Do you stumble through your work day, unsure if you are charging enough, unaware of how your actual hours compare to your estimated?
Are you constantly looking over your shoulder wondering if your clients will discover the margins you are putting on your product?
Do you stay up late at night working on endless revisions that you haven’t even factored into your fee proposal (working for your clients for FREE!)?
With no clear industry standards, knowing how much to charge clients is a constant source of confusion and stress for designers. More often than not we are undercharging for our time due to a variety of reasons that stem from a lack of confidence and/or knowledge. Designers work in the service industry, which means that time is our commodity. Understanding the value of that commodity is imperative to the success of our business.
Talking money with clients doesn’t need to be awkward or uncomfortable and should begin at the very first meeting. When we are confident in the value we are adding to a clients’ project and are secure in the knowledge that our fees and margins are in place for good reason, it becomes easy to have conversations that are clear, transparent and empowering for both parties.
Communicating fees and margins and setting clear expectations around all project finances will create a solid foundation for the ongoing trust and satisfaction of your client. When we don’t have a clear pricing structure it can leave clients feeling vulnerable and some will start to question your fees and, even worse, shop around for comparisons.
The method for calculating fees changes from practice to practice, but there are 3 main schools of thought that form the basis for most designer’s fee systems:
1. Hourly rate. Designers charge the client based on the actual number of hours completed.
2. Fixed fee. Designers calculate a fixed fee based on the proposed scope of the project.
3. Percentage. Designers charge the client a percentage of the project cost.
Each system has its pros and cons and understanding how to best operate within the chosen system is important to avoid undercharging or overcharging your client. Some designers choose to incorporate a mix of the fee systems in their projects. For example, setting a fixed fee for the concept through to construction documentation, then operating on an hourly rate for the design management during the construction phase.
When procuring products for a client, there are also a range of different methods used by designers when calculating and communicating margins. Firstly, it is important to be clear about the pricing structure offered by your suppliers before communicating costs to the clients. Some suppliers will offer a discount off retail pricing while other suppliers sell only direct to design professionals who have an account with them.
In today’s world of DIY design, clients are savvy to the discounts offered to designers, and in some cases will seek to access these discounts direct from suppliers. More than ever, it is important to be open and transparent with clients on how you structure your margins in order to avoid possible confusion or dispute.
Some designers choose to pass on discounts to clients as a part of their design package. This discount varies greatly from firm to firm, with some designers choosing to pass on full trade discount to their clients. Other designers choose to charge full retail to their clients. Both methods are acceptable in principle, as long as the parameters are clearly communicated to the clients.
It is important to remember that there is a degree of responsibility that comes when we, the designers, are placing the order on behalf of the clients. Any faults or discrepancies with the order become the immediate responsibility of us, as we are the signatory on the order. When considering this responsibility it becomes even more important to ensure that the procurement of stock becomes a profitable part of your business.
It is advisable for designers to do as much research as possible to find the systems and structures that work best for them. It is also important that, regardless of your fee structure, you ensure you are tracking and recording your hours to compare estimated to actual. Analysing your figures on a regular basis allows you the opportunity to reassess and improve your systems.
Next month The Design Coach is hosting a workshop on Fees and Margins to delve deeper into the best methods of operation, and provide useful tips and templates to enable you to start charging properly for your worth. Find details via this link.
I hope you find this article helpful! If you know someone who struggles with setting their fees and margins, perhaps share it with them. As always, I love to hear your feedback.
Article by Andrew Mitchell (The Design Coach)