Question about fee structure.

[Patrick A. Trisler]

Hi everyone. I have a question on fees that I’m hoping some of you have already figured out so I don’t have to.  

Since going out on my own, I have structured my contracts the way I was familiar with from my former employers. I charge an initial fee for the schematic master plan, which usually includes two or three options. If the client wishes to proceed into DD and CD’s, we enter a second contract, for which I charge 10% of the installed cost of the elements I design, and I refund them the cost of the initial fee. So that ultimately, my fees for the installed project will be 10% of the overall cost.  

I assume most of you out there have your contracts set up the same way, but I would be interested in hearing alternatives.

Here is my question: hypothetically, lets say I have charged $3,000 for the master plan. The client likes the plan, but wants to scale it down to fit a budget of $25K. At that point, what should I base my fee on that would allow me to still make anything? If I base it on the 10%, I would end up owing the client money! This has not actually happened to me, but a couple of clients have come close.

Am I charging too much for the initial master plan? I generally base that fee on how many hours I think it will take to churn that out, and more often than not spend longer than I thought on it. I would think I am taking too long on this portion of the design process, but I spend about the same amount of time on it now as I did when I worked for someone else. And as far as I know, those firms were not losing money.

Just wondering if this has happened to anyone, or if you structure your contracts in a way to prevent this from happening.

Thanks in advance for the advice.

[Andrew Garulay, RLA]

I don’t find too many people with a budget under $30k willing to pay much, if anything, for design.

 

Ten percent is for design or design and contract administration?

 

If you are working the $25k-$50k built residential landscape market, it might make sense to stick to schematic landscape plans (plan view, no construction details) and leave a lot open for negotiation between the client and contractor because the money for design of multiple conceptuals, design development, and construction documents is just not there. Most of my landscapes are between $100k and $200k and that is what I do. Some will hire me for contract administration, but most of my clients use their building contractors for that.  In turn, I get a steady flow of design work from the building contractors I work with.

 

You can pursue making the most money out of each opportunity or you can set yourself up for a steady flow of opportunities. I have chosen the latter and I’m getting busier and busier in a limited economy. I’m not saying that it is the best way to go or that you should do it, but I am telling you what works for me ….. after trying many different approaches in the residential arena.

[nca]

While i have heard the 7-10% figure used for fee estimates i dont think its practical to use in proposals. Id agree that projects under 30k youd probably want to come up with some minimum fee, say $1000 for schematic plan(s) only. Projects over 100,000 you might want to begin to graduate your fee as well. It is conceivable that a 50k project takes more design time than a 100k project..

Long story short, why are you not estimating number of hours, especially for small projects? Pretty simple–show est hours each task will take you, what you will provide x your billing rate or just give flat fee plus any costs plus. 

My rate is relatively low, but like andrew id rather be a little busier and make a little less per task than make a little more and have fish for work more than i already do. Besides i see the work i generate as the best marketing i can do.

[Andrew Garulay, RLA]

We who are trying to build up a business from a beginning point need to establish a client base, or more specifically a referral base. That starts with volume and grows into references which grows into value. Fortunately or unfortunately, that is how it progresses.

 

Being valuable is built rather than declared. Being valued is a state of mind belonging to your prospective client. Some have a more limited capacity to value us and some have a capacity to value those that exceed us.

 

The trick is to match the value of your ability to the demographic that is equal to it. Then you can effectively sell your craft to a willing buyer for the maximum of your current value. It is a progression.

[Tanya Olson]

Great points that I concur with in both Andrew’s and Nick’s comments – stick to schematic on lower budget projects and use an hourly fee calculation.

Our firm does not use the percentage calculation for fees unless required to by the client (some govt. agencies / municipalities). We use a structured fee proposal (Schematic, DD, CD, CA, Bidding, etc) based on an in-depth spread sheet calculating project hours by phase, including office work and other leg work that you wouldn’t charge LA fee rates for. We do provide the total per-phase fee to the client as part of our proposal / contract (not the spread sheet – thats internal) along with a very detailed description of what that phase includes and does not include. 

