Design Fees

[Samuel Burnett-Ragueneau]

I recently began working for a design/build firm and have witnessed troubles making design a lucrative aspect of the business. Generally they apply a flat fee for design that more often than not tends to not allow enough time to develop a design and still profit from doing so. While this can often be written off by the profits made from the installation of the project I tend to think that the design work can also be profitable for the company as well.

This leads me to my question, which is: how do you bill for design in a way that allows it to also be profitable?

I would really love to hear how others are doing this, how design is broken down and what services are offered and how they are billed?

Thanks!

[Jason T. Radice]

You already hit the nail on the head, your design services are discounted in order to procure the build aspect of the job. In order to make money on design, you really need to understand the time involved in creating the design for the client on a particular site. You need to find the most efficient way to work. Maybe its process, maybe it’s technology. The cost of design software can be quickly offset by time saving in revisions and the work some do (coloring, plant lists, detailinking). It is also a good idea to create standardized components such as details for the way you want to do things. You can make them unique to a job by changing them slightly, but the foundation is the same. You will never be able to compete on costs with the design/build model, as the design is usually a loss-leader. If you are able to get design only jobs, you can charge more as well, but the product has to be exceptional and above what the design/build model can accomplish. Good luck!

[Andrew Garulay, RLA]

There is no one size fits all answer to this. It starts with where the design leads are coming from which defines the range of demographic you are working within. Design can be a stand alone profit source only if it is working a demographic that values design, the cost of design does not overwhelm the budget of the project, and there is a continuous stream of leads to feed the service.

In design/build contracting companies, as opposed to design/build by contract administration, design is a marketing tool that has a phenominally high closing rate on the “build”. If you sell the design, you generally own the “build” unless you really over price it or somehow make a bad experience out of the design process. That makes selling the design a very valuable thing that can be worth the investment as a loss leader, if necessary.

I’ve worked as an employee for several design/build contractors and each had its own system that fit their circumstances, but there were a few consistencies with the successful companies. They had some kind of pre-qualifying system whether it was charging a “consultation fee” (only those that get more leads than they can handle), limiting advertisement to target markets, or by phone interview. They fast tracked the design process so that it went ffrom introduction to shovel ready without too much revision and/or meetings. They did not produce extensive design details and spec’s, but more simple to produce deliverables – most were single sheet black & white line drawings in plan view. Basically, they only designed for jobs they wanted, they got the design done quickly, and they controlled costs by limiting the design product.

Another thing is that they almost always put a flat price on each design with well defined schedule of meetings and revisions and a scary hourly rate for extras. That made it easy to sell and easy to finish.

As LAs we tend to want to use all of our skills to produce the best deliverable design products, but as the fly fishermen say “you have to match the hatch”.

Design more than covered its cost in most of the companies that I worked for because they managed the design well. I had the good fortune of working for a couple of companies that were well established and had this down to a science after many years of trying to figure it out. That is one huge benefit of internship.You get to see the results of someone elses years of finding out how to do it. Then you can start from there.

You are either selling design that day or not at all. You have no control to educate clients about design process or anything else. The only people you have time to educate is yourself and the people you work with. You have to find a way to manage design within the price that you can sell it at because the market won’t change to suit you. You can change to a different market, but you can’t change those markets within themselves.

The question may not be how to get more money for design in this case, but how to control costs of design.

[alland]

Your question is indeed the point at which design is valued by the design build contractor. The contractor loves good design, particularly if it generates a sale. You can bill for your hours (including ALL revisions)…and inevitably run into a roadblock with some contractors who do not want to pay. You can almost always cut a deal for a commission (usually 10-15%) of the installed price if sold.

Just keep in mind…everyone wants a drawing for free..or cheap, like anything else. As you grow professionally, you will learn to realize that what we do is valuable and not FREE. If a client does not understand this, it is usually best to walk away, to save time, gas, drafting time and a headache. This may be difficult at times, especially in 2010, but the freedom of NO will help you develop as a designer.

[Andrew Garulay, RLA]

I’ve taken the understanding that J. Samuel is working as an employee rather than as a sub. If that is not the case, then what I wrote is not exactly applicable. But, there is a lot that is.

