Fees
Note 002: Money and Value
“Listen mate, that all sounds good, but my drafty reckons he can draw this up for half the price.”
Cool.
And my mechanic reckons can have a crack at your heart surgery for a case of Cooper’s Green….
Shall I book you in?
In the beginning - any idea of winning projects, negotiating your fees, getting paid and becoming a professional lives and dies by your ability to articulate your value: What makes you great.
Welcome to the architectural battlefield!
It’s time to get you paid.
Tonight’s menu…
This will be a multipart note. The subject of fees, pricing, value, market, perception, and deliverables has so many moving parts it is challenging to digestibly summarise.
As some of you have yet to launch, some have had their first nibble and are unsure about how to charge, and some are further along the journey, I’m going to break this introduction down as follows:
First Fee > Beginners Guide > Power-Ups > Advanced
There is also some staging terminology that I will be referring to that broadly follows project time lines:
Design > Documentation > Construction
I actually break Design into 3 stages, and there are important stages between Documentation and Construction, but we will keep this high level for our introduction and follow up with future notes.
There are also 3 major ‘types’ of Fee that we will be referring too
Hourly Rates, Fixed Fee, Percentage Fee
All of these moving parts interact, have their pros and cons, and are suitable for different projects and for you at different stages of growing your practice.
The more information that you have, over time, based in reality, the more you will know how to actually cost the next job by what it actually costs you. There are a few variables, and the data collection takes time
But we have all have to start somewhere!
Gradient, not a cliff
Now for those of you implementing my Gradient not a Cliff tip from Note 000, (slowly scaling up your side hustle at night while employed until it becomes viable to pursue party, or fully) this is excellent news, as all you time spent is out of hours, as a side hustle, and essentially all profit as you are yet to incur any business overheads.
You are free to pick and choose your projects more carefully, wait until the time is right, and then as you approach the end of the gradient, with completed built work, launch your practice publicly, with 3 projects, and pay yourself an income – bravo!
Unfortunately for me, I had jumped of the cliff
First Fees
As I was off the cliff and preparing to land, I needed to quickly support myself as quickly as possible, from whatever projects where available. You may luck in with a great project straight up, but my story was small budget various odd jobs.
After a few hiccups (very small proposals for very small projects that were rejected), I had my 1st accepted proposal and paying client. Woohoo!
I was giddy with excitement. I was in Business. I had left the land of hobby and dreams and become a professional.
The Problem with Time Charge
The budget was tiny, so there was no way to put a percentage against it, and not knowing at all how to essentially guess and prepare a fixed fee, proposed a time charge (hourly rates) proposal.
Hourly rates are something that I found psychologically looks more palatable to yourself when first proposing payment for your creativity, as you can charge much less than what you were likely charged out at your practice as an employee, because those hourly rates include padding necessary to cover office overheads, rent, profit, software, equipment and all the unpaid time directors spend winning the projects for their team.
Unfortunately for that project, it became too expensive too quickly and never went ahead.
Pros of Hourly Rates
You are paid for every hour that you work, brilliant! You will love them.
Cons of Hourly Rates
While clients can love them from the get go, as there is no large scary figure on the contract to begin with, I have found, without exception that said clients end up hating them!
As the bill racks up, and design process can come across as open ended, hourly rate agreements very often do not end well.
Training Wheels
After a few hit and miss tiny odd jobs I finally had my change to be shortlisted to 3 architects for a modest budget extension.
I had researched more thoroughly, and used the Australian Institute of Architects Client and Architect Agreement, where the menu had choices to propose hourly rates, fixed fee, or percentage fee by stage.
All my experience to date had taught me tat project budgets only seemed to ever go one way – up – and never come down. Sometimes this is through clients decisions, scope creep, sometimes due to macro market moves in construction costs.
But within myself I found it almost possible to justify a floating percentage that I could essentially cause to rise through designing something too expensive, not knowing any better in the early days, and potentially getting paid more for it!
The Power of Fixed
My 1st chance for a real project that had great clients, great style, and a modest budget that could certainly achieve something wonderful, I was very nervous about getting knocked back.
I knew roughly what percentage fee would have been at my previous office for a budget of this size, and that I could not charge that much, as I did not have the experience level.
The following process wins me my 1st full project that would go on to completed construction.
