The number one question, I am asked each week is, “How can I make more money as an architect?”
Through my twenty years of experience, I’ve come to realize that much of our financial struggles are due to very simple problems. Yes. We have huge issues in our profession with which we must address, but internally, our problems are likely much more basic.
In my own firm, I’ve discovered that there were a few relatively minor barriers causing some major disruption in my financial success.
Here are five simple changes that had dramatic results on my bottom line.
I Collected My Receivables
Architectural projects require hundreds of hours to complete. Regardless of fee structure, the Agreement Between Owner and Architect we use clearly identifies how we should be compensated for the many hours of work we spend completing our services. (If not, you need to use a different agreement.) Very often, as creative people, we feel guilty about charging our clients for the work we perform. Hours are artificially reduced and never make it to the invoice. Many of our billable hours should actually be considered Additional Services, but we don’t request the additional compensation owed to us for the additional work. To make matters worse, there are times when clients are late to pay or question the bill and the fee is reduced to avoid the potential conflict. Sound familiar? Successful collection of all fees owed may be one of the quickest ways an architect can make more money.
I Told My Story
Architects are great communicators. We are trained to develop ideas and effectively explain our concepts to the many parties involved in our projects. We are talented at telling the stories of our projects, but often fall short when telling the story of our firms. Old school professionals were told that architects should not promote their firms with marketing strategies or public relations. Times have changed my friends. If we’re not spreading the word of our firms and telling our unique stories, then we’re missing a huge opportunity to make more money. When we craft a narrative and share it with the world, not only do more projects become available, but better projects within our specific target market start knocking on our doors. Tell your story.
I Limited My Development
I know this one may be a bit controversial, but I think we may be over-developing the designs for our projects. For years, our systems at Fivecat Studio have included developing our construction documents to a level where every possible question was answered. Documents developed to such minute detail require hundreds of hours to complete. As designers, we are very satisfied with such an outcome, but as business owners, should we be considering reducing the information we produce? Is there such a thing as a Minimum Viable set of drawings, where only enough information to understand the scope of work is documented? Could remaining information required to complete the project be developed during Construction Administration Phase? As an architect, I want fully developed drawings. Our portfolio is a result of that extra effort, but as a business owner, I want to experiment with how reducing development time may increase my bottom line.
I Improved My Cash Flow
From the launch of our firm, cash flow has always been our toughest obstacle. We’ve improved through the years, but even today, we need to work at balancing our revenue with our expenses. To keep the spigot flowing, we’ve changed our payment terms from net 30 days to “due upon receipt”. This helps with reducing the time between billing and receiving payment. Not all clients cooperate. Some still hold their money until the last possible day, but most respect the agreement and pay on time. Recently, we’ve experimented with staggering our billing cycles. With about a dozen invoices transmitted each month, half are sent to clients during week one and the remaining are held until week three. By spreading out payment requests, collections flow in throughout the month, allowing me to have cash on hand and better manage my expenses.
I Raised My Fees
Our fees are higher than most of our competitors and, truthfully, they’re still too low. With higher fees, we filter out the potential clients who are seeking services based on price. Higher quality clients result in higher quality projects and a portfolio filled with projects that attract more quality clients. Fees should not be set with some arbitrary “gut feeling” or based on what your buddies are charging. Your fees should be established using data from your overhead and the profit (yes, you need to make a profit) required for a healthy business. Want to make more money? Raise your fees.
These five ideas don’t require you to restructure your firm or make any major operational changes. They are simple ideas that require the courage to take some risk and experiment with the way you are running your firm. Take action today and watch what happens.
Do you have any simple ideas for making more money in architecture? Share your thoughts by commenting below. The more we share, the more we’ll all grow and build a stronger profession.
Hello Mark,
I agree with everything you said. For the past 10 years, my agreements have required payment within 10 days of the date on the invoice and I only e-mail them. Late fees begin 5 days after that. I think there have only been 2 late pays during the last decade, and those were paid within 2 weeks. Most Architects that I have known in the past had receivable stretching 60-90-120 days. One of them was shut down because they couldn’t afford to pay their bills. It is time Architects became more businesslike. And if I present work in person at a meeting, I bring an invoice and my agreement requires me to be paid during that meeting. NO client has refused to sign my agreement. We can all do this and should.
I admit that sometimes I still don’t charge for all of my time, but that should stop. Especially at my ridiculously low rate. Time to raise my rate, as you suggested. I cut it in two after the Bust. About time to increase it again.
