→ DESIGN AGREEMENT ←
What’s the difference between Exhibit A and Exhibit B?
Exhibit A is presented when the design agreement is signed – it has the furnishings investment estimate that was calculated in the ‘Design Fee & Furnishing Investment Estimate Calculator’ (numbers based on past projects with similar scope and size). These numbers are very high level ballpark estimates to make sure you and your client are in the same stratosphere. They are based on historic averages and will be tightened up in the Conceptual Design phase.
Exhibit B is presented at the Conceptual Design Meeting – it includes the cost of furnishings that are based on the design direction you are preparing for your client, tied into the ‘line-by-line investment amount’ with items pulled from your layout. This number is agreed to in the Conceptual Design Meeting and will guide your selections in the detailed design phase.
When you have the client sign the design agreement, do you leave Exhibit B blank?
Yes, this gives me a chance to explain that the Exhibit A numbers are based on historical data and that Exhibit B will be their actual investment amount, based on their custom design direction presented at the Conceptual Design Meeting.
Do you ever have people back out of purchasing once you have procured everything?
Unfortunately, I have. From an unexpected move to an illness in the family, projects have had to pause or stop entirely mid-way at times. That is why your Design Fee needs to cover you completely – separately of markup on product (which then needs to cover all the time and effort related to procurement). If you’re keeping your fees super low to get the job and putting all your profit dreams into the purchasing basket, this will be devastating. You have to balance your design fees and profit from purchasing.
In addition, if it’s not an unforeseen emergency, but a choice to delay, do what you can to keep the project moving. Reference the “on hold” language in the design agreement. Remind your client about how long lead times are and the likelihood of significant price increases, as well as the fee to restart delayed projects.
The restart fee is the cost to re-initiate the project. From setting it back up in the systems, adding it to the pipeline and team workload, communicating the update to all related trades, reacquainting the team with where we left off, and then most time consuming, re-quoting and updating all proposals – as all quotes will have expired. We will run into discontinued or backordered items as well and will need to assess re-selection fees on top of the restart fee, when necessary.
Have you ever taken anything back even though your policy states “No Returns”.
It’s very rare. Most of what we sell is custom and thus, cannot be returned under any circumstance. In the case of quality issues, I only buy from trusted vendors that work with me to fix anything that came in with an issue.
How do you enforce “Please note that this fee structure is based on all purchasing and execution going through us”? Have you had to address this with clients who want to buy products directly?
I have had a client shop for a cheaper nightstand (once we outlined the perfect size, finish and aesthetic direction, of course). Tough love is the only answer. In person, via a call or – worst case – an email if you just can’t get in front of them. In this case, I had to send an email.
This was my reply:
“I wanted to circle back on your questions below regarding the mix of high-low furniture selections and the investment in general.
Although right now you’re in the depths of moving, construction, and having your house turned upside down, I promise if you have faith and stick with us through this, the results will far exceed your expectations. I can totally understand where you are coming from. It seems obvious in hindsight to swap out a few items for less expensive retail options. I hate to have to say no to a client, but this isn’t how full service works.
Our agreement is that we set an investment amount together, then furnishings are purchased through House of Funk. I’m attaching Exhibit B vs. proposal with the actual pricing for your review. We are on track with the investment amount upon which we agreed in Exhibit B.
Also, we have completed the one round of revisions for Detail Design on the Master Bedroom. We would need to assess additional design fees to make another round of edits.
This is my business model and I have to stick to it to make my flat fee functional. We need to keep our process intact. If you want to revise the investment amount and do another round of revisions, please let me know and I’ll price that additional design fee for you.”
The design agreement says you are not acting as a GC, but you are hiring and managing trades?
I do not hire or manage licensed trades (electricians, plumbers, general contractors). Research your state regulations – it can vary widely depending where you are located.
Do you have an agreement for designers who do just build/renovate?
I use the exact same agreement for design only and build / renovation projects. If you’d like to customize the agreement further, consulting your lawyer would be the next step.
How would you suggest I get over the fear that if I ask a prospect to wait until there’s space in the pipeline that they might move on to someone else?
Take a deposit against the design fee to hold their spot. 1/4 to hold spot, other 1/4 to kick it off… then fall back on the Standards for the rest.
→ PRICING ←
What do you markup custom products?
For completely custom products that don’t have a retail price, I charge 100% markup.
If a client asks how our flat fee is calculated, what should we say?
“It’s based on the size and scope of your project as well as our historical data.”
What should my price per square foot be?
Whenever a designer asks me about their price per square foot, I share this video. In a nutshell, as the head of the program, I cannot weigh in on your pricing. That said, if you are looking for confirmation that you are on the right track, the facebook community is supportive and quick to give honest input.
