October 13, 2017

Breaking Down the Mysticism of Design Fees

It has been my experience that many of my colleagues struggle to understand the basic principles of economics. To complicate matters there are an infinite variety of services and building types making it impossible to gauge the appropriate fees with our level of service. I’ve witnessed where some architects consume themselves with design to the point where getting paid becomes an afterthought. Look, if we want to continue our passions for design, we need to make enough money to stay in business through the peaks and valleys. I was regularly reminded that we are a “For Profit” industry. There is nothing embarrassing or somehow less noble about wanting to make a good living from our hard work.

Still, many architects undersell themselves and the profession. I become concerned occasionally if I hear that our competition is willing to do the same project for less money. Let’s face it; clients are getting very thrifty with their investments looking for bargains. I explain to them that if they want to spend less then they need to be willing to accept less design and assume more responsibility. This never tends to be a good formula for the design team, the owner, or the construction team. Ironically when these shortcuts are taken, the project almost always ends up costing just as much if not more.

If you are wondering if you are leaving money on the table when negotiating fees and don’t know where to turn, often the AIA has an annual review of fees. It is worth the investment to get you on track. Additionally, a basic understanding of your hourly fees and your multiplier can help you in dealing with increasing overhead costs. A wiser person once told me that if your multiplier was not between 3 and 3.5 you are working yourself out of business. Very simply, when determining your hourly rates it needs to be at least 3 times as much as what you are paying yourself and your staff in order to keep your lights on, your insurance and all the rest of the bills paid. This is very fundamental but it is a basic starting point.

Often we calculate a percentage/fee of construction costs, the larger and simpler the building/type the lower your percentage will be. If however, you have a very complicated but smaller project, then your percentage will increase. Often times I will actually complete a spreadsheet with projected hours for what I think the project will take, then I will check it against what the expected percentage should be and usually, they are very close. Sometimes if the scope of work is not well defined or the owner is not committed to a specific direction, you need to negotiate an hourly fee rather than a fixed fee. In any case be very specific about not only what is included for services in the fees but also what is not.