Here’s a good question: What do you do when you really need the work and are in the middle of an hourly agreement, performing services, everything is going well. Then all of a sudden your client declares that he wants the remainder of the job to be a fixed amount, not your hourly rate. And the fixed amount he has in mind is about half of what you should be getting for the rest of the work?
Ugh! That is a very unfortunate situation and the exact reason why we won’t work hourly. Clients always question the number of hours we work and can’t possibly understand the realities of the true number of hours we provide to their projects. Our agreement, which I started offering for sale on the site this weekend, is a Hybrid Proposal using a flat fee based on a percentage of construction cost following Schematic Design Phase.
The numbers are better for you to let the project go, than to reduce your fees to half of what you need. You would make more money by walking away and finding another project with a more reasonable client.
I would say though, if you need the work and you truly have no other opportunities available to you, you have no choice than to negotiate a flat fee.
Keep me posted on your progress.
Are you establishing a fixed fee upfront based on anticipated construction cost or is the fee a percentage based on the actual construction cost?
The notion of a fee based on percentage of actual construction cost does not sit well with me, especially for residential work. As an example, lets say I have a master bath- toilet, 2 vanities, bathtub, and a walk-in shower. The documents have the layout indicated and it’s a well designed bathroom. So why should I as the architect be compensated more if the client chooses fixtures totaling $2,000 vs. fixtures totaling $8,000, I haven’t done any additional work and the bathroom layout is the same. Me personally, I do SD as hourly, DD and CD fixed fee, and than back to hourly for CA.
I too have never understood the percentage of construction method. I know the government uses it – enough said! It seems to convey we are getting a sales commission – a number that we pull out of the sky It gives clients an opportunity to negotiate to a lower fee. i.e. Smith architects will only charge me 6.5%, why are you trying to charge me 7%.
Instead we need to look at our services as being time based, yet stipulated. This is very similar to how a contractor bids work – with a hard number (based on our time) In my proposals, even though I charge a flat fee, I even show the hours required. It’s pretty hard to dispute a professional’s required time time. I also show clients exactly what goes into the various phases, so they understand where the hours come from. When someone disputes my fee, I simply ask them what they what taken out?
Where is the incentive for the architect to guard the client’s budget with the percentage method?
Edward, my Friend! Good to see you here. I agree that doing a % of “‘cost of construction” can get you into trouble. For instance, every client I have had, since I became licensed in 1982, has believed that their project, out of all the projects in the Universe will be built for far less than the going rate, when using conventional means. So, you can set yourself up for an argument with the Client regarding the cost of construction. I must confess that in my conversations with clients, I often talk about how my number of hours often may very well add up to a range of % of MY guesstimate of the probable cost of construction using a normal licensed contractor in my neck of the woods, which may or may not have any relevance to costs where the projects happens to be located. In other words, here’s what I charge hourly and here’s the likely range of cost, based on my historical experience (not on the actual cost of construction). Otherwise, if you do go strictly on the actual cost of construction, you may end up giving $ back, when that’s not the object. The object is to get paid fairly for what we do. Good to read you, Edward.
We used percentage based fees for years with great success. Hourly fees result in monthly negotiations and flat fees (what every client truly wants) are impossible to predict before the project is designed. Percentage fees allow our fee to be based on a real project and ultimately, with the client determining the budget and approving the cost of the project, our client is in full control over how much we get paid.
With that said, I was tired of trying to convince our prospects that I was right. I stopped trying to change their minds and started giving them what they want.
We’ve solved the problem with our Hybrid Proposal for Architectural Services (http://www.entrearchitect.com/hybrid). We request an initial payment to get started, complete Schematic Design Phase, determine an estimated construction cost and lock in our fee as a stipulated sum flat fee based on a percentage of the agreed-upon estimate. It’s the best of both worlds. The client gets the flat fee they want and we base our fee on a real project.
Mark: I have seen even very large, world-class firms mess up big time trying to estimate the cost of architectural projects. For instance, a very large high-rise firm, during the last several years ended up in arbitration over them missing the cost on a tall building over in Charlotte. But that’s just part of the issue. If you allow your clients to determine the estimated cost of the project, of course they are going to estimate it low, in order to skimp on what they pay you. And if you estimate it, you will be on the hook for making that prediction come true and damned if you don’t. I have had the counsel of some very expensive and capable attorneys who represent the AIA and other engineers, architects and contractors as a specialty and I’ll pass along some of what they told me: do NOT get involved in estimating the cost of your client’s projects. Let the Contractors do that. However, it seems, even enormous architectural firms continue to think that they know how much their projects will be bid at. We, as Architects can be our own worst enemies: we are smart enough to think that we know how to do anything, however, the construction world will almost always charge our clients more than whatever we imagine. Perhaps estimating our hours, based on previous similar projects might be a legally safer way to go about determining our fee, then multiplying that x our average hourly rate to yield a fixed fee. It doesn’t really matter, though… our clients will always think that no matter what we come up with will be more than what they want to pay, resulting in a dead-bang negotiation anyway, at one point or another during the project? We want desperately to control and manage this part of our business. It is like trying to herd cats. Uphill. I wish we could control it. We would all sleep better. Any other thoughts about the “right” process?
