Interior Designers – Are You Charging for Results or Time?

I find with contract work in the hospitality & healthcare situations because there is a written contract that it is no problem about the fee. But with much smaller jobs, i.e. 1 or 2 rooms, clients are harder to sort on fees. It is not so easy to give a fee if one is not sure how long it will take to achieve the desired result.

That is one of the challenges especially if you are used to dealing with larger projects where the work is predictable. How have you handled the pricing on the smaller jobs?

Very much looking forward to being a part of the upcoming Oct 21 class. Please put me on the list to send details. Thank you.

Hi Gail;

Although I’ve signed up for a couple of your classes before, I wasn’t able to attend due to work conflicts. I would like very much to attend the upcoming class on value based fees, since I’m sure I’m not alone in the design world of having trouble with this! I'm located in Toronto, Canada, but the comments above sound very familiar to what I hear in my city, so I think the issue is certainly universal.

I’m actually not sure what you mean by value based fees...does that mean flat rate estimated up front? This scares me since every time I’ve charged a flat rate, I end up spending more hours than I estimated to the client. Flat fees to me are very worrisome, if I estimate the hours correctly they tend to be a big number which the clients find scary. So I then lowball them so I won’t lose the job, but then don’t end up getting paid for the time I’ve spent which is frustrating and demoralizing.

Most of the time I charge an hourly rate plus a markup of 23% on my cost of goods sold like furniture and fabric and carpets, etc. But we also charge the time it takes us to source the products and co-ordinate deliveries and installations, so net net, we end up with a gross margin on most jobs greater than 37%. But in the economy that we are just climbing out of, I have started charging a flat fee for things like designing a kitchen & bathroom which I can do in my sleep ($1,500 for a kitchen where we're not moving any walls or $2,500 if we are moving walls or relocating the kitchen to another part of the house). But I'm also a cabinet dealer, so I make up profit by selling the cabinets on which I make more than if I were working with a custom cabinet maker who typically can only afford to pay me a 5% or 10% commission.

I have stopped using my contracts and started issuing a letter stating what we have agreed to do for what price at the beginning of each job, because I find that I'm not consistent from job to job so that I don't lose a job due to the client's sticker shock.

Wow. Clearly this is a big topic. I look forward to the class as well. Will you announce the time next week?

Hi Robin,

It's very clear that this is a huge issue in the industry, and guess what, it is global. Guess what else, many industries that provide services have the same issues. We'll send out information on Tuesday about the class. This is an introductory course and includes two case studies and a two hour session with Q & A (with me). We'll be offering a longer series in January, and that will include more Q & As and additional materials. Thank you for attending our other classes, too. We will have MP3 recordings and transcripts so you won't miss anything except the live Q & A sessions if you can't make the times we have scheduled. The first case study is on October 21st at 1 pm Eastern.

Thank you very much I am looking forward to the class.

I have wrestled with every single scenario that was listed. I opened a fabric store in April, with overhead, and I'm am so afraid that if I charge a fee they will just go the the nearest large chain store and buy their fabric. I'm working 24/7 trying to design everyones projects. I also have issues with "designers", you know the kind that just woke up one morning and decided they could be a decorator, coming to my store and having me do all the figuring, designing, schlepping their projects to and from my workroom, using my books and samples and expecting to pay wholesale for everything. They are getting paid by their clients fees for my designs! And worse, taking credit for the beautiful work. They also get mad if their customers come in and buy directly from me and expect me to give them a commission! I need help setting a reasonable policy for fees and designers. Woo! It felt good to get that off my chest.

You do need help with this, don't you? Are you charging a design fee that could be applied to the purchase? It sounds as if you need to have a written agreement with the designers. This is more complex than can be answered on the blog. You might consider building in a commission for them so they get compensated, too. If they are doing the marketing of your services so you don't have to look for clients, there is a value to that. I think you can find a win-win in this scenario. We're offering a value based fee class coming up later this month and we can talk about this on the Q & A.

My peer group here got into a discussion recently about fees with product sales. Most of the very talented designers were charging much less total hours billed but were doing loads of business with furnishings and other services as sales. I have always been willing to charge for my time but I am trying to re-evaluate how I work these days. There is much more discussion with contracts today.
Biggest frustration:
I have had issues with getting my final full payment on a few jobs. I do take a retainer up front but sometimes clients think that is their money to take off or apply at will, vs. as in my contract "at the completion of the project and will be applied to the final billing."

I've had that same problem with clients, too. I used to apply half of the retainer to the first part of the project and hold the balance until the end. I still had a few that wouldn't pay the final balance, too. Very frustrating. The fact that this is one of the biggest areas of conflict for most designers (and all professions that pay hourly - attorneys and architects have difficulty getting paid sometimes) means that we have to learn a new way of working with our clients.

