The Biggest Mistake Interior Designers Make With Fee Setting

Hi Paul,
I know this post might be somewhat old, but I have been toying around with the valued based (flat fee system )for sometime now. I do have a moment of pause when I calculate a job. I belong to a designer networking group and everyone is scared of the flat fee. I agree that the trend looks like it's headed in this direction. The complaints from the other designers are substantial which are; I don't want do give up my discounts and all the money that I make on the side. With a flat fee do you give the client all your discounts or are you basing it on labor only. If you priced a job based on (small job) 8.50 a sq.ft What does that overall number include?
Joyce

Hi Joyce, Yes, many designers are worried about pricing with a fixed fee because there is more to the process than just calculating a number and giving it to a prospect. We developed a whole Value Based Fee System series that explains the questions, psychology, pricing strategies, etc. It's not a simple answer that can be answered without context. I wish I could!

Hi Gail,
What to do? I'm confused!
I've just passed my diploma and i'm thinking to start up my own business in interior design, rather than work for a company. I haven't had any clients yet, but when I do, I'm not sure what will be the best way to price a job. How will i know how long a job will take without any proper experiance, and not lose out. I love doing design work, but I'm not doing it for fun, I do want to make a profit. Would a hourly rate be the best way for me?

Hi Paul, It isn't easy to start a business without experience. I can't say otherwise. Do you have business experience? You should start with hourly, but I can tell you that you need to be aware that your clients won't pay for your learning. You can't know how long a job will take without experience. I learned by doing many years ago, and you'll have to do the same if you can't find a job working with someone else. It's really best to work with someone else for a few years before you strike out on your own. You're taking the hard route to do it this way. I have to tell you like it is. I've been where you are.

Hi Gail,



Thanks for such a quick reply. I have experience in the building trade as I used to be a carpenter, and experience in the home, but that's all. Is there a way i could price a job per square meter to start with? Would that work?

You could do that, and you'll need to ask around to find out a rate in your area. Since you're new to the business, it will be a real challenge to control your time. Recommendation. Start tracking your time from the beginning so you know how much time it takes to do different activities. Be really committed to this. If you don't know how much time something takes, you'll not be able to control your time. Watch the time drains, too. People, activities that aren't productive, etc. This includes email, etc. Hope that helps.

Hi Gail



Thanks for your help and advice, i have a better understanding on how to price a job now. My next issue is getting the customers in. I understand that marketing will take up 50% of my time, but i don't know who to target. Do i just go through a business phone book and contact every number in it? What would you suggest?



Paul

Hi Paul, you really need to identify your ideal client first, and then figure out where those people are, and who knows them. How long have you been in business and what kind of business do you want to build?

I am trying to understand how all this Social Media stuff works but find parts very confusing. For example, the above "#5 of 10 Biggest Mistakes Designers make with Fees" is an interesting thought but there is certainly no explanation given as to what it really means. Either that or I am just exceptionally stupid and cannot find it. Lots of questions on this site but not sure where the answers are. Perhaps this is all to entice people into paying for the monthly membership.
This seems the clever part - if something is done online, probably to quite a large audience, how can you rationalize such a high MONTHLY membership fee? I mean $37.00 is not a lot of money, it just seems to me a lot for a monthly online membership - not what I would call good value, but then perhaps that just me.
These sorts of websites can give some great info - some are free and some like yours give bits to hook people in to paying for the real goods, a great money maker for the website owners.
I, like many others, work as an independent Interior Designer and so any money going out is out of my pocket and I want to feel I am getting good value for my money. Sorry to sound so disillusioned by all of this, perhaps I am missing something but I just feel this is a great money maker for the owners. I understand making money is the point of starting a business, people just don’t like to feel as though they are being taken advantage of and I don’t imagine I am the only one who feels a bit this way.