Yes. We’ve recognized that as well. We prepare informal “ballpark” estimates to help guide decisions, but require the owner to obtain an estimate from a general contractor or pro estimator. The third party data gives the clients the confidence they need and gives us a number on which to base our fee.
Mark – You are telling me that after the preliminary design and scope of work and budget has been determined, it is “impossible” to determine how much time your design services are going to take? Yet, an arbitrary fee based on someone’s perception of construction costs is going to guarantee you have enough hours in your fee to provide your services? I would think that after your scope has been determined you can estimate how much time it will take to provide your services. I don’t get being “handed” a fee based on percentage of construction, then determining your budget for fees. Seems backwards to me!
The way Edward does it is the way it should be: calculate the scope of the project and your scope of work and your estimate total hours and how many of those hours is attributed to: Programming, SD, DD, CD as Core Basic Services, then offer Bidding and CA as optional services at an hourly rate. Edward: while I agree, this is, intellectually entirely defensible, don’t you still get clients dismissing all that calculation and simple saying to you: “yeah, that’s nice, but I only want to spend XXXX dollars on the architectural services”? I get hit with that all the time. Back in the Boom, we could go hourly at a fair rate and things were great. These days, it seems that everyone is pinching pennies, particularly when it comes to what you and I do. Or is your excellent system (of which I heartily approve) working for you?
I always perform SD at an hourly rate… there are just too many unknowns to give it a fixed amount. Once I discuss with the client the reasoning behind SD being hourly, rarely is there an objection.
Once SD is complete, I have a fixed fee for DD and CD. I have a fixed amount of CA that I do which is part of the fixed fee, anything above that in CA is billed hourly. My agreements clearly I dictate what CA is included in the fixed fee.
I use many methods to determine my fixed fees, but in general it comes down to my past experience and history of what it took/takes to complete a certain amount of services. However, I also prepare a construction budget estimate (typically not shared with client) as another check of my fees.
As a side note- I firmly believe all architects (especially residential) need to be competent in estimating construction cost… how can you check during design if your maintaining the budget? I’ve always estimated construction costs (even commercial projects in the many of millions) and I’m usually within 5%-10%, which works for me as a fee check. However, I don’t advocate sharing your estimate with the client, as they’ll hold you to that number no matter how you disclaim it. After SD I have a contractor(s) prepare a PCCE.
It seems to make sense to charge a flat fee for a smaller project, like a bathroom renovation, that has a limited, well-defined scope. I agree, it doesn’t make sense to get paid more just because the client chooses more expensive bath fixtures.
I always run into problems with charging hourly. The first arguments is that everyone wants to negotiate the hourly rate. It drives me crazy that they think nothing of spending $200/hour for a lawyer, but they want to pay me like I work at McDonald’s. People seem to think that all of that hourly rate just goes into my pocket, regardless of any explanation I may give. The second argument comes when they get the first invoice and see the total, even if I gave them a range before we started. That one is almost always a battle.
So my answer is to charge a fixed fee on small jobs where the scope is well-known and controlled (and my contract spells out how many meetings we’ll have for that fee, and has provisions for adding meetings or increased scope as “additional services”, to be paid hourly). For larger projects with a less-defined scope (“well, we might want to do a third-floor addition, or a roof deck, or expand the kitchen . . .”), I do a percentage-based fee. In the contract, I use the lower end of what I consider a reasonable cost (I don’t disclose this number to the client) to help develop milestone payments. I leave the last payment before permit submission marked as TBD, and explain that that number will be based on the difference between the construction price minus payments to date, minus a fixed CA fee. So far, no arguments.
Oh, and I now just collect payments at meetings–harder for a client to look you in the eye and not pay what they agreed to. And if they do refuse, or say they don’t have the money right now–I stop working until they do.
Mark, thanks for such a great post, and thanks to all the commenters for making me think a lot about this stuff.
