Episode #7 Transcription - How to Price Your Services

Welcome to the designers Oasis podcast. I'm your host, Kate Bendewald, interior designer, mama and CEO of a thriving interior design business, built on authentic word of mouth referrals. It wasn't that long ago that I stepped away from my corporate architecture job to build my own dream, one that would allow me more time with the people that I love, the ability to serve my clients at the highest level, and to make a great living. It wasn't always easy, and I've made my share of mistakes along the way. Fast forward to today, and I've learned a thing or two. This podcast is for you - the inspired, creative, ambitious, and let's admit it,  occasionally overwhelmed interior designer who shares this dream of transforming lives by transforming homes. Join me and my guests each week as we walk through practical ways to build an interior design business you love, and helps you transform your clients' lives. You can do this. 

Let's get to it. Well, hello, friend, welcome back to another episode of the designers Voices Podcast. And Kate, I am so grateful to be sharing this part of your day with you. I'm excited about the today's topic, it's it's one that comes up quite a bit with designers. And, and, and it's it's one of those topics that feels like you're in business. And you've you've maybe been doing this for a number of years. And it's one of those things we're talking about your pricing strategy just keeps coming up, you keep thinking about how to improve it, how to do it differently, how to make it easier, how to make it more palatable for the client. And then also, you know, we there's a lot of conversations around money and kind of that sort of scary feeling of sending a proposal to a client and and it's if if you've ever experienced that, like butterflies in your tummy moment when you're sending a proposal because it's gonna be a big number. It's totally normal. And it's one of those things that somebody asked me, does it get easier with time, and I'm like, well, kind of is my experience, kind of. But at the same time, the more experience you get, the bigger projects you might be getting to the bigger that number gets. 

So it's always one of those things, it feels a little bit. It can be hard, it can be hard, and especially for women who historically have undervalued their expertise and I don't say that lightly. But so the reason I want to chat about this today is because I think having a really solid strategy for how you come up with your services, your service fees, can help ease that experience for you. So that you can send your proposals with total confidence, right? You can say, this number is not pie in the sky. It's based on facts. And we tell our clients look, we price our projects on a couple of different factors. Number one, what is the unique scope of work for this particular project? Number two, historically, looking at past projects, historical data, how long does it typically take us to complete a project like this, and then also the value of the project. We're gonna get into all that here in just a minute. So thank you so much for being here. Let's dive in. 

So, you know, some designers may choose to charge exclusively flat fee or hourly or whatever pricing method, they choose no matter what, and they have their one charging method, and that's it. Others may choose to charge differently depending on the project type. I'm in that camp myself. In either case, it's really good to understand the pros and cons of the different kinds of pricing strategies that you have to choose from and when you might choose to employ them. Okay, so that's what we're going to talk about today. And you're going to need to decide if you're open to having more than one type of pricing strategy for your business. Or if you want to there's one method that you want to use, exclude probably in your business and just get crystal clear on where you stand. With that, of course, then you want to make sure that you have a proposal and an agreement template for each type of pricing method that you offer. We do offer a template for you there. So we'll link to that in the show notes. 

But let's let's get to it, one of the one of the big questions that comes around pricing is do I need to track my time if I'm doing flat fee. Regardless of how you bill, you need to know your time. Yes, you have to track your time, I think it's super important because in order to know your profitability at the end of a project, it's helpful to see what you estimated for time in the first place. Just like a budget for money, we need a budget for our time. So let's say that you estimated 100 hours for a project and it actually took you 130 hours, you can go back and look at what tasks are taking you longer. So that you can either find ways to become more efficient, or you can adjust your future proposals and say, You know what, that process actually takes a lot longer than we realized. And so we want to adjust for that for future projects. But if you're not tracking your time, you have no way of knowing in auditing that so it's important to go back after every project and audit your time and adjust for future proposals so that you can you can send proposals that are based in reality of how long things take. So regardless of how you choose to charge for projects, your fees should be based on these two factors.