This way the client knows exactly what they’re getting for their money and we know that we are getting fairly compensated for our time as well as being covered for additional services. We do sometimes give people a break in fees depending on the circumstance; in one case a discount so the client had incentive to get the property surveyed as it saves us time, money and accuracy.

Not to mention the ethical implications of the percentage of project budget fee. Unless the client has a very specific and set budget I have a hard time seeing how this sets up a collaborative and trusting relationship when they may be concerned or watchful that you are designing to a particular fee rather than their need.

[Patrick A. Trisler]

Thanks for the excellent advice.

I typically base my schematic fee based on what I figure the job will take me on a per hour basis, though I do not break it down that way for my clients. Instead I spell out the scope of services and then present my time based estimate as a ‘not-to-exceed’ number. Sometimes it comes in under that number, at which point I only bill them for the actual time the project has taken. More often than not, I put in more hours than I figured I would, but cannot bill anyone for.

I mainly do this because I am still starting out, and I want the work to carry an impression. So I will do more drawings than required to make myself worth a referral.

Again thanks. I am particularly drawn to this idea of not trying to knock it out of the ball park with each project, but to generate a steady work flow. That is what I needed to hear.

[J. Robert (Bob) Wainner]

Patrick;

Some good advise from others above.  Getting started is the challenging part….and I think a

realistic time frame is a minimum of 2 yrs. (took me 2-1/2 yrs.).  Like you, I use an hourly rate – and

progressively raise that rate the longer you’re in business.  I never shared “hourly rates” with my

clients….except that I would insert an “hourly revision rate”.  Always get a “signed agreement”. 

I always used a “flat fee“…in other words, if my client agrees with everything in my Landscape

Architectural Design Services Proposal….I ask for a 10% retainer (50% up front for Residential)…

the final 50% after the CD’s are completed…I know I can expect the entire fee.  Keep good records

for every job…so, you’ll know how much profit you did on each job and you can adjust your LA

design fees accordingly.  Though I always enjoy high-end residential design….repeat commercial

work (especially multi-family developments worked extremely well for me).  I was extremely busy

on my own between 1991 and 2007…with multi-family….fees running between $25k and as high

as $50k….me just working on my own (7 to 10 project per yr.).  In my design proposal, I would

stipulate WHEN I would be sending invoices.  Be sure to indicate extras…bidding, job site visits,

revisions due to know fault of your own, travel expenses, printing costs, all reimbursables.  Your

FEE is for design only.   When I established a FEE, I never used “even” numbers….like $3,000.00,

$10,000.00, $30,000.00, etc……I went with $2,850.00. OR, $14,740.00.  Well, I know, you don’t

want to look like a TV commercial….$19.99….but, I think you get my point.  Even number design

FEES look “arbitrary”.  It’s absolutely your business…but, I never would do more than (1) contract. 

I would write up my “Landscape Architectural Design Services Proposals”…state what I’m going to

design for my client, for how much FEE and how when the payments would be expected…..and

get a SIGNED contract agreement 100% of the time, without exception…BEFORE beginning any

design work.  You sort of have to be careful for those clients who want to pay you for very little for

a Preliminary Design (or Master Plan)….then, decide not to use your services further.  They take

that Preliminary Design to a Landscape Contractor and have them run with it.  By getting (1)

contract with FULL design services….you’ll get the FULL fee.  It it’s very clear upfront, your client

ONLY wants a Preliminary Design….you may wish to UP the fee a bit…be sure to cover all of your

time.  Since going on my own in 1991, I have designed over 300+ projects….so, I have

administered – written up a LOT of  LA contracts.  So, if you have any other questions about fees

or LA contracts….please feel free to contact me.

Regards,

J. Robert (Bob) Wainner

[Author]

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