On the topic of charging a percent vs. hourly:
I use the % of construction method on almost every project I complete. I believe that charging a percent of the cost of construction (rather than hourly fee) is exactly how most General Contractors structure there fee in the form of overhead and profit. Unlike subcontractors who often work for time and materials, GC’s are on the hook for bringing the whole project together. There involvement is more than just punching a clock, they have to “own” the project. Similarly with architects, I believe the % is appropriate because it goes with the added responsibility for leading the design from start to finish. It also means I stay much more involved in the process from start to finish.
Frankly, I meet a lot of clients who are frustrated by designers who offer “draw and drop” type services. They don’t want a cheap service as much as they want a design that is cost effective and beautiful. The best way to assure that happens is to see the project through the construction phase, making adjustments to the design as necessary and as better information becomes available.
You are right about the third one being a bit controversial (at least when taken in conjunction with the fifth one). The idea of raising my fees and reducing the level of my services does not sit well with me. Part of the reason i feel justified in asking for a larger fee, is the level and quality of service is higher. I also think the idea of a “Minimum Viable set of drawings” is somewhat of a moving target depending on how/if the project is being bid out or if the contractor is on board at the beginning. I think if you are working with a contractor from the get go, you can get away with much less information on the drawings.
I also think a greater level of transparency with the client about the amount of work that is going into their project would help. (Can’t say i know this from experience, but it is something that occurred to me as i read the article).
I agree Matthew. That item is more of a consideration than a recommendation. I believe that much of our success at Fivecat has come because of the level of development in our drawings. The problem though is the cost in doing so. How do we solve that problem? It’s one of those Architect vs. Business Owner dilemmas.
This is one of your best articles yet, Mark! Because I’m about a decade-and-a-half ahead of you in years, I’ve been bitten by many of the dogs inferred from your descriptions. Happily, this has resulted in short-form agreements that contain many safeguards against those bites.
Similarly to you, we avoid hourly fees as a plague. I won’t say we’ve never done them — prospects flinch at them — but I can only recall 1 or 2 out of maybe a dozen where we were paid what we billed, and that’s from more than 35 years in the field. Hourly fees with a cap are even worse, eliminating market value of a flat fee, while limiting total take, regardless of hours you spend.
Mark, I’m intrigued by your “minimal viable set” of docs. One particular step I took, many years ago, following a series of clients who disputed fees over minutiae, was to list the maximum documents (drawings & specs) that we would include for our services to be “substantially complete” and payment to be due. Subsequently, we began limiting the use of our drawings in our agreement, regarding “pricing by one licensed general contractor” or “bidding by [X # of] licensed general contractors”.
This followed an experience where a slime-ball client made illicit copies of our drawings (& my seal) — intended for pricing by a single, selected GC (though not so noted in the arch-client agreement) — and sent them to at least 17 GCs, who of course called me for clarifications. Gratifyingly, all bids but one (a total of 6 bids, BTW, heh-heh) were within a 10% range for a non-bid set; however, the “selected” bid was for about 60% of the estimated cost, but with a $10,000 reduction if the client eliminated the architect from the Construction Admin phase. I resigned when he selected that GC.
I avoided liability back then because he ended up not building that project. Since then, I’ve stipulated carefully the intended use of the documents, and I’ve stated the maximum “deliverables” (i.e., documents, with both drawings & specs) to be included in our agreements.
Lesson: if you limit fees, you *must* limit services (i.e., deliverables & activities) specifically in writing in your agreement, and you must enforce this.
Thanks, Mark, for your clarity.
Thanks for your thoughts Andy. Insightful as always. I appreciate your contribution.
Your piece is quite interesting because the issue of adequate remuneration for our services has never ceased to be a crucial issue in any architects experience. The problem seems to loom larger in the case of solo practitioners.
Where the firm image presented is minimal with the client always thinking why you be charging that x$.
Some times presenting a beefed-up image of a consortium or a larger group helps anchor a more imposing image just for the sole purpose of fee justification and collection.
Mark I’m inspired by your work. Keep that pen flowing we appreciate the effort.
Thanks for the continued support and encouragement Ikpe.
This is a really helpful article – I’m currently in the middle of my first freelance project. I’m trying to figure out what deliverables are worth my time to give the client. I don’t feel like I’m in a position to negotiate fees due to the fact that I’m not yet licensed and I’m trying to build up my portfolio. I don’t want to have an air of desperation that I’ll take any amount that’s offered though – it’s tricky. I also want to deliver a high quality project in order to ensure that he will reference me to others or use my services again.
Thanks for the article!
Amy
Amy: Be confident in your skills and charge them what you think you are worth.
As an additional ‘item’ to consider- retainers. I always ask for a retainer from new clients, and sometimes repeat clients. It’s not so much about the monetary amount as it is about setting a tone that you (the architect) will be compensated for your services. If there’s an issue paying a retainer, you can almost assure problems paying invoices.