On the Design Fee & Furnishings Investment Calculator, what is the difference between Build/Reno Only and Build/Reno & Furnishings?
Build/Reno only would be if you are doing a spec home (no furnishings) or building a home for a client around their existing furnishings, or some circumstance where you are designing an empty space & not selling furniture as part of the project.
On the Design Fee & Furnishings Investment Calculator, what is the difference between Build/Reno Only and Build/Reno & Design and Design Only?
Build/Reno only would be if you are doing a spec home (no furnishings) or building a home for a client around their existing furnishings, or some circumstance where you are designing an empty space & not selling furniture as part of the project.
Build/Reno and Design includes designing the interior spaces and purchasing the furnishings along with the Build or Renovation.
Design Only is designing the interior spaces and purchasing the furnishings with no build/renovation involved.
How do you estimate the numbers for the line-by-line investment amount presented in the conceptual design meeting?
Use your previous project data (similarly to what you used to price Exhibit A) and estimate the costs of each item. It should be on par with what you have in Exhibit A.
Don’t have past project data? Use this opportunity to go back to the suggested exercise of designing a full room with vendors you would use for clients so you have that for reference.
I do 100% build/reno projects and very often with my remodel work there is an addition being put onto the existing house. How would you recommend calculating a flat fee based on square footage when the ultimate square footage of a project isn’t known at the outset?
Follow the scope creep procedure outlined in the Project Process Asana Template and calculate another flat fee and corresponding timeline. When you know a renovation or addition will be coming down the pipe, be sure to build that into conversation / structure from the beginning. Ie, communicating that once layout is confirmed, you will assess additional fees & furnishing estimate.
How exactly is your project management fee being calculated as the design agreement implies that your fee is assessed separately from the design fee in the contract.
When we hire and manage trades (wallpaper installer, upholsterer, etc.), their quote/proposal goes through us and we add a markup to their proposal. We disclose that in the design agreement ((i) Project Management Fee. When trades are hired and managed by DESIGN FIRM, a Project Management Fee will be included in the related proposal.)
Most projects will include some form of general work like painting, lighting installation, etc. that are not necessarily full renovation. How exactly is your project management fee being calculated?
General project management (trades not included) is covered in the design fee. If most of your projects include general work like you’re referring to, then your metrics will include overseeing that work naturally. If you come across a project where there’s more or less of that, scale your number up or down to cover accordingly.
Does your furnishings investment estimate calculations include the general contractors costs?
The furnishings investment estimate does not include general contractor costs. I do not attempt to ballpark GC numbers. I partner with a few great GCs to get those ballpark estimates at the beginning of the conversation.
Then, I get general contractor bids in the Conceptual Design Phase.
Do you have a markup you generally use?
Refer to the lesson “Wealth Manifestation” in Module 2 to determine the best markup for your business.
Is your furnishing investment estimate based on costs or cost + markup?
Cost plus markup.
Do you ever charge more than what they can find it online for if they were to look?
I’m really a stickler for to-the-trade only products, whenever possible. As more products are creeping online, it’s important to set the tone that you are providing a full service custom design experience. You are creating a complete bespoke environment – with access to sources and customizations that will allow us to be completely unique to their aesthetics.
I never give a client an individual product image (as they are easily shopped online via reverse image search). I only give clients design boards with multiple images, saved as a PDF.
Also, I present pricing by room, not by item, so they aren’t able to compare item by item even if they find the item or something similar online. When asked for line item pricing, I tell them that we are in line with the investment amount that we agreed upon together on Exhibit B and that they can reference the line-by-line investment amount from Conceptual Design if they need a reminder as to “how we got here.”
Is your “reasonable retail rate” similar to MSRP, etc.?
Yes, reasonable retail is MSRP (Manufacturer’s Suggested Retail Price), also known as the List Price.
Do you have a sliding scale of markup? e.g. I don’t think I could charge 66% on a lot of expensive things, like a Holly Hunt or Rose Tarlow piece.
Scale as you see fit. Sometimes you will get a great discount, other times you won’t. My target is always the suggested retail, if available. If not, you need to understand what your market (clients) can bear.
Also, 20% markup on Holly Hunt is probably the same profit as 70% on Kravet, so that’s important to keep in mind. There are many ways to make this work. Go back to the wealth manifestation spreadsheet and play with the budgets, margins and design fees that work for you and your market.
How do you get a 66% markup on tile, plumbing fixtures and countertops without being a distributor/fabricator?
