Project 365: January Mosaic (Photo credit: Greg McMullin)
I have worked on, sold and managed many projects in the corporate world as well as in the interiors world. It strikes me that the nature of ‘projects’ is very similar across all industries.Often how you propose to engage with the client to tackle the project will win you the business. Price and competence are obviously important. New clients might not trust you enough to feel they can commit to your services for the full duration of the project; so bear that in mind. Sometimes elements of risk in the project are high or unknown – you must deal with these in you proposal/pitch
(Nugget 1: By highlighting riskswhere others haven’t could win you the project on the risk issues alone).
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Anyway, the point of this article is to summarise different approaches to charging for projects. You’ve probably heard of most of them but maybe not all:
1. The design fee
“I’m an interior designer and I provide a fantastic service. I charge you for my skills and you benefit from me being able to buy things for you at trade price, I don’t make a profit on the things I buy for you”.
This is a fair and honest pitch. Well done, I’d think about buying from you. It probably won’t differentiate you from anyone else though.
2. The markup
“I’m an interior designer and I provide a fantastic service, I’m going to do it for free for you though. I have to make a profit so I’ll make that on the difference between trade and retail prices for the things that I buy for you.”
I really don’t like this and yes I know it is widely used in the industry. Firstly your service is so good that you are giving it to me free? Really? Things that are given away free are generally valued very lowly in business. This approach might appeal to a cash strapped buyer though, so don’t dismiss out of hand. Secondly can I trust you to charge the fair and correct margin? Probably not (I don’t know you, how can I trust you?), you probably won’t have any degree of transparency on your purchases and their true retail and trade prices. Besides a savvy client can get many things at trade price anyway, buying is easy (ish) – selecting and creating is more the art, that is where the value lies.
3. Fixed Price
This is the best way to make money. Read on, I know you don’t believe me!
Many of the top consultancy companies in the world manage their fixed price projects very, very carefully and in great detail. They win the projects essentially because of their low price BUT that price is conditional upon lots of conditions. Once those conditions cannot be met by the client then the price goes up (a lot). After committing to a company the client finds it very hard to pull out later and change suppliers. In any case they share the blame for not properly specifying the project at the outset, so in itself that really is not a reason to think of ditching the new supplier.
(Nugget 2:) For this to make money, lots of money, you have to really understand what you have to deliver, in detail. You have to know all the risks and where things can go wrong and how you will handle those eventualities. You have to be clear about what is and what is not included. (Of course add-ons for what was not originally included will cost a LOT, later on when the client changes their mind!)
This relies on you being organised and the client less so. In the corporate world many buyers are themselves now very organised and so this approach to projects is consequently becoming less profitable. These projects often become acrimonious unless one side gives in over points of contention that arise “I thought XXX was included” – you’ve been there.
Remember that when you are extracting every ounce of $/£ out of your client, at least be nice and polite and friendly about it. Seriously.
Of course if you’re new to the industry you might just go for this approach to win the business and you MIGHT just strike it lucky based on little or no detailed preparation. Or you might not.
4. Phased Approach
This works best where there are unknowns that the client appreciates exist, it’s a good and fair way of making money.
You identify the phases of the project: scope, functional design, technical design, aesthetic design, etc – whatever you choose to call them are unimportant.You come to a financial arrangement for each phase before it happens. When the first phase finishes you definitively quote for the subsequent one. You might have earlier given an indication on the cost of all phases but you make it clear up front that you have a chance to revise prices as some of the risks become more clear.
The great things about this approach are inertia, deliverables and risk.
‘Inertia’ because clients are unwilling to change suppliers unless really annoyed – in which case it’s probably a good time to move on as you’ve messed up and lost their trust.
‘Risk’ because you MUST plan for all risks in this approach. Your prices include the risks, you say you are charging a lot for phase H because of risks X, Y and Z.
‘Deliverables’ because when you revise (typically up) the cost of a subsequent phase it’s because the deliverables have been changed by the client (no matter how small the change).
Oh and of course its easier for the client to commit to small sums of money rather than the whole thing.
5. Mentoring
Here’s one you probably haven’t considered.