It is a tougher match up because the designer has to make a living off of the design fees if (s)he is contracted. It makes a tough relationship because the contractor can’t kill his lead by having too high a design fee at the same time the designer has to make a living. I’ve done that a few times, but the contractors don’t stick with it because it makes them less competitive. What does work, is when the contractor introduces you to the client and let’s you deal directly with the client. There is some vulnerability for the contractor because the client can shop around with the plan. It is risky for the designer as well because if the client hires a different contractor the refering contractor might not refer more work. I do this regularly with one contractor and have done a few one shot deals as well. The regular is comfortable in knowing that I do the best I can in keeping him on board. The advantage to him is that he keeps on getting work done and lets me deal with the design process and I usually upsell the project because the client knows that it is not because I’ll make more money on it. Remember that you can only get paid from one or the other and not both unless you notify the client in writing beforehand. I stick to the one payer.

[Samuel Burnett-Ragueneau]

I am employed by the company I do design work for, I am not an independent contractor or sub. My question is really about how a design / build firm should handle this internally. I am really looking to help increase profits from design work and to assist in helping them develop new and better design fee standards.

All of the comments so far have been very informative and I appreciate them. I would also like to hear about any others out there working in the design / build world and how they approach design fees.

Thanks everyone!

[Baskar G]

better go with15% of project value . or depands on size , clients demands and measure time involved with them.

[Boilerplater]

Another thing is that they almost always put a flat price on each design with well defined schedule of meetings and revisions and a scary hourly rate for extras. That made it easy to sell and easy to finish

That’s a good way to go and an important thing to note as well. I’ve encountered a LOT of abusive people in my experience who will use you for revision after revision and then not go with you at all. I have sold jobs after going back and forth with indecisive customers, for MONTHS in some cases. We wouldn’t have to tolerate that if the economy wasn’t so horrible.

If you’re in a state with a practice act, check if you need to be licensed to actually charge for drawings. The last thing you need is someone filing a complaint with your state board or the contractor’s board against your company.

I got to know what our crews were good at and could accomplish efficiently and that would influence the designs we tried to sell. Unfortunately, you need to steer clients away from things that would be difficult for your crews. Yet again, we have another example of forces going to create the “Geography of Nowhere” look.

[alland]

absolutely, boilerplater. a client (design builder) putting a cap on your fee, and going way, way over the top with their own revisions, or from the homeowners’, distilling down timely drawing time.

Ouch, awful…..abusive.

[Andrew Garulay, RLA]

Milking design revisions is not economy dependent at all. It was just as bad in the boom as it is in the bust. It is all about having a system in place with a contract that puts you (your employer) in control. The only way to do that is to make every step of the contract quantitative and in your control.

You can’t just say “x amount of revisions” because the client hold you back indefinitely while they “are thinking about it”. You have to tie the revision to a meeting by using words in your contract like “the second meeting will be to discuss and determine revisions, if any”. If you have the meeting to determine revisions, it means that you leave the meeting fully able to revise the plan and meet your contractual obligation. This does two things. One is that the client is going to make damn sure to pay attention and work out as many issues as possible in that meeting. The second is that you can continue to finish up the plan whether your client has ade any decisions or not and still meet your obligation. Obviously, you would use discretion in how you would excercise that option, but you always have it when necessary.

Every part of your contract should be clear enough that there is no doubt that it was done or it was not. Satisfaction of the client or any other qualitative situation allows you to languish. Write in what you are not supplying by offering it as an extra that will be billed a certain amount or at a certain rate. This is most important with things that can drag out the amount of time spent on a project.

Anytime there is an alternative that will be billed hourly, the client will make every effort to give you the information that you need in order to avoid being billed hourly. That is twice as productive as actually billing hourly because you get the design done quickly. Quick equals efficient when billing a flat price. This is managing the process in order to make it effective at a competitive rate.

You have to control the time on a project every way you can in order to make a profit on the same design fee. .. and if you can get more, that is even better. But it starts with streamlining the process and the deliverable product.

[Andrew Garulay, RLA]

I share many of the same observations of J Dane. There are many realities that are not often anticipated when you take a job as a designer in a design/build contractor company and you learn about them as the year goes on. That is a good general summary by J Dane.

BUT, the same holds true as an independent designer – unanticipated realities. The biggest is that without an established network, there is no one looking for unestablished designers to hire in a sea of established designers scrambling hard looking for work. J Samuel has a job in a time where there are very few out there and the key mechanism that keeps him working is that the established company has job leads. No lead – no work. No work – no establishment of a network.

Making that job work is key to staying employed in the short term, but also building a portfolio of built work and making connections for work in the future for the long term is necessary in order to work independently.

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