Hi Deborah - are you new to DSU? We give lots of great information for free. If you haven't experienced that yet, many people choose to stay as members of our New IDEAS which is free - even in our weekly newsletter, we give great tips and advice that you can apply immediately. The Business Mastery Membership has nothing to do with this conversation about fees. For me to understand the problems that you and all of the rest of our designers are experiencing, I ask questions and provide feedback - maybe not immediately, but after I have time to think about the answers. Also, we'll be offering a free webinar on March 2 about fees and the free eBook we offered. We've done several free teleseminars. We have given several free white papers, we post free blog posts with helpful information if you look through the archives. We offered a free Interior Design Fee & Salary Survey eBook that took a lot of time to compile that information - it is free. When you get to know us, you'll find that we offer lots of helpful advice to the new and struggling designpreneurs. We want to help because I am an interior designer that has built a successful practice (still do some design with previous clients), and I found in the 23 years in business that no one was giving good, practical suggestions that could help me get where I wanted to go more quickly and with less trial and error (and costly mistakes). That led us to creating DSU. I wish we could do it all for free, but that would be like asking you to design because you love it...and it should be free. Does that make sense? We've actually helped our members get paid when the clients weren't getting paid. The advice we give does work, and it's like all things in life. You get what you pay for. Did you read the rave reviews? We're not perfect, but we do help people get results. Some of our members have said our $37 Business Mastery Membership is worth far more than they pay for it because I share hard-learned advice with no holds barred. We also have a monthly Q & A where you can bring your specific questions that I'll answer. We even have many members that have been in business for more than 30 years that say they learn a lot...I'll let them respond. Yes, we do have to charge. It costs money to operate this website and pay our staff, webmasters, tech support, salaries, etc. Are we getting rich? No. We're still investing in our business. We spend a lot of money to continue our education because that is what gives us the edge. We're really dedicated to making a difference in this industry. I'm sorry you're disillusioned, and it is fine that you're expressing your frustration. Is there something we did to make you feel that we're taking advantage of you?

All good comments regarding how to charge fees for services rendered. I charge hourly when working as a consultant for other designers or small services for clients that are not full projects. Otherwise, I have always used a fee based method which is very common in commercial design. Have never had a problem charging a flat fee or phased fixed fee. Clients like to know what they will be billed and hourly always leaves you open to questions about "how you spent your time." Also, one architect I worked for computed the interiors portion of his overall fee using square footage price so I have used all methods depending on the project.

One issue that still baffles me is why designers do not do proper programming before starting a project. It is vitally important to get all the information up front regarding scope of work and make sure the client is clear on what you will and will not do for the fee, otherwise you will get used and possibly lose any profit on your project. Yes, there are times to add services for free that are not spelled out in the scope as well as tell a client something they are requesting will be additional services. It takes common sense, belief in one's abilities, and willingness to stand firm with a client.....but this can only be done when it has been clearly spelled out in the beginning.

The comment about programming could easily be Mistake #11...mind if I add that to the list? Thank you for sharing your feedback. There is a great deal of resistance to offering flat fees, and there are many possible reasons. I'll talk about those in the March 2 webinar. I appreciate your comments.

OK...be looking for the next post for #5 on Saturday. More coming next week, too. I agree, Jacqueline, it is great to have such generous members sharing their experience. Happy Valentine's Day everyone!

About a year ago I switched from charging an hourly rate to a fixed fee. After attending a IFDA conference featuring the top interior design accounting firm I switched my methods. They suggested calculating your fees based on the project square footage and gave us a range of $4 to $10 per sq ft. He asked us to research past projects to determine where our rate would fall. I also change my rate based on the scope of the project. If it a large project I might even drop the price to $3.50. To pre emp change requests, I always build in choices with the presentation. It is imparative to be really specific when you're gathering information. That will also pre emp change requests. IE (the other day I did a presentation for a client and that's when she told me her husband was allergic to viscose). Now, I ask if anyone in the family is allegic to anything in the interview questions. My agreement is 6 pages long and pretty specific. I ask for a retainer when the client signs the agreement and invoice the balance over the next 3 to 6 months. Again, depends on the scope of the project. My final fee is typically paid before the project is installed but after they have made the big purchases. I also charge a mark up on goods. It isn't a perfect science but I can tell you that I have continued to increase revenue each year for the past five years and it has been completely referral based. Clients don't like being invoiced by the hour. Do we get hosed with change requests ocasionally? Yeah, but I'm shocked at how many ID are resistant to the idea. The longer you are in the business, you get wiser with managing that. I attended a class recently with designer from all over the country. When the conversation turned to fee structure and I explained what I did, it was met with almost outrage and complete resistance. It may not work for everyone but my numbers speak for themselves.

I work in a similiar way. I never never charge by the hour. I feel like its asking for trouble. This is a scenario where clients will question every bill and give you a "While you are at it" distractions. I charge a flat fee based upon the scope of the project and bill in monthly payments. If the project was estimated to be period of six months then it six payments. I also charge a mark-up.

