An Article for Programa by Andrew Mitchell, Founder of The Design Coach
In an industry with no standard methods of charging, it’s understandable that clients can often have reservations or concerns about engaging a design professional and how much those services might cost. It’s common for clients to be wary of the way a designer or architect has calculated their design fees, or question the margins added to the products they’re quoting.
Over my many years of coaching designers and architects, I’ve found that, from practice to practice, the methods of charging vary immensely. Even within a specific practice, the methods of charging vary from job to job. For example, I’ve worked with designers who apply a markup of 10% to a specific item, while the same product for a different client would be marked up 50%. Designers often tell me that they live in fear of having their margin structure “discovered” by their clients, with some heart-breaking stories of relationships that were destroyed because of this very situation transpiring.
It's not surprising that the design industry has a reputation for a lack of consistency and transparency. The cost of this? A lack of trust, client micromanagement and, in worst cases, legal challenges from disgruntled customers.
After many years of operating with inconsistent formulas for calculating my margins and a complete lack of transparency with my clients, I was getting tired of the constant nervous energy expended on hiding this information. I recognised that something needed a change. The first step was to solidify my margin structure to create clarity and consistency within my business. I then took a deep breath …. and decided to try sharing this new format with my clients. The results of this simple change totally changed my business.
At the same time, I was developing my successful methodology for accurately estimating design fees, my Fee Estimation Tool. As I completed a new Fee Estimate one day, I reviewed the detailed calculations and asked myself, “Why not share these calculations with the client?” It would simultaneously help to explain my charging structure to a client and alleviate the sense of “cloak and dagger” hidden process that exists within the industry.
Soon after, I also decided to share my detailed calculations for reviewing their budget through my Budget Forecast spreadsheet. I was doing all the calculations internally to assess the viability of the project costs, so why not share this valuable document with the clients?
All of these revelations were quite transformative for my business, as they created solutions to some of the biggest challenges I was facing: clearly and consistently explaining our fees, managing the clients’ expectations about project costs, and cultivating the trust necessary to get major purchases over the line.
Whilst I don’t suggest that transparency is a business requirement, I do believe that it will improve your internal processes, and exponentially increase the levels of trust with your clients.
WHAT IS TRANSPARENCY?
Let’s explore how transparency might look in your design practice. Formally, transparency is the act of operating with openness, clarity and accountability. It’s a practice adopted by many progressive businesses to build loyalty and trust with employees and clients.
In our design or architecture practices, transparency can show up in a variety of ways.
1. DESIGN FEES
Operating transparently involves openly sharing the structure we use for calculating our fees. There are a variety of viable methods of charging, with no “one shoe fits all” solution (to find out more about standard methods of charging for designers and architects, download our Fees and Margins: The Foundations free E-Book). Whichever method you choose to calculate your fees, there needs to be consistency and clarity in your communication to the clients, with all details documented in your Terms and Conditions.
In my design practice, when presenting my Design Proposal to the clients, I have chosen to share my Fee Estimate. In doing so, they can see a detailed breakdown of all of the calculations I have used to estimate my fee, as per the scope of work we have outlined in our Design Proposal. This has proven to be a valuable way of explaining to the clients the level of work associated with their project, and has helped get numerous proposals over the line.
2. MARGINS ON PRODUCT
Procurement of product on behalf of the client is a viable way to increase profitability within our business. As with design fees, there is no standard industry method of adding margin to products. Traditionally, designers have chosen to keep their cards close to their chest and don’t reveal any of the details about their markups or share anything about trade pricing.
Whilst this is a widely accepted method of operating, it’s often based on limiting beliefs about how clients will respond to transparency. Many designers fear that sharing their margin structure will encourage scrutiny from their clients. In my experience (and the experience of my coaching clients), the opposite is true. Clients (the right ones) understand that we need to make money in our business, and are willing us on to success. Being open about how we make money actually discourages scrutiny.
If you have an inconsistent margins structure, or have previously shied away from procuring on behalf of your clients, we outline some of the most common methods of adding margin to product in our free downloadable E-Book Fees and Margins: The Foundations.
3. MANAGING BUDGETS AND TIMELINES
Whether they are upfront about it from the start, or you find out mid-way through a project, almost all clients care about how much it costs, and how long it will take. Our role as designers isn’t to magically ensure that the project comes in on time and on budget (there are generally too many external influences for this to always be within our control), but we do have a responsibility to help communicate changes to budget and timeframe throughout the course of a project.
Creating transparent processes for setting, updating and communicating both the budget and timeline are critical elements for managing clients’ expectations
WHAT ARE THE BENEFITS?
Being open with clients is a sure-fire way of building trust. Transparency allows clients to understand your processes for calculating fees and margins and helps them appreciate and acknowledge how we have come to the figures we are putting forward.
Transparency also creates clarity and consistency. Clients are advised of our fee and margin structure in the early stages of the project and can see these applied as the project progresses. A solid set of Terms and Conditions should be the first point of reference for outlining our individual terms around how we charge.
Indirectly, transparency forces us to streamline and systemise our business and creates accountability, both inside our business and with clients. When we share our process for calculating fees and openly communicate our margin structure, we’re removing the option to chop and change the way we charge.
When managed with a solid process around estimating and managing the project costs, clients can feel comfortable seeing how individual specifications fit within the overall budget. An expensive light fitting isn’t as daunting when the clients can see that the overall costs sit within their specified ideal project budget. This is a powerful tool for helping your clients feel comfortable about those amazing high cost items that will help complete your design scheme.
When designers operate with a margin structure that offers discounts off retail prices (and also provides the business owner with a healthy profit), clients can see the savings they are making off retail prices, which can also greatly assist in getting bigger purchases over the line. Utilising a project management software program such as Programa allows us to streamline the quoting process, increase accuracy and efficiency, and allows us to be transparent with our margin structure.
It’s important that designers and architects feel comfortable in the amount of information that they share with clients. If the idea of adopting a fully transparent model is daunting for business owners, they should consider sharing one aspect of their business structure first. For example, choose a smaller specification project to apply the principles of transparency for your margin structure to see how it’s received by the clients.
To be properly prepared, first update your T&C to set out the margin structure (ideally consult with your lawyer to ensure you are properly covered). Also update any information in your Design Proposal around Procurement to reflect this margin structure. Finally, start explaining your terms from the first conversation with a new client, making sure you focus on the benefits for them (eg: discounts off retail pricing).
I strongly encourage all designers and architects to explore the benefits of adopting a transparent business model to elevate your own business operations and exponentially increase the levels of trust with your clients.
To access a full review of the various methods of charging in the design and architecture industries, and to learn more about the true value of transparency, consider our Fees and Margins Online Course.
Stay well and believe in you!
The Design Coach