Rather than a retainer, you should indicate a DEPOSIT in your agreement. A deposit is held by you for the life of the project and used during the last invoice or two. Much better than a retainer. You do not use a deposit until at the end. You invoice for each item of work you do, as you do it and leave that deposit alone. Think about it. Many positives; no negatives.
A retainer provides monies upfront, a deposit doesn’t. Honestly, they both serve very similar purposes.
Although please elaborate, I would like to hear more on your take of deposit vs retainer, thanks for the discussion.
Yes sir. A deposit IS money up front. Only instead to whittling away at it (as you would with a retainer), it stays whole. You immediately start doing work and invoicing for what you do (separate from the deposit). I have been doing this for about 12 years. Never a problem. Not worried about not getting paid. By the way: make the deposit non-refundable. That’s an added inducement to keep the project going. You credit the deposit on your last couple of invoices.
Which is what my retainers function as, non-refundable after 2 weeks and credited at final invoice. However, I use the monies to cover upfront project start up costs prior to sending first invoice.
That’s the difference: you are consuming your retainer starting immediately, like an attorney does. If you have a deposit, it stays intact until you credit it at the end.
Exactly, which is what I want… it covers project start-up costs and is still credited at the final invoice.
Why is a ‘deposit’ better? I think it’s just semantics as they’re both achieving the same/very similar things. I’ve been doing this 20 years and have never had an issue with a retainer and its use.
Do what works for you. I’ve been at this 40 years. There is a semantic and a real difference between the two. Look them up and you will see what I’m talking about. You just haven’t had anyone test this. A retainer is a sum paid in the beginning against which all of your time is billed and from which you pay yourself. When that is gone, the attorney’s method is to replenish the retainer amount. It is different from the way Architects work. I have found that a deposit is a sum that sits there and is not used for any expenses until the end. It gives you much better coverage to make sure you are paid for what you do, so you aren’t eating into it daily. But whatever works for you. Just trying to share my experience on this subject. Wish you the best.
RJS-
Thanks for the discussion and your insight, I appreciate it.
Yes sir. Hey: we all learn from each other. If I had everything figured out perfectly, I wouldn’t be on this forum: I’d be counting my money on some island somewhere. Perhaps, through each of us sharing their experiences of what works and want doesn’t we might all be able to improve our practices in terms of design, administration and business. Best to you.
True. The discussion got me thinking about a blog post regarding ‘Retainer Fees vs Deposit Sums,’ I’ve added it to my list of posts to write. When I get around to the post, it would be great to have your input/response. Obviously I would be pro retainer and you pro deposit… would you be up for it?
Let’s think about that. I’d be careful. Some of these discussions are not really what you likely intend for client marketing, but rather for Architects doing things that are good for our businesses. In other words, do you really want to go on the record on your own website/blog about this? Isn’t the primary reason for your website/blog to attract clients? Might want that to focus on things that delight the client rather than on what we all might regard as prudent business practices that clients may not appreciate. You can reach me at: Rand@HomeArchitects.com if you’d prefer to have a more candid discussion.
I wouldn’t be saying anything that’s not in my contracts or my discussions with clients. I’m fairly transparent with my client relationships.
Regarding my blog, sure it’s for clients, but it’s also to help educate architects.
However, I understand your trepidation. I’ll follow up with you when/if I get around to that post.
Maybe it can be a post for Mark here on his site?
Anyway, thanks again for the discussion.
It’s an excellent post for this blog. If you’re interested in guest posting, I’d be interested.
Thanks Mark. I’ve a few weeks posts in the works…once I write this one up, I’ll email it to you and we can discuss if you want to post it. Thanks!
Oh, and thanks for adding my blog to your blog roll, much appreciated!
No problem. I follow your blog. Very well done. Let me know when you’re ready.
Excellent discussion guys. If you want to get deeper, without the possibility of clients’ eyes seeing our private conversations, I invite you to join the Entrepreneur Architect Linkedin Group and continue the discussion over there. It’s a private group. Only architects and design pros are permitted to join. We are approaching 4,000 members.
http://www.EntreArchitect.com/Linkedin will get you there.
Comment threads like this one are what I live for with this blog. The community that is forming around Entrepreneur Architect is so open, optimistic and inspiring. It’s what the profession needs to be. Thanks for being a part of what we’re doing here.
Thanks Mark, good post today.
I thought about the LinkedIn group, but may be to lengthy of a topic…also, I need to check, I requested membership but not sure if I was ‘approved.’
Keep up the good work!