 Number one your time, which we just talked about you and your team, and that's going to be determined by the scope and size of the project. Not size in terms of square foot, I'm gonna get to that in a minute. But the scope of work, what needs to get accomplished, right. 

And number two, the value that you bring to your project. And this is usually reflected by your your internal hourly rate, whether your client sees it or not. So basing your proposals on time alone isn't enough, you and your team will become more experienced, you'll have better processes, you're you're gonna have better workflows and contacts, etc, and you become more efficient. 

So you shouldn't be penalized because you're faster, more efficient because of this experience right now. So thinking about the value you're providing the client and the project is an important factor as well, when you're putting together proposals and deciding on your pricing strategy. Okay. 

There are two methods that are out there that people talk about designers especially, and how to charge. And I'm not really a big fan of them. But I think they're a factor in how you might price your project. But it's not the sole deciding factor on how you might charge a project. So that's charging by the square foot and charging by overall project cost. Let's dive into that for a second. 

So here's why square footage charging by the square foot really doesn't matter. In my opinion, let's, for example, a luxury 1000 square foot condo with bespoke detailing and high end custom furnishings may take just as long to design as a 4000 square foot home where you're sourcing ready made furnishings. So square footage might be a factor, but it shouldn't be the guiding element. If you find yourself asking, What should I charge for a 3000 square foot home renovation? Well, I think you're asking the wrong question. I think a better question is what is involved in this renovation? And how long will it take us? And what value does this provide to the client? What value are we bringing so not a fan of charging by the square foot on on residential design, square foot does play a larger role in commercial projects. But again, wouldn't be without considering your time and the value. So that's my stake in the ground on charging by the square foot. The other one is charging by the overall project cost. So for example, saying your design fees are 20% of a project budget, and you've got a project that has $100,000 budget, that means your design fees would be $20,000. That might be perfect, right? But if the $20,000 doesn't accurately reflect the time required, and the value that you provide, that figure might be more like 30%. 

So my point is don't use a percent of a project cost as your only metric for creating a proposal. You can use it to sort of gut check it right if if if you're sending a proposal, if a client's shared with you kind of their initial budget, and you're sending a proposal that's 50% of that budget, then that might be something that you want to gut check and have a conversation with the client say look, you know, either it's not going to be a good fit for you because your fees are too high or they're and their budgets too low. Or you know Perhaps the project needs to, you need to revisit the budget because it sounds like there might be a lot going on. So use the overall project cost and budget to sort of fact check your proposal but don't use it as your your sole metric. I hope. I hope that makes sense that's coming through.

So, here are the three methods that I think have have a place for a design, business and charging, and that's hourly, flat fee, or hybrid. And we're gonna look at all three of those in detail here in a minute. So I want to talk about because every one of these, we're going to be thinking about our time, right? And how, how much time is it going to take our team? If it's just you, how long is it going to take you. So it's really important to know how to estimate your time. So first, you're going to start with the design phases. So for us, we have three it's concept design, design, development, and implementation. And then each of those phases, you will itemize everything you would do for a project. So I've got a couple of tools that I can put in the show notes. Number one, I have the asana template that I can link to that's a free resource that you can use to sort of think through what are all those tasks in each phase that we would do. And then I do have a calculator that would help you to come up with your time that you can plug in all of your hours, that is not currently on the website. But by the time this episode goes live, we are hoping that it will so check back either way, and we will be getting that up sooner rather than later. 

So in any case, I'm going to share with you right now exactly what's in that. So if you want to create this spreadsheet for yourself, I'm going to tell you how right now, if you want the calculator, you can go to our website and find it there. So it's a project Fee Calculator. Okay, so number one, you're gonna look at the design phases. And for each phase, you're going to itemize every task that needs to be done for the project, that Asana template can help you with this. So this is everything, this is drawings, this is sourcing, this is trade date, this are all of your meetings with your client, showroom visits, etc, every task and separated by each face. 