If anyone chooses to do it this way they find that one; you'll be able to discuss budget openly with the client this will determine if they can even afford your services and it will also give them a realistic idea of their own finances hence you won't run into your bills not being paid. I read another comment on this post where someone charged the customer for mileage. Wrong! That is apart of your cost of doing business and should be written off on your tax return under mileage. You wouldn't charge the client for the pen you use to sign the contract would you? IRS frowns on this!

The second thing you will find is that project tends to be on schedule because you have established a timeline with client and they know X amount of dollars are being spent over Y months. I find that I also gain a lot of trust this way. If for any reason they bring in "Oh BTW can you look at..." This is an opportunity for me to remind them that the project is about XYZ room ..... I would also include in the same breath that we should set aside some time to talk about ABC room (referring to it as a project)

kldrohan I have never tried billing sq footage but I can go through a completed project to see if it computes to your figures

So then how do you arrive at your fee if it is not based on square footage?

There are several ways...we'll talk about that on the free webinar. We'll send you an invitation if you requested our free ebook on fees.

Thanks Gail,
I did request the ebook and would like to attend the webinar. However, I have a meeting with this client on Monday morning. Is there any guidance you can give me off-line to help me prepare. Also, am I supposed to download the e-book? Do you send me a link?

Hi Cindy, we'll send you the recording, so no worries. Anyone that signs up will get that. The ebook should have come in a link to you once you signed up at the place on the home page where you enter your name and email. It is sent automatically. Let me know if you did that already and we'll make sure you get it. There really isn't anything to prepare for with the March 2nd webinar. I will talk about the ebook results and the changes in fees and consumer attitudes. I haven't finished my preparation since I'm also getting information from all of you that are commenting. It will be full of information for sure. Thanks so much for your interest.

Ray-Lee, I'd be curious to see how your job computes.  Do share when you have figured it out.
kldrohan

Kristin;

Try as I might the sq footage calculation is all over the place for me. It ranges from $3.57 to around $8 per sq ft. If I were to try this method; I would have to decide on a fixed price and charge that way. Next few proposal I do, I will price as I regularly do and keep the sq ft calculation in mind.

That is exactly where it should fall.  The accountant told us that it falls between $4 - $10 a sq ft.  I charge closer to the $4 (sometimes even $3.50 if it is a whole Mcmansion house)  for large projects and for really small ones $10.  There is of course the PITA fee too.  Gail, calls it something else, I think pain in the *&*7.  If I feel that they are going to be a PITA, then I price the project higher.  How do you calulate your fixed price currently?  I think that is what people really struggle with.  They may want to charge a fix fee but don't know how to calculate it.  Some try to calculate the number of hours it will take and multiply that by a per hour dolllar amount.  I've tired that.  I never charge enough.  I'm not saying this is a perfect formula, only a starting point.  I'm constantly tweeking and reevaluating it.  BTW, I only use this fee structure if it is full service design project ( which most of mine are). My contract
defines full service as providing a design study, computer generated space plan and rendering, full room specifications, and having it installed (that is the shorten version). 
Kristin

Thanks for sharing, Ray-Lee. I just figured one of my larger and more intricate jobs and it was over $8 per foot.

I am so interested in having more input from Kristin and Ray-Lee. Thank you for being so generous in your comments. Please continue, both of you, to comment on this question. I really believe it is better for everyone in our industry to be open and share. If I discover myself doing something right (I realize how plain lucky I have been in the past) I will pass it on as well!!! So far I can't say I have.

Also, Gail, I am so looking forward to the webinar you mentioned above during which you will discuss the professions to avoid, asking the right qualifying questions and having the right process. Please sign me up!! Also can hardly wait for the next Value Based Fees Class.

Excellent. This is so great to get everyone's feedback. It will really help our industry get out of the time commodity business. I greatly appreciate your participation.

Thank you for your comments, and also, thank you for sharing your knowledge. I've been talking about this with my designer friends for years, and yes, they resist change. There is a fear of exactly what you're talking about...getting hosed. If you've been in business long enough, it is time to overcome the fear and try it. Your results speak for themselves. Thanks for joining the conversation.