I knew what percentage fees would have been at my previous firm, but with none of the overheads, knew I could charge less than that (which is true)
In my cover letter, I made the case for my full service fee, then offered a fantastic discount as you are my 1st clients (which is also true)
To offer further assurance, I will convert this discounted percentage for the design stages to a fixed price lump sum to give the clients piece of mind that there is no conflict of interest incentive for me to raise the budget through design (true – but I was also petrified of having to justify a floating percentage!)
This bleeds into the advanced psychology and negotiation subjects for future notes, but as your takeaway to nail that 1st proposal and chance to really kick off:
Implement the fixed-fee kill shot :)
To even have a seat at the table was a result of years if indirect rapport building (see note 001 Network), but when it comes time to win the commission in a shortlist environment, your negotiation skills become very valuable.
(PostScript – in hindsight it was a tiny fee and way to small for the workload I produced! But this is why Architecture is a long game).
Pros of Fixed Fee
A fixed fee may get you across the line and set you apart from others when you are early on in your career, and still being treated like a commodity. This something to strive against, and we will talk about advanced techniques in a future note in terms of value and psychology.
Cons of Fixed Fee
You can run out of fees if you produce too many design changes, which was the main negative for my own office, as we are a design heavy office that prides ourselves on refining, and refining, and refining until each project is excellent.
A serious Con would be to run out of fees before you have delivered your contract deliverables – definitely avoid this.
A bonus tip for pursuing fixed fee contracts:
The ‘pro disguised as a con’ of fixed fees for me is that they keep you accountable to meet your own deadlines. They enforce efficiency.
(I am a recovering perfectionist, where my tendency in design of left unchecked is to go on and on refine and refine, perfect and perfect.)
The holy grail
I have changed my philosophy to percentage fees over time as I understand my practice more deeply, and as we as an office have scaled certain heights to earn a particular place in the market.
Over 8 years, I have practiced in booms where people might be happy to pay, and tighter moments where that is not so. Hot tip:
If you have your finger on the pulse, this sentiment swing seems to mirror builders only putting forward cost+ contracts, verses when they are happy to lump sum tender. (For a future note)
Like The Force, I use it sparingly and wisely, only when a budget is suitable, and only for certain sub stages of my process (which I will go into more depth in a future note masterless).
They do save you a lot of heartache, as with fixed fee proposals, you need to become very good at renegotiating often if scope creep comes in or reign in the project to keep it on track.
Pros of Percentage Fees
The philosophy behind a percentage fee, which is true, is that if a building budget increases, your workload to document then administer the contract does increase with it.
It saves a lot of heartache and protects you against scope creep to focus on what you love to do – design!
Cons of Percentage Fees
What goes up, can come down. Be mindful that if a construction budget decreases, your fee will decrease with it.
The big negative is the potential conflict if interest, so as a rule, avoid of the project budget seems to not be near where it needs to be to compete the brief.
It takes time to know time
The summary to pricing your creative services is this. It takes time to know time. Over time you will get to know how long it does take you to complete work you are proud of to delight your clients.
This can then go 2 ways –
A ) Whoah!
I take way too long / I am way to expensive , I need to improve my efficacy to complete drawings quicker to meet certain price expectations.
B) Whoah!
I need to approach higher budget clients that can afford my process as it stands
Is there a golden rule?
For me, yes, but it takes time and is an ADAD trade secret :)
Just joking we are here to give, so here you go:
I do have my own spreadsheet, calculated for each phase, for every budget range there is, (to deliver our specialty – bespoke single homes on challenging landscapes), because after time and many projects I know what it costs our office, to complete the workload we need to do, to produce the buildings we do.
Which will be different for you.
For me, this involves protecting my process to deliver wonderful architecture, which I will fully go into in another note.
It will be different for you but, at ADAD it means:
- A lot of time up front for me, as director, to design by hand every single project’s Concept Design
- Very little computer Rendering
- A lot of Documentation, we are known for our interiors, details - and we love to dive into this
- Full Contract Administration
This was a huge penny drop for me. When I got over the anxiety of not producing the stellar renders of the (even) younger generation, and needing to reduce fees, skip hand drawing, but the opposite.
You need to fight for your Design Process and reposition it if necessary for what it is: a Benefit
So what makes you great? Let me know!
Remember, whatever the fee: Fight for Your Process
See you soon,
Andrew Donaldson
Note 002 done and dusted!
Please give me any feedback whatsoever, I would love to hear from you - after all, this is for you :)
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Super helpful, Thanks Andrew! Loving the weekly notes