Thanks Keith. LinkedIn is the perfect place for that depth. We have many discussions that go on for months.
Thanks Mark. I appreciate that and I may take you up on your offer.
I must share that while on what we all thought was “Architects only” in the AIA, ALL AIA message board comments are, in fact searchable and findable through ordinary Google searches. I would counsel everyone to be circumspect with your positions on ANY Internet forum. Some things are better said between individual e-mails directly to each other.
That’s a good point. LinkedIn claims that private groups are in fact private. I hope so, because we have very candid discussions over there.
I will add one more option. I do not use the words “deposit” or “retainer”. I use “initial payment”. The initial payment is credited back on final invoice if full services are delivered, if the project or contract is terminated through no fault of the architect – the money is not credited back. Either way, the initial payment is considered “earned on receipt”. The issue with both a deposit and retainer is that they are technically liabilities in the since you have possession of the money, but you do not own the money, your client does – you have received the money but you have not earned it. It should be entered on your books this way as well. This limits what can be done with the money and obligates you to refund the money if not used. I was advised by an attorney that this can even apply if you state that the deposit or retainer is non-refundable. By their very nature, they could be seen as refundable if you haven’t earned the money.
Ah. Good information. Thank you.
Good point(s). I like the use of initial payment.
NOTE: Great thoughts! We’re re-evaluating as we write.
1) I’m getting better at defining and collecting Additional Services. For some reason, our (all Architects) clients expect us to design, produce documents, provide CA and generally guide them through a seemingly simple, yet very complicated process “as a favor”. They willingly pay their attorneys and doctors, but are “looking for help” from Architects.
2) … still working on my story…
3) Our CD submittals now fall somewhere between Permit ready and fully detailed. We have found that getting the Contractor involved earlier (their fee determined up front based on general Scope of Work + open book costs) allows us to avoid extensive revisions by reviewing details early on. … unless, of course, we are producing an extremely “custom” and unique project, which only works with a higher % or fixed fee based on previous experience. These types of projects always require more extensive CA. This also helps spread the ownership of preliminary construction budgets, which are often wrong and are the Architect’s fault. If we quote too high, we lose the project and if we quote too low, we are asked to redesign at our cost.
4) All of our invoices are due upon delivery of deliverables. In addition, we always collect a non-refundable retainer, which is applied to the last Phase of the Agreement.
5) We have raised our fees and we feel good about it. We lost a few projects in the beginning, but the word has spread that we provide all encompassing service, which requires proper compensation. But what a struggle to get there.
The best thing we’ve done is raise our fees. Thanks for your comments.
I have also recently raised my fees. So my question to you Mark (or anyone else), did you do anything else besides raise your fees that resulted in getting more of the kind of business you wanted? In my mind there are two benefits to raising fees. You have more money (which equals time) to do a great job on the project, and provide great customer service, so that gives you a good reputation. But also, do you think that people have a better impression of you if you cost more, like an expensive bottle of wine or piece of artwork?
Jill: The value you provide must warrant the higher fee. Your services must be clearly better than your competition. The best way to prove this to potential clients is through your many happy client references. If your service is special, than your clients will want to rave about you and tell your potential clients that you are in fact worth more.
Your brand also needs to communicate that you are worth every penny of that higher fee. Your proposals, your website, your biz cards, YOU… all must communicate that you are special and worth the extra money.
Perceived value is certainly a benefit from a higher fee, but if the actual value doesn’t match the perception, your fee won’t stay high for very long.
Keep us posted on your progress.
Great day on the blog. Thanks for your contributions, support and continuing encouragement.
Mark – I also want to congratulate you and thank you for this extremely meaty blog post. You hit a number of major issues for all of us — issues I’ve struggled with and continue to struggle with. This is one of your best posts ever.
I have also been steadily raising fees to increase perceived (and real) value and have been willing to let lesser projects and opportunities go when I’m not a good fit or am deemed too expensive when cost is their only deciding factor. I now know that if a potential new client isn’t interested in my past work or the value I bring to the process and is only shopping for the lowest price then I’m probably not their architect.
I’m also constantly wrestling with what drawings to provide. I come from design heavy firms with a tradition of drawing *everything* and specifying every last little finish. However, those firms charged much higher fees and many of my current clients aren’t able or willing to hire me to design and specify everything. So each project is a careful analysis and dance to figure out what exactly needs to be drawn and what can be left out. Sometimes it’s easy, others very tricky. If a GC is involved early I love it because we can collaborate and I won’t draw details we agree they can do without as long as it doesn’t compromise the design vision. Deciding what to draw is challenging and important to get right for the sake of the project and the firm.
