PROGRAMA x TDC ARTICLE SERIES: THE PSYCHOLOGY OF FEES

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ARTICLE 1: STOP GUESSING YOUR FEES

Why Value-Based Fee Estimation Undermines Profitability

After more than 25 years in the A&D industry, and more than 8 years coaching architects and designers, I’ve seen one challenge come up over and over again:

How should I calculate my fees?

For many studio owners this simple question is tied up with pervasive behaviours such as avoidance, denial, people pleasing, self-doubt or resentment. It can show up as procrastination over a proposal submission, discounting to keep a client happy, resisting the financial analysis required to assess profitability, playing small by not wanting to charge “too much”, or feeling undervalued by your clients.

At the very least, poor fee estimation processes are limiting your earning potential, but in worst-case scenarios, they can render your business financially unsustainable.

In a small practice, fee estimation isn’t just an administrative task; it’s one of the most commercially important decisions you make. Depending on your terms, the fees and related fee structure you set can lock you into months, sometimes years, of work and can either support a healthy business model or quietly destroy it.

There’s no single universal method for calculating fees, and there’s no true industry standard. As a result, many business owners end up relying on instinct, popular opinions on social media, or even professional advice that sounds appealing but lacks rigour and accountability.

I’m certainly not claiming to be the industry authority on fees. What I can speak to is my experience: decades of running projects, years of coaching on this topic, and the development of a robust process that brings structure, transparency and accountability to fee estimation. The real benefit of that process isn’t just that it helps you propose fees with more confidence. It also gives you a framework for reviewing performance, measuring profitability, and improving future fee estimates over time.

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Are You Guessing Your Fees?

If you’re not using a formal process to calculate your fees, there’s a good chance you’re estimating by instinct, or by “feeling”.

That’s not a criticism. Many designers are doing exactly that, often because they’ve never been shown a better way. In the early years of my business I made the same mistakes myself, and since then I’ve worked with many established practices that still haven’t resolved their fee structure, after more than a decade in business.

Once you start researching fee methodologies, things can feel even more confusing, as there’s no one-size-fits-all pricing model for every studio or every project type. But there are several methods commonly used across architecture and design:

• Hourly Rate: charging for actual hours worked, multiplied by your studio’s hourly rate or rates, against an agreed scope.

• Fixed Fee: charging a flat fee, either by stage or for the whole project, ideally based on the hours required to deliver the scope.

• Percentage Fee: charging a percentage of the overall project cost for an agreed scope of work.

• Combination Model: using a mix of the above, often applied across different stages or service areas.

Each method has its advantages and disadvantages. The more important point is this: the most effective methods are anchored to the project scope, and the strongest fee structures use time as the measure.

Why? Because time gives you a quantifiable basis for pricing. It creates a bridge between front-end estimation and back-end analysis. It helps you assess whether your fee is viable, whether your team is resourced appropriately, and whether the project is actually profitable once complete.

This is where many businesses come unstuck: they propose a fee, but don’t have the systems necessary to for that fee to be tested, reviewed and improved.

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Why Should Time Be My Measure?

In recent years, I’ve seen a growing shift toward what I would call value-based fee estimation.

On the surface, it sounds attractive. Instead of basing your fees on scope and hours, you’re encouraged to charge according to the “value” you bring: your talent, your experience, your intellectual property, and the outcome you create for the client.

Of course value matters. Your expertise, creative ability, problem-solving skills and process all have enormous value.

The problem for most of us isn’t valuing our work. The problem is the dollar figure we put on that value. In practice, most designers don’t overestimate their worth. They do the complete opposite.

In my experience, almost all the designers I’ve coached propose fees that are too low, not too high. That’s where value-based estimation becomes risky, as it formalises a pricing decision without requiring the discipline of evidence.

Without structure, value-based estimation can become a refined version of guesswork.

It often appeals because it feels empowering and suggests that charging according to your “worth” is a more evolved approach than charging according to time. It can also conveniently sidestep the harder commercial work of properly documenting scope, forecasting hours, and analysing performance.

And the risks don’t stop at the proposal stage.

A weak fee structure also undermines the financial management that should follow. If you’re not clear on how your fee was built, it’s much harder to assess whether the job is tracking well. It becomes harder to manage scope boundaries, harder to identify where additional revisions are eating into margin, and harder to hold the line when a project expands beyond the agreed service scope.

This is where profit leakage begins.

It often happens quietly: another option presented, another round of revisions requested, another meeting not accounted for, another blurred boundary around what’s included and what’s not. Over time, these small decisions compound. The project may look “busy” and successful from the outside, while quietly underperforming financially.

A healthy fee structure isn’t about reducing your value to an hourly equation. It’s about building a framework that respects both your value and the realities of delivery.

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The Solution

A healthy business is built on consistent, repeatable processes that create structure, clarity and accountability.

Good fee estimation isn’t about charging less to win work or charging more to feel “worthy”. It’s about building a pricing structure your business can sustain, measure and defend.

That requires a shift in mindset.

Rather than asking, "What do I feel I’m worth?" the more useful question is, "What will this scope actually require?".

That question directs your attention to the real variables that influence profitability: scope, time, team capability, complexity, revisions, communication, procurement requirements, and the systems needed to deliver the work well. It also gives you something that instinct alone never can: a basis for analysis.

When your fee structure is tied to real metrics, you can review estimated hours against actual hours. You can identify where scope has drifted. You can see which project types are financially viable and which are not. Then you can refine your estimation process over time, instead of repeating the same pricing mistakes.

This isn’t about becoming rigid or reducing design to spreadsheets. It’s about supporting creativity with the discipline of numbers. Successful architecture and design businesses need both.

The more robust your process, the more confidence you can bring to your pricing. Grounded confidence that’s built on metrics, not “feelings”. That confidence is felt by clients, building trust, strengthening communication, and providing the information necessary to have honest conversations about the cost of your services.

In the end, profitable fee estimation isn’t just a tick-box pricing exercise, it’s a business discipline that sets you up for future success.

Actions to Take Towards a Healthier Fee Structure

1. Audit your current fee method

   Identify how you’re currently calculating fees. Is your current method based on metrics that can be analysed and reviewed?

2. Track your hours

   Regardless of your pricing model, tracking time consistently is imperative so you have real data to review.

3. Assess the viability of your fee structure

   Review completed projects and compare estimated hours to actual hours to understand whether the fees were financially sound.

4. Experiment with different structures

   Trial different methodologies and compare the financial viability of each method.

5. Identify where profit leakage occurs

   Look closely at revisions, scope creep, weak boundaries, or undocumented services that reduced profitability.

6. Update your terms

   Make sure your proposals state what’s included, what’s excluded, and how additional scope items will be charged.

7. Shift the question

   Replace What do I feel I’m worth? with What does this scope require? That one shift can move your pricing from emotion to evidence.

To check the health of your current charging process, take the TDC Charging Health Check Questionnaire.

If you’d like to learn more about empowering fee estimation practices, we have an Online Fees and Margins course, or you can reach out to me at hello@thedesigncoach.com.au.