Sometimes you just know that a client is fishing for ideas for their project. You just know they are going to do it themselves. (Nugget 3:) Well if you know that then why not tailor your proposition around that fact? “Look Mr X, here are the 8 phases of an interior design project, you can probably do much of them yourself but you are not experienced. I am. Let me work with you on a half-daily basis to help you along in the various stages. If there’s one bit you are not happy with like instructing builders or architects I can do that bit for you”
“I really like this approach,” says client A. “I’m not a designer but one day might like to be, it can’t be that hard and yes I know I don’t yet have all the skills, so having someone to help me along would help.”
Of course many clients will find their project too time consuming or their skills lacking. That’s fine though because they have already committed to you when they realise that and so you will be there to take over and finish it. At a price of course!
The secret of this one is to snare the project that others have no chance of winning because of their approach.
6. Selective Phase Bidding
I don’t like this one.
You essentially bid for just the phases that you are expert at. Essentially if you do this you will rarely win.
Many clients do not want to deal with many suppliers, they want one monthly invoice.
Yet you might not feel comfortable to handle all aspects. The solution is partnership with another supplier. Partnerships are fraught with danger but can sometimes work out well. (Nugget 4:) Make sure you work with someone you trust and make sure they know that partnership involves reciprocation ie they have to get you involved in their next project.
7. Capped Price
“I will charge you based on my time and the cost of the materials. However you have a budget so I promise I will not exceed it.” Crazy, don’t get involved in this type of project unless you are desperate. How do you benefit when you are taking on all the risk, this could lose you thousands.
8. Floor Price
This sounds more like it! A minimum price! However you have to sweeten this with discounted rates above the floor price so the client understands that if the floor is exceeded then you are making much less than you normally do and that you will strive to avoid that situation happening as you want to only do profitable work.
This one can work well, get your numbers worked out before you start.
9. Time Boxing
This is a great approach for the creative bits of a project, less so for converting your designs to their built and installed reality where potentially huge sums are involved.
You accept a fixed time limit and a fixed budget to deliver, say, anything from a colour scheme or a concept apartment. You identify all phases of a project where such an approach is sensible. The great thing is that deadlines are met and budgets are adhered to for your client. Your client might not get quite as much as they really wanted or you might have had to throw more resources at the project than you would have liked but in either case the loss will probably not be that great in the grand scheme of things. This works well if you have a genuinely trusting relationship with the buyer.
Make sure that you combine this with a LIMITED list of ‘must haves’ for the time box you are working on. This must have list places a risk on you, but in this sceanrio I think that is fair.
It’s also quite an innovative way of managing projects and so is a good differentiator for you when you are pitching for work. It gives you an aura of managerial competence to even know about such an approach (maybe!).
10. Risk Sharing
You identify the risks in a project and if the risk materializes you agree to share the risk burden over and above the costs already agreed. I don’t really like this approach. Try to avoid it by arguing for a separate piece of work to assess the risk in detail so it can be properly bid for. The real problem with the approach is that you will get a financial hit for something that you have little knowledge or control over. Probably not too fair on you but acceptable if the risks are small as a goodwill gesture perhaps.
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KOTHEA 
This is a brilliant and well written article. What is outstanding about it, is this is information many professionals would formerly not have shared, but I welcome this new collaborative thinking environment. I like the Time Boxing idea, clever, and some very popular TV shows are based on this concept – “here’s the time limit, here’s what we’re going to do.”
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Thank you for your kind words.
As a supplier of fabrics to interior designers we don’t mind sharing knowledge to help all our potential clients!
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I like the fixed price based on a design fee, that way you can justify the price through the design fee and at the same time the client can assure that no matter what the price of the project gets higher, your fee won’t change.
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I like the fixed price based on a design fee, that way you can justify the price through the design fee and at the same time the client can assure that no matter how high the price of the project goes, your fee won’t change.
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You are obviously a great project manager! Hopefully that approach has done well for you over the years.
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Great article. I use a couple of these concepts depending on project. I use the “fixed price” or what I call lump sum most often. You go in with the basic menu of entrees and then add on for appetizers, salads and drinks. You just need to make it very clear to the client (good will and integrity). I also charge a mark-up on products purchased if I am responsible for payable.
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I too think that the fixed price brings a significant amount of goowill and trust to the table.
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I use a design fee and would like to change to a fixed fee, however so many things can change and go in a different direction on a design project, that it makes me nervous. I work in residential interior design.A few of the ideas above sound good too but I would like to see examples. Thank you for sharing your ideas with all of us.