Alright, next, if you have more than one person on your team, you're going to want to determine who is responsible for each task. And there might be some overlap with some of those things. So you're going to, you want to think through that a little bit. Okay, there are some tasks that are going to take the same amount of time, regardless of the size of the project. So those are numbers, you can kind of have plugged in and ready to go. So for example, setting up a client and our systems, right, let's say we just onboarded a new client, we receive their proposal, and we're good to go. We the first thing we do is we set them up in our system. So we create a binder, we have a project bin where we keep all of our samples organized, we add them to our project management software, we get our folder set up in Google Drive, we have a little checklist, right, and it takes about an hour to do that every single time regardless of the size of the project. And there's a couple of other, you know, tasks along the way that take the same amount of time no matter what. But for most of the tasks, they're going to be specific to the project just depending on the scope and the size of the project, what you're trying to achieve. So for each task, you will estimate the time it would take the person responsible for it to complete. 

Now, let's say coordinating a trade day like getting all those trades scheduled. We talked about that in the last episode. So if you missed that, go back. We talked about how to coordinate and organize trade day.

You know, let's say that design assistant or admin assistant, whatever whoever on your team might be helping you with it. On average, it takes them three hours to do that. So you might have that maybe you don't need that many trades. So maybe you just coordinate or excuse me budget an hour If you have a lot of trades, you might bump that up a little bit. So just look at the project at the project specific level and figure out your estimated time. We prefer one hour increments, you could do as little as 30 minute increments, but don't break it down to 10 and 20 minute increments, you're just splitting hairs that point just to Okay, an hour here, two hours there, and so on. Just keep it simple, right? Just keep it super simple. 

All right, so in the spreadsheet, you would multiply the number of hours, it would take each person to complete all the tasks they're responsible for in each phase. And you'd add all that up in that becomes your time estimate. Alright, so that's just a quick overview of how we estimate time, we break down every single task by the phase, and who's going to do it, and we budget our time for it. And then that helps us put together a proposal. Okay, so let's get into the three methods of charging for your services, we talked about hourly, flat fee and hybrid, we're talking about the pros and cons of each one. And what kind of projects might be a good fit, and just generally, how you would present that information to your client. Okay, so the first one is hourly. Personally, this is my least favorite. But sometimes it makes a lot of sense. In fact, I have a project right now that's hourly, because it just made sense. So I'm doing a consultation only project for a friend, they're doing an addition, and it includes a kitchen and bath renovation. So I'm going to the appliance showroom with them, the tile showroom, will be picking up lighting, but it's a pretty collaborative process. And we're just, I'm charging by the hour, because it's for every meeting that we have together, I'm not really doing any work back at the office myself. So you may choose to just charge hourly, all the way aroun. 

 I think hourly is great for consultation only projects, right, or projects where the scope isn't clear. So let's say you've got a client who comes to you, and they kind of want to do at all, but they're not really sure how much it's all going to cost. And maybe they just want to phase it in. So you want to get as clear as you can on the project scope. But I've definitely had those projects where the scope wasn't fully defined. And we needed to do some design work to figure that out. So sometimes, that's when hourly can make sense. And if you have a client, who you've, you have some history with maybe you know that they're really bad at making decisions, or maybe they're overly chatty, and every time you go to a meeting, they're, you know, a one hour meeting ends up being an hour and a half or two hours. So, you know, I do think that there may be a time and a place for hourly. But it's personally my least favorite. And it's, it's, it doesn't always make sense. But here's the problem with hourly here. And here's the reason why I don't like it. If you go over your estimated hours, not because of the client, like the client didn't change anything, you just kind of missed the missed the ball on on your estimate. You're gonna have to bill them for that time, right? And it's just never a good feeling not for you or the client, you know, if you if you budgeted 100 hours, and then you bill your client for 150, they're gonna be like, Whoa, what happened? Like, how did we get this far over? And how didn't you flag that or something like that. So it's just not, it's just not a fun experience to do that. So the end result is you might end up saying, oh, that's an icky feeling, I don't want to do that. So you so you're not charging your client for those hours. So that's, that's the my big hiccup with hourly and why I'm not, I'm not such a fan. So you, but if you choosing to do it, because it makes sense for your project, you thought about it, you're like, you know what, this is just gonna make the most sense, this time, what you're gonna do is you're gonna review the scope of the project, you're going to estimate your hours for your time, and you're going to provide your client with an estimate for your time. So you say, Okay, we're gonna estimate 50 hours for this phase, and my rate is $100 an hour, then you're giving them a proposal for $5,000.