I’m a stickler about getting paid. I can’t afford not to. I bill monthly and give two calendar weeks for payment. 90% of people pay on time or early and about 10% pay after a gentle reminder. BUT – I’m terrible about charging for additional services and logging and charging for all my hours. I know I need to get better about this. Since I’m still working on getting good portfolio projects built so I have work to show new clients and market with, I am too willing sometimes to put in the extra time as a sort of investment in my future portfolio. I have seen some fruit from this, but I still think it could be hurting more than helping. That “free” work has come back to bite me more than once and has caused some clients to value me less, I believe. I have sworn off doing it any more.
After a rip roaring spring and summer my firm is slow and I’m taking the down time to improve my website and re-evaluate how I go about getting work, raising revenues and generally doing a better job of writing my own entrepreneurial story. I have a path charted for this and as an avid reader of EntreArchitect, Business of Architecture and so many more in our circles, I feel the surge of energy to take back our profession and write our own story. I’m going to look into architect led CM, Design-Build, development opportunities and even take a look at a possible GC license. It’s time to kick it up a notch.
Mark, thank you again for an inspired post!
Cary: Thanks for the great comment. I am so happy to be of service.
Great article – compelling argument however I am disappointed -of all the comments ( admittedly viewed on a smartphone) – I am yet to see any actual % quoted; hourly rates nominated; relative weighting of Sd, DD, CD phases; etc. Are we architects fundamentally bad at sharing intelligence?
Regards
Patrick
I don’t think we are bad sharing – we are not great on details, but there is actually a lot of information out there on these items. Financial Management for Design Professionals is a must have book. It teaches how to calculate hourly rates. Turns out, it is not arbitrary, but very precisely calculated based on one’s overhead rate, break even rate, and profit margin. As they say, if you want to run a successful business, you have to know your numbers; These are the numbers to know in our business. To illustrate how important this is: A lot of young architect’s don’t understand why they are paid $30/hr and billed at $95/hr. If you run your numbers and know that your break even rate is $75/hr., then you must bill at least $75/hr. or you will lose money, & you must bill roughly $95/for a 20% profit margin. The book also illustrates a common mistake in calculating profit margins. A lot of professionals simply would take their break-even rate and multiply it times 1.2 for 20% profit, however that is not a true profit margin, that is a profit over cost (or markup). In order to determine your true profit margin, you must take your break-even rate and divide it by 80%. If you don’t calculate this accurately, you could be losing 3-4% in profits on each job. All of this is far more important than setting your hourly rates based on what somewhat else does.
For % based fees, you find much variety and it depends on the project. Speculative development (such as multi-family) can be very competitive and approach downward of 2-4% of construction costs. Custom Residential on the other hand can reach 12.5% – 15% depending on if it is new build or addition/remodel. Keep in mind, higher percentages don’t necessarily translate into higher profits (for profits, see above paragraph). Scope/scale of project obviously affects the percentage, as well as the market (and it is a very competitive one where I practice).
Relative weighting depends on how one works and will vary from practice to practice. BIM will have heavier weighting up-front – traditional 2d design will be weighted on the back end. Generally – SD: 20-30%, DD:15%, CD% 35-45%, & CA: 20%. There is some benefit to set your CA fee as low as possible so owners are not tempted to eliminate your services. If you do this, you must move your CA fee into the other phases, and watch your cash flow because your CA phase will lose money, but your previous phases will ideally offset the loses. You should also make it clear that CA is not optional. Other ESSENTIAL books I recommend are: The Business of Design, Architect’s Essentials of Starting a Design Firm, The Architect’s Handbook of Professional Practice, and the Architect’s Portable Handbook.
Mark – Hope you don’t mind if I add number 6 to your list.
Control your expenses. I used to take this idea lightly. But it was pointed out to me that running at 20% profit means that in order to make 1 additional dollar, you must increase your gross revenue by 5 dollars. However, you can make a dollar by not spending it, and you increase your bottom line in a direct way, dollar for dollar. Now, you can’t nickel and dime your way to success, but it has helped me pause before spending that extra dollar.