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Ok why not try to move towards fixed projects step-by-step? So if you are doing a residential interior project from concept to final handover then break out the project into manageable chunks and do fixed price (or whatever) for each chunk. eg start off by doing the scoping or design work as a mini-project. I guess less can go wrong on that part.
Also in a way its good that things go off in a different direction, that’s just the way things go sometimes BUT by being precise IN WRITING about what you are charging for means that when things do go off at a tangent you can ADD THAT to your fixed price as that eventuality was not what you were quoting for.
Does that help?
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Excellent article, lots of food for thought.
And even more difficult is that you often have to have a different approach for each client… I am going to try to be more consistent!
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Thank you.
Certainly more consistency will help you fully understand to the Nth level your offering and improve your pricing.
Projects do differ though, as do their inherent risks. Some projects might therefore require a different approach.
sorry if that didn’t help!
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I’ve recently started my own Interior Design firm and am still very new to the concept of pricing and which is the best way for me to charge for my design services. This article was very helpful; it showed me 10 different ways I can manage my design projects. Thank you! I’ve being using the Design fee method so far, I’ve charged a hourly fee for my services and gave estimates as for how many hours I spend working on the project or with the client (presenting or shopping etc.). I don’t mark-up product, therefore I usually don’t look for designer discounts. Do you think this is wrong?
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Well, you are ultimately in business to make money!! So you want to make as much money as possible!
One thing I would say; everything you do for the client should be valued by the client as it is a service you are providing. If you buy goods for the client then that is a service that you should charge for in some way. I only mention that because you call your fee a ‘design fee’. Maybe you could rename the fee and/or introduce new fees. When you bid for the work maybe give an indication of how much time buying takes (and yes try to get ‘trade’ prices) and how much time managing contractors takes (etc). Your client should appreciate ALL your efforts (and pay for them!)
Good luck Vessi
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Thanks for a great article. I feel like we have tried most of them at one time or another. I have found that no matter what type of fee arrangement, having an understanding of the terms in writing with the client is most important to a successful project.
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understanding – yes. And of course, as you know, delivering on that as well.
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i really like the article.
I am a sales manager working in the design industry for almost 20 years now (= at Moroso/Italy, Quinze & Milan/Belgium and now Established & Sons/UK), during the last years I have lectured rather a lot all over Europe especially also to young PRODUCT designers, and since I talk often about the subjects contracts and how to make money I notice that these are VERY IMPORTANT, NEVER ADDRESSED ISSUES. Incredible, but true. So, great!!! if someone addresses these things, I LOVE IT. And you did it marvellously!
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thank you for your kind comments.
I know its is incredible…creativity has to be funded remains the ‘bottom line’. That’s why I’ve created my series of articles on this blog.
http://en.wordpress.com/tag/the-business-of-interior-design/
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I am new to your blog…. and I just like it very much so. This is what happens here in the US: Your version 2. Mark UP.
We cater to the Interior designer and I see how important it is to walk this thin rope like an acrobat. The job is in fact complex: The designer takes responsibility, buys the goods after a long discussion with the client– takes again control of the manufacturing process and finally the installation. He needs to make the client happy and at the same time he wants to be proud on his work. Not easy.
Still this Version 2: Mark Up has it’s benefits for the customer. It is easy for him to control his budget.
Again, congratulations to this article that really shows so well all possibilities to charge the client.
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true hans but don’t forget that other interior desingers do contract work. we are not all retail. So some of the other approaches are used here in the us for other types of clients. Great artcile thanks.
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Hi,
I’m interested in your opinion of a cost plus approach, I’m still learning a lot about pricing myself and so far have probably undervalued myself just to get the work. I am considering changing my rates to an hourly design fee and cost plus basis on orders I make using my trade accounts, for example, buying a Donghia sofa for Mrs Blogs at trade plus 15% administration charge to her, would you consider that fair? That way the client is happy as they get a discount and I feel that my hard work at getting trade accounts has paid off.
I have found your insights incredibly valuable, it can be very hard figuring this stuff out on your own as a designer, thank you for writing all of these great articles!
Sarah
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Hi Sarah, I’m delighted to get the positive feedback about the article, thank you.
I’ve put a few thoughts in the article on the cost-plus approach that you asked about – under my heading “Markup”. I don’t really like that approach. I think there is a large trust element as well so you need to put yourself in the position of your client – I’m sure most trust you but you may not have an in-depth relationship with many.
