer adequate amid this new facet of the job that was taking up so much of her time. Although she still charges the same flat fee for design time, Allen now implements an additional hourly fee for shopping and sourcing products, then charges a percentage on the cost of sourced goods for related follow-up—and she’s found that clients, now well versed in supply chain issues themselves, have been understanding of the policy change. “Clients are more open to it now because they’ve all been personally affected by freight logistics,” says Allen. “It’s easier to get an hourly rate for product procurement than it was before the pandemic, because it’s global. When people are personally affected, they’re like, ‘I totally get it.’”

While a markup on products is sometimes seen as a way to offset added costs incurred during the procurement phase, Amanda Raymond says the changing climate around trade benefits has prompted her firm to reconsider its pricing structure in recent years. As well-known retailers increasingly began to offer the equivalent of trade pricing to the public, either through membership programs or promotional sales with deep discounts, she no longer felt that the margin she was making on certain projects was fair compensation for her services. Instead of relying on a markup to cover the time she spends on the procurement phase, she decided to bill for the costs of all of her services in one fee. “It was becoming more and more apparent that [the margin we earned because of] our trade discounts was not supporting our business model, our overhead and the salary we knew we should be earning,” says the New Hampshire–based designer. “With a creative fee, we know that we have a fighting chance to be able to make that number. If clients are buying the few items that are trade only, where we do get significant discounts, then we are able to pass some of that back to the client, which is a win-win.”

Are you leaving money on the table?
In a neutral bedroom by Amanda Raymond, blue artwork and accents mirror the view of the lakeJohn W. Hession

PROJECT MANAGEMENT
Once the designs have been drawn up, the furniture and decor has been ordered, it’s finally time to bring the vision to life. For designers, this time-consuming step often comes with a host of new costs, and may call for a separate fee to cover the plethora of challenges that pop up during project implementation.

Paquette provides a standard example of what this typically looks like, charging a flat 30 percent markup on everything purchased—including shipping costs, workroom charges for custom pieces or reupholstery, all subcontractors and installation—to cover the firm’s time managing the project. Richards adds a similar percentage-based management surcharge to cover all services her firm oversees and executes, including painting, refinishing, installation and restoration. “Designing it is one thing. Managing the moving pieces to get your dream space takes time, attention and the expertise to know when something is off,” she says. “Clients we work with understand the value in that level of service.”

When it comes to the final installation itself, some designers also opt to charge an individual fee for the last push to the finish line. For Banks, that means instating a flat day rate for installations based on the cost of a 10-hour day—a decision she arrived at knowing that this part of the design process typically means several days out of the office, with workdays that demand early starts and late nights from the design team. “People who are sophisticated, successful people in their own right are happy that we can do that for them,” says Banks. “They can pay us to do that because they have to do their own jobs.”

Homepage photo: A floral wallcovering lays the foundation for the matching accents in this bedroom by Katie Rosenfeld | Read McKendree 

This article originally appeared in Summer 2022 issue of Business of Home. Subscribe or become a BOH Insider for more.

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