If an hourly rate is working for someone, and they are booked solid, there would be no need to change. You don't need to fix what isn't broken.   However, if you are not getting paid and don't have enough clients, then why not try something else.  To be perfectly honest, I hope my competition keeps charging by the hour.  
I love your topics.
Kristin
PS While attending the Green Design Summit last summer you did a story on your blog about my upcoming eco friendly furniture line.  I have recently launched it on my Decorati website.  I noticed you are writing for them now.  Do you know what writer covers new product stories, where I could forward a press release?  Thanks

Thank you so much, Kristin. We're here to help! I am chuckling about your comment about billing by the hour. I'll see if I can find out who would be the person to contact at Decorati.

Thanks, I really appreciate you willingness to help.  It is refreshing.
I knew you'd get my hint about the hourly billing.
Kristin

My pleasure, Kristin, and here is the answer for your question: sales@decorati.com. Let me know how that goes. Happy Valentine's Day!

Thanks, I'll let keep you posted.  Let me know if you ever need me to participate in a round table discussion of Fixed Fees.  I'd be happy to share my experience with it.  I've loved following the process starting with the survey.  So, many of your topics have paralleled my evolving business.  Since I work on my own, I continue to use DSU for mentoring. Thanks for what you do.
Kristin

That would be great, Kristin. We are doing group coaching sessions with our Value Based Fees class, and I'd love to have you on one of those calls. Pat will be in touch with you. We're so glad that we're able to help you, and thanks for keeping the conversation going. OK everyone...Kristin is sharing the love for Valentine's Day! Share your thoughts and question?

I love to help. Kristin

There can be a disconnect between clients and designers and what each expect in their business relationship...as others have previously observed. Yet there is a way to close the gap and that is by working closely with the client to define expectations and project criteria right at the start....before the contract is signed, before running to the bank with a check in hand.

Forget about by-the-hour. Forget about "value" pricing or cost-plus. One can't even put a dollar sign to a project, no matter the method, until all the criteria are well established and all parties agree to some scope, to certain expectations, to a number of issues like schedules, projected costs. Its like a blind date. You have to get to know a few things upfront if there is going to be a second date or a third.

Designers often jump too quickly into work + clients are way too anxious to get underway and neither spend adequate time to determine if this client/designer relationship even will meet each others expectations and/or the project is even appropriate to undertake. IDs need to slow down before speeding up especially in those very first critical steps. Just my opinion.

I totally agree. The expectation setting is one of the most crucial parts of establishing a good relationship with the client, and is an art form. I'd love to see posts about what are the most effective questions you've used as well as other designers, too. Thanks for commenting. It's great to get this conversation going.

Much has changed in the Home Furnishings and Professional Interior Design Industry over the past 20 years that I have personally observed. Most recently the down turn in the economy has really forced clients to look for the most style for their money and best quality value.
The majority of the Home Furnishings main stream clients are not looking for the quality level our parents looked for. Our generation has become a disposable generation. If they can get 3 to 6 years out of a sofa that is great, they are not looking to have it reupholstered they are looking to replace it. They are also not looking to pass down their fine quality dining or bedroom set to their children. This has become a fast paced changing world when they get tired of the style they will dispose of it and look for something new. That is why most of the Home Furnishings sold today are coming out of China. A good portion of the Home Furnishings clients will get inspired by a House and Garden TV Show, go on-line and order a room full of furniture from Pottery Barn, Crate and Barrel, Restoration Hardware just to name a few. Another portion of the market will visit a local furniture chain Raymore & Flanagan, Ethan Allen, Thomasville just to name a few, work with a staff decorator/designer that might also come to their home and purchase a room full of furnishings. To the trade only is now open to the public and have decorators/designers on staff to service the walk in business. Billions of dollars each year will be spent on Home Furnishings and none of these clients paid a dime in Professional Interior Design Fees. The client today wants to purchase their products at a competitive retail price. All of these Home Furnishings Retailers purchased the product at wholesale and sold it with a gross profit of at least 50%. In most cases the shopping experience met the client’s expectations. Yes, I know this is not the Professional Interior Designer client! But why is that? Is it your choice or the future of this business?

Yes that high end high quality provide me with your credentials, signature style and service the hell out of me client still exist but it is a very small and shrinking part of the overall market. Sure another very small portion of clients today might be interested in built in cabinetry, architectural changes, structural elements, lighting plans, cad drawings and other Professional Interior Design services that will require fees for time. But today there is less and less of these ideal clients for the growing Interior Design Industry to fight over. With all the Designers to choose from the client will be able to interview more, negotiate more and demand more for their money. If you find yourself educating (arm wrestling) your client about the difference between a Professional Interior Designer and a Professional Decorator and the value of your credentials you most likely already lost the sale. Let the best Designer/Decorator win! So what opportunity does that leave for the rest of the Professional Interior Design industry?