Also a savvy client can pretend they are an interior designer and get some trade accounts and trade prices. So IMHO you need to clearly differentiate yourself and place value in what you do…you are a designer with creativity that is worth paying for NOT a shopper…I’ll bet I can shop as well as you but I bet I can’t design as well as you. Get my drift? Hope that help, glad to clarify any points
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Thanks so much for the reply, I find this subject really fascinating but can’t seem to get to grips with it, my boyfriend and my accountant both say that I should pass on the trade discount in its entirety, which I currently do, however other designers I have worked for are adamant about this being a privilege that should not be shared, one of them would get outraged of asked by a client for the trade discount, citing “you wouldn’t say to a hairdresser, ‘it didn’t cost you £30 to cut my hair, so how about I pay you £15’, or go into a restaurant, eat the meal and say to the waiter ‘I know this didn’t cost you £40 to make so I’ll pay you £12′” I notice that you reply to Vessi and say that the “client should appreciate all of your efforts and pay for them” does this mean that one should have a “buying fee” in addition to a design fee? I have gone to a lot of expense and trouble opening up trade accounts, had many visits from reps which has taken a lot of time and bought a lot of books that as a start up, I really can’t afford and passing on full trade discount and charging a small design fee in order to get the work in the first place, I feel as though I’m not doing something right, does this make sense?!
Sarah
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It is fascinating and also the area that will keep you in business for the years to come. Many designers think about creativity and then maybe about turnover/sales. But neither of those pay the mortgage. Profit is what you want and you have to make as much of it as possible.
I’m not necessarily sure your boyfriend and accountant are right. The discount is for you being in the trade and the reason you get it from the likes of me at KOTHEA is because you can sell to many clients. So you and the other designers out there can sell far more than we would be able to do directly on our own. You are our channel to market and the trade price is your fee from us for providign that service. So your analogy to a hairdresser or restaurant is not correct as they are retailers. You are effectively a retailer. You deal with the general public as your client; my clients are busiensses like you. I am B2B you are B2C
😦 fabric books. We/KOTHEA don’t charge for our sampling :-(. we like to invest in our relationships with our trade customers.
RE the comment to vessi. You can get hung up about the details of how to charge. But essentially my point is that you have to charge for your service you should also charge for any element of risk you take on board eg if you do a fixed price job.
Go back to first principles. Work out how much time you will REALLY spend on a job in total doing EVERYTHING. Work out your hourly rate, if it’s £10/hour then I suspect that you are missing out on an opportunity! Work out how many jobs you can do in a year…so what annual salary does it equate to? Are you worth that much ? or more?
Buying fee: if you are providing a buying service charge for it. If you are also providing a design service, charge for it. EVERYTHING you do for the client, has value for the client. If it has value you should charge for it. If it has value the client will pay for it. If you do not charge for something it has no value, why would anyone want a free prada handbag…surely there must be something wrong with it? Most people who can afford an interior designer are far from poor, they can afford to pay and at the same time most of them are intelligent and don’t want to be taken advantage of (who does?). Anyway i’m waffling and trying to cover may of the areas of the article in the comments!!
happy to clarify anything else of course. But the bottom line is that if you have clients and are wondering how to charge them then you are in a great position compared to someone who has no clients! YOU HAVE TO MAKE A LIVING (hopefully a bit more!)
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Thank you! This is really helpful and its a wonderful resource to be able to have this help that you’re providing, your wisdom is appreciated! Btw, the designer who I worked for who made the analogy about hairdressers and restaurants went out of business recently so her formula wasn’t working for her anyway..
Thanks very much,
Sarah
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🙂 !!
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Sie haben die Stromrechnung gerade nicht vorliegen? Kein Problem!
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This is an exceptional. Loving it dude!
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Nice blog posting. Thanks for sharing it!
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Wow – my heart skipped a beat when you said you are thinking about staining the cabinets. I was a bit sad when you said you wanted to paint them, but figured it’s your house and was happy to play along with the color game. I hope staining works out – they are gorgeous. holiday-decorating-ideas
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Very nice and honest tips….I really like the time boxing idea and Risk sharing. But being an interior designer I keep meeting with very different clients and every time approach is different. As I discuss about fee according to the design requirements and client. But still very well written and genuine.
Mamta Bajaj
Interior Designers
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