On items like plumbing, tile, stone, shower glass, I charge reasonable retail, since they are so easily shopped. This is typically my lowest mark up – around 20 – 40% depending on my trade pricing. I am looking for an AVERAGE of 66% markup across the whole project.
How should I charge for just art, lamps and small lamp tables for 10 offices? No construction or large furniture. I was thinking of basing it off my time to source per piece. Any suggestions?
I would handle this the same way I handle all partial furnishing proposals. I would think about the scope as a percentage of a complete room. For example, art and lamps may be 10% of a complete room (you pick the percentage based on the space). I would then calculate that same percentage of your furnishing fee for the whole room. So, if your ‘Design Fee & Furnishing Investment Estimate Calculator’ came up with $50,000 needed for the entire scope, 10% of that would be $5,000 for the partial scope.
I usually leave my design fee the same for partial furnishings, but in this case, that would be too high. Though, I wouldn’t use the same 10% metric, rather more like double that percentage. So, 20% of my normal design fee, as there is a ton of set up, admin, ongoing client management and customer service involved in each additional client you take on.
Still having a tough time understanding how to be profitable with your pricing model if I don’t have deep trade discounts with vendors but want to charge “reasonable retail”, especially with renovation projects that don’t have a lot of furnishings. For example, a bathroom project where the tile vendor doesn’t even offer a trade discount. How do you handle that?
Two words: Project Minimums. I don’t get involved in projects that historically haven’t been profitable for me. I know that those are smaller projects, smaller budgets, kitchen or bathroom only renovations.
I can do a lower margin bathroom remodel as part of a larger project where I’m making great markup on the rest of the project. And, I charge double my design fee for build/reno for this very reason.
Your minimums can be whatever you need them to be for you to be profitable and joyful. If your bread and butter are kitchens and baths, you need to work on your trade pricing. If that’s not available where you are, you need to adjust your design fees to carry most of your profit. Go back to the wealth manifestation spreadsheet and play with the budgets, margins and design fees that work for you and your market.
When looking over the case studies there is Build/Renovate Furnishings Fee per sq.ft, Full furnishings fee per sq.ft, and Partial Furnishings Fee per sq. ft. Can anyone explain what those fees are/include?
Reference Module 2, Lesson 5 to learn about what should be included in those fees and estimates. Make sure to check out the accompanying resources below the videos and start dropping in your own numbers. In a nutshell, what’s in your numbers will come from what’s included in your data.
If you are looking for a line item list of what typically goes in each space, check out the Typical Room List located in Module 4, Lesson 3.
And, if your eyes start to glaze over when looking at spreadsheets, call your numbers lovin’ friend or bookkeeper and have them watch it with you. It’s worth going back and getting this right.
Do you price by room or per item?
I present pricing by room, not by item, so they aren’t able to compare item by item even if they find the item or something similar online.
How do you respond to a client who wants line item pricing?
I tell them that we are in line with the investment amount that we agreed upon together on Exhibit B and that they can reference the ‘line-by-line investment amount’ from Conceptual Design if they need a reminder as to “how we got here.”
When determining flat fee – do you include hours done by the team, assistants etc.?
Yes, all of it.
It mentions you don’t charge for time in the procurement stage – does the design fee incorporate all the time it often takes for the punch list (e.g. items damaged, delayed, repairs etc)?
The markup on product covers the time I spend on procurement. The design fee covers project management throughout the entire project.
If you have a living room that is mostly furnishings (therefore D for design) but you are adding a built-in that you will have to oversee, does that still stay a D (design only) or is it an R (renovation)?
These numbers are flexible. If your cost per square foot for Design is $20, scale it is $22 to cover overseeing the built-in or however much makes sense based on your data.
I am a new designer and business owner, without historical project data, and I’m having some difficulty creating mock data to determine my multiplier for furnishings. I tried to model it with the info you shared but find that my estimates are still quite a bit lower than the estimates produced using the ‘Design Fee & Furnishing Investment Estimate Calculator’ in the case studies that you shared. What do you suggest?
What’s provided in the case studies are examples. If you are pricing your mock projects with vendors who you have great discounts with, adding a healthy markup, and your margin is in the sweet spot (refer to Wealth Manifestation) then keep what you have.
My “case studies” for my flat fee are all over the map. Every project is completely different. What should I do? Just guess an average? Try to do more of one type of design? Etc.?
Create a mock project that has the best (and most profitable aspects) of all of your data and find an average rather than guess.
A client asked if I mark up product, how should I respond?
I smile and politely say, “Yes, that’s the part that makes this thing called interior design a business. I purchase at a trade price, and I sell to you at reasonable retail. You are in complete control of what you want to invest in this project the entire time that we work together.”