If the Professional Interior Designer of today is going to compete for the larger share of this Billion Dollar Industry they must have a competitive business model. A business model that is Profit Driven and not fee based. They must be able to provide a competitive retail price to their client that does not get into a fee conversation. They need to have a conversation with the client about how they can provide them with better quality, greater value, more style, extraordinary service and for less money. This is what the consumer of today is looking for. The consumer of today also prefers to work with a National Brand Name because they want financial security and piece of mind when making a large purchase.

Professionally Trained Interior Designers of today in order to compete in this new world must be aligned as a group to negotiate with vendors for the best wholesale prices on the products they will provide their clients. They must have systems in place to ensure a consistent and extraordinary client shopping experience so they can benefit from repeat and referral business. They must have a strong marketing plan to generate an abundance of client leads and not live in a world of scarcity. They need to network with their piers and not feel as if they are collaborating with the competition. This synergy of working with your piers, sharing what works and having a team to talk openly about challenges and opportunities has enormous value especially for the home based independent business owner. Staying current on design trends, manufacturing processes, technology and always challenging yourself to learn the latest and greatest is also really important especially in this industry. Love the business you work in!

I think you've said it very well, Paul. It is really hard to compete using the old ways of doing business. As Einstein said, "Insanity: doing the same thing and expecting a different result." We can't put the genie back in the bottle, the Internet is here to stay, the Recession's aftermath will be with us for the long haul, consumer attitudes have changed. This is a global market and it is affecting us locally. We have to look for different ways to make this work for the client. And most importantly, we have to focus on what the clients want and are willing to pay for and give it to them the way they want to be served. You are absolutely right...we have to offer extraordinary service, or why should the consumer be willing to pay for it. If we continue to try to compete based on our hourly fee and selling products, we are fighting a losing battle. We must change our thinking, services and behavior. Don't just think outside of the box, change boxes!

After 12 years of business I have never, ever had so many problems with people paying my hourly fees. I know I am losing jobs to people who actually charge more but charge differently and of course, to those who don't charge for certain services or time (drives me mad) or just charge less per hour. Why can't we all just have one way of doing things to allow people to choose us based on how we click with them and on our skill and experience?! I have been trying to create a system of charging a flat rate for all projects but I just can't see how to avoid the final payment problems, no matter how clear you are or if they sign a contract or not. How do others do it? Why do so many other people (professions) charge by the hour and make it work? Lawyers, consultants, computer technicians, etc. We accept that! Why not for design and why less now than before?? Economy yes...but if they hire you they should pay, no? If the economy has hit you, don't hire me! Why do they always agree to paying xx per hour then flip out when you actually charge by the hour??? I'm sorry, but if I spend 20 minutes driving to your house or faxing the cabinet maker FOR YOUR PROJECT then why do I have to fight for that? It has to be done for the project to move ahead, if you're not doing it then it means I am for you. Why should I not be paid for that? Why is there even a question? What in the world is the magic formula to charge the best and safest flat fee? How do you get them to actually PAY for the overages they have previously agreed to? I am so frustrated I hardly know just one good question to ask. I am looking forward to everyone's comments. Gail, in one post you mention that there are "some professions you avoid", I think in the initial qualifying of the client, if I understand correctly. Could you please explain that? Thank you for posting this question.

I hear you and I can tell this really hit a nerve with you, Jacqueline. I have to tell you that I asked my attorney if he has problems getting paid, and he said yes. My plumber has problems, too. When I work with people that charge by the hour, I am also very aware of what they are billing, and it annoys me when I get billed for activity vs. results, too. We as consumers also have to be prepared to have a different conversation about how we want to work. What is the answer? It isn't easy, and it has a great deal to do with asking the right questions so you don't work with the wrong client and having the right process for explaining clearly how you work. We'll talk about this more in a free upcoming webinar. The date will be posted soon, and I will share with you which professions I avoid during that call.

You are so right! The big issue is being firm on the "while you're at" it requests! Need to learn how to educate clients up-front on how these aren't usually quick, easy, or "what's the big deal?"

Hi Amy, Thanks for your comment...and that is just one of many issues...stay tuned and keep checking back for more of these issues. Please invite your other designer friends to join this conversation. We have lots to discuss.