Hi Mark,
Very good tips. I do not have my own business…yet. I actually just passed my exams early this summer. I have a buddy though who I respect immensely for his good nature and his unwavering commitment to design. But my heart bleeds for him because he is a terrible businessman and he is killing himself for the sake of the design. He started his own business after being let go, had faithful clients and would work 100hr weeks for them. But then times got tough, and more and more invoices went unpaid. And being a kind hearted guy and generally not wanting to think about the business side he often settled with a fraction of what he was owed. He had a “pay me when you can” attitude towards his clients, but the “when they can” never came. He contacted a bankrupcy lawer a year ago who tasked him with going through his financials over the past five years. He discovered that in that period, there was over $200,000 in fees that had gone uncollected!! And I know he is not unique in this. I think nearly all of us as creative pros would like to design all day and wish the money would just take care of itself. But that is not the reality. I refuse to let this happen to me. I am going to start a business someday and I just wanted to say I love what you are doing here. I have a lot to learn and there is a wealth of knowledge in your podcasts, blogs and the folks that leave comments. So thanks to you all. Cheers.
For me, working for/by myself with a balance of 95% residential & 5% commerical small-medium sized projects, I only work with flat fees, stipulating additional flat fees if the scope of work expands. Also I include a description of what drawings and services that flat fee includes and are necessary for the best outcome for the Client’s project. Rarely have I been asked for an accounting of my time by a Client. Most of the time I am just under or right on my estimated flat fee for my time. Occasionaly I under estimate, but if it is my mistake, I never ask a Client for more money. My return Clients state that they like the fact that I do not “nickel & dime” them. I find that dividing the flat fee into payments based on milestones works best. You don’t pay me, the project does not move forward. And I always get a retainer!
The way that my partner and I resolved the cash flow issue in our firm is that ventured into design-build. Our receivables increased an average of 3x and our profits have soared! The work load requires additional staff support but the financial rewards are tremendous! That doesn’t we can indulge go to Las Vegas and go on shopping sprees. It means that you have to remain frugal about how you run your business and still carefully watch your bottom line to be able to maintain a solid financial base on which to run your business. Design-build has helped solved our firm’s financial woes. The next best thing is that you can build what you design and it is so satisfying that it fulfills our role as Architects and Master Builders.
Thanks for sharing Roland. I believe that looking beyond the traditional architectural services firm to alternative delivery methods is the way architects can be more successful. The future of the profession will see many more stories such as yours. Very inspiring stuff. Thanks again.
I agree with your ideas .. but in marketing you didn’t focused on social networks .. I think it is a very useful way to advertise for your firm so you can make more clients so make more money .
I have a friend that is doing a master research about the relation between firms and social networks to know if it is useful to get more clients form social networks.
I’ll get it from him and give it to you in order to transfer this study on architecture firms, if you are interested of course
Hi Mark – a friend of mine just sent me this post. I am an interior designer and architect, and often blog on similar topics at my blog The Midnight Lunch. The amount of discussion that posts on fees like this one generate seem to suggest to me that there are many architects and designers wanting to know more about the business side of architecture. It’s not something we are well trained in, or often even learning on the job. I will be signing up for the linkedin group too.
I also like the approach of limiting deliverables and activities. In my sphere of design (mostly large workplace projects) one if the things that chews up the fee is the meetings and user group consultation. One of the things I like to do is limit meeting attendance (particularly with some projects involving an hour or more travel each way) to what I think is reasonable. Now…this gets scary – one meeting per week of a project that goes for 6 months or more is pretty reasonable? Some clients think not. They want us at their beck and call for months or even years, with no limit to the number of meetings. They seem to think that we are somehow ripping them off by charging to attend meetings! However, there are others who really appreciate a proposal which defines exactly what we are doing and what they are getting. It’s obvious which kind we should be working for!
I am a new solo Firm, and as the term “solo” states, I am a one-man show. I am working out of my home and basically “Bootstraping” the business to get it going. However, I am pressed to have enough cash-flow to pay my bills. I have been blessed with work, however, since I develop the drawings, it takes too long to get the drawings to a stage for Billing. Is there a way to increase cash-flow? I normally Bill a percentage of Total Fees after the 1st Draft is ready in Schematic Design. Should I change my Billing process?
Rickey, Congratulations on launching your firm. And welcome to the Community. I have 2 thoughts for you. 1) Are you taking an “Initial Payment”? When we sign our contract, we ask for about 10% of our expected total fee up front. We technically hold that amount as a credit and apply it to our final invoice, but it goes into our general revenue fund and is used for operations. The credit is just uncollected income at the end of the project, so there is no money out of pocket for the credit. 2) If you are performing services for additions or alterations, do you charge separately for the Existing Conditions Survey? We charge .75/SF of measured space for measuring and drafting the existing conditions. That adds up to a few thousand dollars before we even start designing for SD and is in addition to our basic fee. I hope that’s helpful. Best…
BRILLIANT!!!
Billing the client separately to measure and draw the existing building/conditions. I don’t know if I’ve ever heard anybody mention that before…I’m going to be rich, finally, a rich architect. Ha!!