If they want to know the percentage: “The percentage varies, as I have accounts with various vendors and trades, but you’re always purchasing at reasonable retail.”
Or, use an example to illustrate simple fair market economics: ”It’s just like when you are purchasing anything else; If you see a sweater that you love, you are in the market for a sweater, it fits, the price feels like an appropriate exchange of value, then you buy it. If any of those factors are off, you don’t buy it. Apply the same principles to our work together. And remember, at no point do you tie the purchasing decision to the wholesale cost of the sweater.”
** Telling a client a markup percentage alone is a completely irrelevant number, as it in no way takes into account any related expenses. Don’t ever cave and discuss your mark up. Once you have the script that you feel most comfortable with to handle these questions, anyone who presses further is pushing too far, in my opinion. That’s a big red flag that they are always going to be looking to wheel and deal.
How much do you markup your trades?
The markup on trades will vary business to business due to the relationship one might have with their trade, location, etc. Find the sweet spot that makes sense for your business. If it’s skewing your profit margin, you need to make up the difference in your furnishings mark up. That’s where if you make sure you’re getting the best discount possible, you can often offset those lower margin items like trades.
For the trades that I put through my firm (window treatments, custom upholstery, wallpaper installer, etc.) we make sure that we are getting a good discount for our repeat business, then charge reasonable retail. We also propose by the room, so all of that gets rolled into grouped pricing whenever possible.
For the trades that I’m not putting through my firm (general contractors, architects, licensed plumbers), I capture the time it will take me to liaison with these trades into my Build/Reno design fee.
My design fee for a full house renovation/new build is really high, splitting it in half still seems like too much of a barrier. What do you think?
If you have a large design fee for a build or multi room project, you can have your client set up an automatic monthly payment over the course of the project – set to be paid in full the month prior to scheduled completion, with a clear note that no money can be withheld for any reason (issues, completion, delays, etc.). Be sure to set up a larger chunk up front prior to sharing your intellectual capital. You can’t take back your great ideas once you’ve expressed them. You’ll need to consult with your lawyer to set this up and protect yourself in the case on non-payment. Will you stop work for a payment delay, etc.
I’m curious how you would charge (per sq ft) for travel time and expenses?
Go through the exercise of figuring mileage, local hotel, per diem for meals, etc., then roll all of that (with markup – it’s a business) into the flat fee. Take the “trip charge” x number of trips included in the flat fee and let them know – if additional trips are needed, they will be billed ahead and paid in full at the “trip charge” rate. You could do travel as reimbursable – but you know I HATE having anyone owe me money. A little research and some good boundaries, and they’ll know exactly what they are in for (and so will you).
How do you explain the freight number to the client?
Reference the freight resource in Module 2, Lesson “Determining Your Fees” to see what’s included and create language that will help you communicate this to your client.
How do you work out with a contractor what they purchase/manage and what you purchase/manage on larger renovation projects? Many of my contractors manage and therefore markup tile, cabinetry, plumbing fixtures, flooring, etc.
When I ask a GC to bid a project, I let them know what items we’ll be purchasing. Typically, I will do the ordering for anything that is aesthetic in nature (plumbing fixtures are ours, leaving roughs for them). In the Schedule, I write out explicitly what will be purchased through us and therefore not quoted by them. I also make this differentiation in my drawings. I always put it on the GC to send us quantities for what I will be purchasing (tile, wallpaper, etc.). If they don’t want to bid the job under my terms, they don’t have to.
When determining what to price out for a project, how do you decide which installed items are purchased through you and which ones are not?
My rule of thumb is that if it is behind a wall or doesn’t need my aesthetic input, it’s purchased through the GC or trade. For example, plumbing that isn’t exposed should be quoted in my Trade’s pricing and purchased through them. Things such as tile and grout, decorative millwork, bulbs and light fixtures, sinks, tubs, toilets, faucets and drains are on my proposal and purchased through us.
Wanted to ask about areas that require little to no furnishings – bathroom or closet for example – Do you ever leave the furnishings level off and only do the build/reno on the design fee?
No – always at least hardware, flooring, wall finish, lighting, art and accessories to consider.
If you are proposing a full new construction house project, Do you still list each room with the proposed design fee for each room on the agreement then with the total at the bottom? When it’s a whole home or build, I price as such (whole home numbers only).
What do you tell a client when they ask how much you think construction will cost?
I do not ballpark other people’s numbers.
When using the ‘Design Fee & Furnishing Investment Estimate Calculator to quote a build/reno, what is not included? When we quote, everything is in there soup to nuts. Cabinetry, counters, finishes etc.
