Heron has calculated that—on any project—her overall profit has to be a minimum of 42% of the budget to be profitable, a number that’s “hard to make when there is only so much time in a day-week-month and you have a cap on what you can physically bill out.” Not a fan of hourly billing (“I’ve lost years of my life to recording and totaling up hourly billing”), she says that “with a fee structure based on a percentage, I’m always covered.”
Hourly-rate pricing
Opponents of the flat-fee model argue that there are too many unpredictable variables in a design project (see: indecisive clients, timeline delays, the list goes on…) to be fully covered by a flat fee. “Unless you have an ironclad contract on the amount of changes the client can make, and there is an additional charge for delays by the client or other involved parties, hourly is best,” says Meredith Xavier, principal and founder The Ligné Group, an LA-based business advisory firm. “Hourly plus a mark-p on products and services is still the predominant charging structure that I am seeing.”
When Kim Annick Mitchell founded her Westchester, New York–based practice in 2012, she charged a set fee instead of hourly. Soon it was clear that model was not going to build her a profitable design business. “I do not feel one can run a business this way unless the furnishings budgets are extremely high-end,” says Mitchell. “Even if I provided parameters for these set fees, there would be situations that would not be covered [in] that cost time, in addition to the uncomfortable discussions with clients where I would need to advise that I needed to start to charge hourly.”
In short, the nuances of the client-driven industry were getting in the way of profits: “Time-billing makes sense to decisive decision-makers and helps cover our time with those who go back and forth with decisions or change their minds often.” Now, Mitchell charges hourly with a principal designer rate and design associate rate for her team. “As my experience has increased, so have my rates,” she says. “I also charge a set procurement management fee that is a percentage of the trade net cost.”
How you communicate these fees matters too, says Mitchell. “I never refer to [this charging] as a markup, nor should the rest of our industry, as this does not represent all we do for the service of procurement,” she says. “A ‘markup’ is a devaluing term, like we are getting something for nothing. As designers we design, and we also provide a service so that the client is able to be hands-off, carefree while we work in the background for a successful implementation of the design.”
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But back to Mitchell’s experience-based pricing. As Xavier puts it, this “tiered pricing structure for an hourly rate, depending on the service and level of staff member working on the project,” is among the most popular and often-successful approaches she sees in the industry today. But she acknowledges that there’s no one-size-fits-all solution when it comes to a charging structure, as it very much depends on the client and scope of the project.
“If it’s purely furnitures, fixtures, and equipment and there is a clear scope of work, then you can charge a flat fee and take a percentage—25% to 30%—of that project fee,” she says. “For more involved ground-up projects or remodels where there are infinite variables, tiered hourly pricing is best. You can make an estimate on the total number of hours required and total project length, and then give the client a monthly retainer that the hours draw from.”
One size doesn’t fit all, Low agrees. “There’s no such thing as a charging strategy that’s going to work for everybody.” But, as he adds, “It’s about finding the one that’s going to work to be reflective of who you are and what matters to you.”
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