I am sure that things in South Africa are not very different to around the world.

I have been in the industry for 19 years and am the regional liaison person for the IID (The South african Institute of the Interior Design Professions)

I always quote a client for an initial consultation based on an hourly rate - should the client be unhappy about paying this or starts negotiating at the this stage - I walk away. If my invoice for the initial consultation is not paid within 72 hours - I walk away and put the time spent on the consultation down to 'school fees'. I have learnt through the years that this initial interaction sets the tone for the rest of the project.

I make it clear to my clients upfront and in their contract that I charge recommended retail prices on all goods and services plus a 15% coordinating fee on the project and that any trade discounts are not passed on.

I work on a reasonable hourly rate for design and site management and make sure that the clients are billed regulary - there is nothing worse then receiving a bill for hours spent. If you bill your clients regulary they know right from the start what your time is costing them. I always ask myself when presenting a time based bill if it is fair and reasonable and would I pay it.

I do not charge my clients for time spent sourcing product for a project as I make my markup on the said item and I still charge a 15% coordinating fee on the project.

The biggest problems always come in on drawn-out contracts. Its all well that you charge a deposit but often clients will hold back payment of the balance until the project is completed and to their 'satisfaction'. I now try to get full payment as each phase of the project is done.

I let my clients be aware of all problems and try not to give unrealistic delivery dates unless my suppliers have agreed to do all possible to meet the deadline.

Thank you for sharing your experience from South Africa! It's great to have a global conversation.

You are so right about the initial consultation. In fact, for the last several years, I tell the clients that I don't charge for a meeting in the studio to see if we're a good fit, but that I charge for the time at their home since we will be discussing options.

I also billed on the 1st and 16th so the invoices weren't as overwhelming.

Yes - drawn-out contracts are an issue. If it relates to construction, it is important to be prepared with the conversation about the value you bring to the job.

Educating the client is an ongoing process, and one that takes time to develop for each firm.

Thank you so much for your input!

Gail

I can see I'm preaching to the converted in your case, so best of luck on the 14th. If I was anywhere near Colorado (I'm in Cambridge, England!), I'd come along to support you.

I ran another of my 'Pricing By Value' Workshops here yesterday and the feedback was awesome. This has to be the way to go!

Faith

I'm sure Gail will explain to you, YOU don't need to explain your value to your client! You help your client understand the full value of having their problem fixed - so that they can explain it to themselves! You then base your fee on giving them a huge Return on Investment for delivering that value, whilst at the same time you are realising that you've rarely done such a profitable deal!

That's WIN-WIN!

And if you agree everything in the "Sales Conversation", there's never any room for argument. You'll know how to agree that the goals were achieved, you'll know what's within the scope of the project and what isn't.

And asking for at least 50% before you start ensures both commitment and great cashflow!

I hope this helps.

All the best,

David

Thank you for sharing your comments from over the pond. It isn't any different anywhere. Clients want to pay for results and not time. I struggled with this myself, and that's why I am addressing this issue. We are changing the date for the class and it is by teleseminar, so you could attend if you choose.

Created a CEU on just this topic some years back. So long as designers don't mind having their income restricted by clocks and calendars, and don't mind being seen as a commodity, hourly fees may be the way to go. People who have 'jobs' get paid by the hour. Those who are 'professionals' and provide services and expertise based on knowledge and solutions that provide value to clients can, and do, bill based on the value they provide.

So true, Terri. That's why value based fees may be a reasonable option. We're doing a class on this on October 21st.

There is much more sensitivity and scrutiny today. We're in a different time and still have done a dismal job of explaining our value not to mention discussing how we charge. I can't say I have experienced scenarios such as you outline but I can say:
I'm not cutting my rates
My clients don't yell at me or mark up my invoices
A clear vision of your profit and fees is necessary with an well stated agreement.
Gail, I don't know what 'value based' means explicitly but I am interested in learning more.

I agree with you about the sensitivity and scrutiny. If all designers answered this question, I would bet that 100% would say that they have had questions if not concerns or conflict over time bills. Also, I know when I was practicing full-time with staff that I would look at the time bills and discount them when I felt they were too high. So, in actuality, for many people the hourly rate is not the true hourly rate. Our fee survey which is coming out next week (sorry for the delay everyone) shows how much of a challenge the fees are with clients.

Even clearly communicated fees at the beginning of the project can still create some stress with the clients when they are in the beginning stages of a project when the time is significantly higher.

Thanks for your input as always.