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Industry insights

The Interior Design Pricing Equation

Pricing, one of the great unspoken topics of interior design.

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The muddied waters of pricing can be very daunting for both new and experienced designers. In this article, we’ll talk through a number of pricing options open to interiors professionals - and most importantly the pros and cons. Opinions on each are distilled from intense discussions between the 75 designers who joined us for the groundbreaking eporta Roundtables series this summer.

Unspoken topics of interior design roundtables at Decorex 2018
Unspoken topics of interior design roundtables at Decorex 2018

Consultation

Before the ink even touches the drawing board, designers meet their clients for a consultation. This is the first point at which a designer can charge for their services, and the decision to charge a consultation fee or not was divisive at the roundtables. Some argue that the charge is necessary; after all, time is money ... and the consultation, briefing and project assessment process can easily take two hours, or even longer. What's more, only 1 in 3 of these consultations will progress to the next stage, so covering your costs should be a minimum requirement. Some participants also highlighted that a client's willingness to pay can be a great indicator of their investment in you as a designer - if they’re happy to cover your fee, then they probably aren't talking to many other designers.

A counterpoint from other participants suggested that that the initial fee can be a blocker for getting a “foot in the door”. This concern was particularly relevant for designers just starting out in business, where building a portfolio is a priority and justifying a charge without experience can be challenging. One-third of the designers involved said that they’re selective about when they charge. If they feel the project will be outstanding - with a great client and brilliant photos - they may choose not to charge an initial consultation fee, whereas if they didn't “click” with the client over the phone, or the project doesn't sound viable, they'll charge a fee up front.

Anatoly Alekseev, Director of Black & Milk, and chair of the pricing roundtable at Decorex 2018
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Anatoly Alekseev, Director of Black & Milk, and chair of the pricing roundtable at Decorex 2018

Fixed Fee

Although established practice with architects, a fixed fee model is relatively new to the interior design trade - but has quickly become a favourite pricing method, where the fee is based on the scope of work and the estimated time it will take to deliver the design. Members found that their clients also preferred this approach for its clarity and budgeting ease, as it's clearly results-driven. Furthermore, the designer wants to finish the project within the agreed time frame so that they aren't out of pocket. It also minimises any quibbling over time spent...unlike the hourly rate model!

The fixed fee model does, however, have downsides - primarily because there isn't any flex in the price. If the project runs over, you will have to make a call on whether you accept your losses or go back to the client and renegotiate the fee. Clearly specifying what is and is not in scope from the beginning of the engagement can help to minimise the chance of these conversations occurring. Some of our attendees commented that this is a very confident way of pricing because accurately estimating the timescales requires a lot of project experience. This can make it very tricky for new designers to get it right the first time - if they don’t, they have to gain experience the hard way by losing money on some projects so they can recalibrate the fee correctly for next time.

Roundtable discussions held in August
Roundtable discussions held in August

Hourly fee

This traditional approach to pricing allows designers to accurately bill and receive payment for the work they put into a project. This can be great for designers - but according to our roundtable members, clients don't trust this approach to pricing. They worry that, without the motivation to finish the job, the hours will be exaggerated. The good news is that our participants felt that this rarely happens...but in a business based on relationships, the mere thought can be damaging to your reputation. This method will also require a lot of admin time in order to accurately account for the hours that have gone into the project. Interestingly, there was a consensus in the room that if clients had a greater understanding of what designers do, why it matters and how it helps, then they would value the designer more and not contest or mistrust this kind of pricing as often.

Project Percentage

From the budget agreed at the beginning of a project, the designer agrees to take 'X' % of it as payment. The actual amount payable remains fluid until the project is completed, meaning it could go up or down depending on whether the client expands the scope or cuts back on spending. This can be a clean and easy way of pricing - but it isn’t without its drawbacks. If the project runs on longer than planned, or more design iterations are needed, then this charge may not cover the work. It also relies on the budget remaining the same, which is often tricky as budgets get reallocated throughout a build. This was not a popular pricing method with our attendees, who preferred the fixed fee option that gives designers more control.

Pricing roundtable discussion at Decorex
Pricing roundtable discussion at Decorex

FF&E Procurement

It's a well-known fact that interior designers receive trade discounts on certain products. The decision around whether or not to pass these discounts onto clients split the roundtable attendees into three groups. One third said that they pass on the full discount to the client because they are a fundamental reason that they were hired in the first place - it's simply what a client expects. A further third retain the margins completely, charging the client the full RRP of a product. The last third flex between the two, giving a slice of the discount to the client whilst holding back a cut for themselves. Regardless of their beliefs, it was widely agreed that sourcing is where designers can really add value to a project - their networks and knowledge allow them to curate and specify the right products for the client, so they should make money from it. Furthermore, nearly every designer charged a commission fee on the procurement of up to 20% of the items purchased. This was done regardless of whether they hold on to the discounts or not.

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Per anything

Per sqft, per m2, per room - “per” has become the prefix to a lot of pricing methods within interior design. Commercial spaces have long been designed on a price per sqft basis, and - whilst not common practice within the residential design market - it offers a straightforward approach to pricing within complex commercial projects. This method is usually used in conjunction with another pricing model to allow room for add-ons, such as a design fee. We only briefly discussed this option at the roundtables, and it was immediately discounted in favour of the fixed fee option, which designers perceive to be less transactional and formulaic - and this option also places a higher value on what a designer brings to the table.

E-design companies have been growing in popularity, partly due to their simple and straightforward approach to pricing. They charge at a fixed price per room for residential clients, making it easier than ever to allocate budget to a house re-design. This offering is set to grow as more companies enter the market, and roundtable attendees pointed out that this will soon become a threat to their pricing structures as they struggle to compete with the clear fixed rates on offer.

Michael Faulkner, Partner at Design Haus Liberty and pricing roundtable chair.
Michael Faulkner, Partner at Design Haus Liberty and pricing roundtable chair.

Success fee

An interesting concept bought to the table by one of our industry chairs is the success bonus. If the design helps a client achieve a goal (for example re-sale at a certain value) then the designer receives a success bonus. This suggestion would satisfy the growing number of results-driven clients by introducing a mutually beneficial outcome, and it also highlights the value of design and how important it is to get right. This would work best for property developers and commercial schemes which have measurable outcomes, and we can't help but see this as a win-win pricing method for clients and designers.

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Conclusion

It was clear from the roundtables that very few designers use the same pricing approach every time. Instead, adopting a pic 'n' mix approach to pricing, which is led by the relationship they have with the client and how much they want the project vs what the market will take. Their pricing equations, on the whole, looked a little like this:

Design Fee (+ Consultation fee) + FF&E (% commission + trade discounts) + Installation project management = Project Payment

There is no right or wrong way to price - it seemingly comes down to value; how much a designer values their ability and how much a client values their skillset. Transparent discussions which educate the client about pricing can help to minimise issues later on in the project. Combine these with watertight contracts that spell out expectations on both sides, and pricing becomes less of a minefield.

Finding a balance between the three of these will make any pricing matrix work, and we couldn't agree more.

We're continuing the conversation here. Have your say.

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