If you built your Build/Reno number based on your past Build/Reno projects, then include whatever you typically included in the past. If you don’t have that historical data, and are working from an example, the examples do not include cabinetry, appliances or labor.
Do you ever worry your clients will ask you to break up your design fee invoices into more than 2 payments? How would you do this if you collect payment before you show your designs?
I ask for payment before Conceptual Design since I will be presenting my intellectual property and I won’t be able to take it back once I present it. I’ve found that the clients that can afford and value my services do not have a problem with this at all.
What do you guys charge for a restart fee and how much of a delay do you consider “significant”?
It’s at the designer’s discretion, but if the client were to put the project on hold for any amount of time that requires us to pause and then reacquaint ourselves with the project, complete the administrative work that goes into pausing and restarting, get new quotes with updated pricing, rehire freelancers, etc. we would assess a restart fee.
When it comes to what to charge, I’ve been basing it on a ballpark estimate of how long it will take us to get back up to speed (at my ideal hourly rate), as well as recouping any loss incurred from the pause (paying employees without work to do, etc.) with a healthy margin, of course.
One of the most important points about the restart fee is that it needs to be discussed during the potential client presentation and again when the project is put on hold (or when the client is considering putting the project on hold – as it may act as a deterrent). When it’s time to restart the project, the clients cannot be surprised about the restart fee. And, like anything else, the restart fee must be paid in full prior to restarting.
How do you handle price increases?
Usually the markup should be able to cover the cost of an increase. If it is a significant increase, you can pass it onto the client. If you’d like to add price increase terms into your design agreement, feel free to use this language after reviewing it with your lawyer: Price Increase Terms: Price Increase Invoices are valid for 3 business days, after that, they are null and void, the item will be canceled and your money refunded (minus any associated fees).
At the design stage, is there any guide about how to charge after one round of revision?
Think about how much of the design they are asking you to revise? Is it one sofa? 5% of the room? Is it a whole different design from what you’ve already done? 100% of the room. So you can look at it from a percentage of the total fee for that phase. And / or, make sure your design fee covers the time you will spend.
And then, make sure it’s substantial enough that it prohibits them from wanting to go outside of those guidelines again. At the end of the day, revisions slow the entire process down, even if you are well compensated for them, so I make sure that my additional fees related to being out side the 1-1-1-rule (one round of revisions, one week after the presentation via one communication) are cost prohibitive. For instance, I may estimate the additional fee via percentage or a time estimate and then I would double it.
→ FINANCES ←
If you take a 50% deposit of the Design Fee, do you take the full amount into revenue immediately or do you have some method of matching the revenue to actual time spent on the design?
I take it into revenue immediately. It’s just simpler that way. You can spread it out internally if you and your bookkeeper prefer.
Do you track your time?
Yes, the entire design team tracks their time so that I can use it in my financial analysis to ensure that we’re still charging the right amount per square foot.
Will you be showing us what type of financing reporting you review regularly?
Yes, in Module 6, you will receive an Asana template that shares the types of financial data I review in my business.
Do you take payments online?
Yes, many moons ago I built my credit card fee into my markup, and made sure there was wiggle room in the design fee as well. I have found that adding the credit card option, moves the process along much faster.
We’ve been doing a lot of design consulting on new builds. We charge them a per sq ft fee for our service to make the design selections, floor plan optimization, etc. We have tile, flooring & cabinet vendors that the builders will be using – do we give the developer our trade discount since they are also industry professionals or do we charge them full cost?
Discuss upfront. Do they want specs only & they’ll do purchasing (at which point your design fee will be your only income on this, so be sure you love your profit on only that!) And, know that you’ll still get roped into some questions & purchasing issues naturally, so charge accordingly.
Or, if they want you to purchase, then it’s reasonable retail & an agreement that ALL purchasing & execution goes through your firm. Be frank: you’ll be paying me the difference between cost & retail to do the purchasing work, even though you could purchase on own at trade pricing. Set budgets and stick to them. Be clear that there’s no changing your mind mid-project on this. It’s exactly the same as with a client, except you point out the option.
If we charge full MSRP cost what happens when they ask is this wholesale cost?
If they ask, you say “I’m charging you retail cost because the difference in retail and wholesale covers me for the time spent on placing orders.”
Further more “why are you making a profit on those products aren’t we paying you a design fee”?
Design fee is time spent to make selections and all your knowledge and expertise, the profit made on selections covers my time spent on ordering, procuring and any issues that arise.
Now for regular clients who are homeowners we always mark up but what happens when they are also industry professionals that could also just get these items at trade cost?
Think about added value you could offer if they go through you – maybe they don’t want to deal with placing orders or issues that arise, that could be your selling point.
