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business advice
Help! My charging strategy is costing me money
Jun 5, 2018
Sean Low

Dear Sean:

I’m an interior designer who works with architects and contractors. My main role is providing expertise on hard goods, fixtures and appliances in addition to designing decor. I also handle the furnishings aspect of the project. Until recently, I charged hourly for my consulting and project management services and charged a percentage on all items I selected—for example, 10 percent on appliances and hard goods, and 25 percent on furnishings. But clients are increasingly balking at the percentages. Without charging this way, I cannot seem to make the numbers work. Help!

Dear Number-Cruncher,

I agree with your clients that marking up items—which you are in no better position to acquire than the contractor—is a very tough sell. When clients have instant access to all prices and inventories, as they do online, it is a hard sell to say you deserve a percentage on top of what they may already be paying. Drop this part of the charging strategy and instead charge higher hourly fees to compensate.

The same cannot be said for furnishings, however. Here, you are in a position to both acquire and manage inventory that not everyone has access to. You should increase your percentage here for two reasons: Furnishings take much longer to acquire for your projects and are more difficult, due to factors like longer lead times inherent with custom orders. Also, there is always uncertainty as to completion dates with significant or ground-up construction. Since the amount you make does not change, but the time you spend can fluctuate, you stand to lose when the project is extended. More risk means clients should incur a higher price to manage potential delays.

What you did not mention—but what is probably true—is that you are likely doing a lot of custom work and you may only be charging 10 percent on these items. Consider yourself the retailer here and earn a markup on the items in addition to your 10 percent. This is fair to everyone, since you are creating these items specifically for the client and are responsible for their delivery and installation. Charging a retail markup when it comes to these custom items may make up the difference with any lost percentage revenue.

If you're involved with a project from the start of construction, the purchase of furnishings might not happen for over a year. Yet you will receive the same 25 to 35 percent as a designer who gets to specify and get paid on these furnishings in a decor-only project, which lasts just four to six months.

My suggestions:

First, recognize that not all hours are the same, and bill accordingly. Design hours are more valuable than project-management hours, yet it sounds like you’ve been charging the same rate. Raise your rate for design hours.

Next, charge enough hours each month to justify your involvement. This means charging for the design side of your consultation services, as well as for the architecture/hard goods and furnishings side. Charge a meeting fee based on how long you and your team will need to spend to prepare, meet and then deliver on the project.

Lastly, bill a straight hourly rate with a minimum number of hours each month for project management work. Separating design work from project management work will make it easier to have those difficult percentage conversations.

Your value has to be defined by the creativity and vision you bring to the project. This value has to be separate and distinct from what everyone else brings. Meeting fees, markups on custom items and higher percentages on furnishings will help you highlight this value more than the way you are currently charging.

____________

SEAN LOW is the the go-to business coach for interior designers. His clients have included Nate Berkus, Sawyer Berson, Vicente Wolf, Barry Dixon, Kevin Isbell and McGrath II. Low earned his law degree from the University of Pennsylvania, and as founder-president of The Business of Being Creative, he has long consulted for design businesses. In his monthly EAL COLUMN, he answers designers’ most pressing business questions. Have a dilemma? Shoot us an EMAIL—and don’t worry, we will keep your details anonymous.

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