Provide your hourly rates for each team member, and the estimate of hours broken out by phase. And I actually think it makes a lot of sense to provide your clients with a range, you know, 30 to 40 hours for this phase, so on and so forth. So I hope you get the picture. That's kind of my stance on hourly. It's got a place but it's not my go to way to charge. All right, next is a flat fee. And flat fee is a super popular way to charge for interior design projects. It's great for projects where the scope is clearly defined, and you have clients who are responsive and decisive, and I've got a couple of these clients and they are just a dream. You send them a question and they make a quick decision and they're quick to get back to you. So it helps the project move along and really stay in that scope. up and stay on track. I think they're great for large projects, I think it's great for commercial projects. Anytime you have a general contractor on board, I think flat fee has a really good place, we personally like to do them on projects where we're doing furnishings, because we will make a markup on the sale of our products as well. So that helps, helps our bottom line. Super, super, super important to remember about flat fee, you must have a crystal clear definition of the scope of work. It has to be clear, because otherwise, if stuff starts shifting or changing as they often do, if you don't have that clearly outlined in your proposal, you could find yourself doing more work that wasn't included.

 But if you have a clearly defined scope, you can go back to your client and say, you know, Hey, mister Miss Smith, I'm super happy to help you with this, this part of your project, maybe there was something that came up midway that wasn't clear before. That wasn't a part of our original scope. So I'm just going to send you a quick little add service proposal for you to review and pay for and we'll be on our way. So then you can clearly do an add service. And it'll be clear to both of you because it's clearly outlined in your scope of work. flat fee does not include product, this is for services only. And for some reason, that is a question that comes up quite a bit with designers that I talked to. So just to be clear, flat fee, in my experience does not include product. So you're still gonna want to do a time study for a flat fee service, right? Any of these, you're going to want to do time study, to determine how many hours it will take you and your team. But with flat fee, your client won't necessarily see that budgeted time, like I mentioned in the hourly proposal. This is sort of your internal budgeted time for the project, right, they're just gonna see your design fees. Alright, the pros for flat fee is one, if you're efficient, on your time, and you come in under hours, you get the benefit of earning the extra profit. And that's always a good thing. Clients love it, because they know they're all in fee. So it really eliminates any icky feelings. And you know, they're willing to just say, Yes, that's it, let's do it, take my money, and let's move on. And then you're gonna have done right. 

The cons though, with flat flat fee is if you underestimate your time and you go over your budgeted hours, you still have to get the job done, right. And so you're going to start to lose on that profit margin. So you want to really get an understanding of how long things take you to be able to implement a flat fee proposal. All right, proposals for flat fee, you're gonna provide your client with an all in cost for design fees for each phase, along with the specific deliverables tied to that phase. So for example, your proposal would look something like, you know, phase one, concept design, this much money, and this many weeks, and this is what you will see at the end of concept design, and then you're going to itemize that out, so on and so forth. So do you need to keep track of your time with flat fee projects? Absolutely, you have to still keep time for your projects, so that you can go back and do that audit at the end and see how you were tracking. Or if you use a track time tracking software, which is what I always harvest, generally, you can see that as you're going along. But you won't have an accurate reflection of how long a project took you if you're not tracking your time. So I know that's always a it comes up quite a bit in the design membership that is Oh, I'm so bad at tracking time.

It's not a hard habit to get into. And it's really, really, really important for your business. So I'm really going to advocate that you make that a habit. Alright, and then the last method that is actually my personal favorite is hybrid method of billing for projects. So this is flat fee for design and hourly for implementation or project administration. And here's why, especially now with the supply chain issues that we're facing. With design, you can really control the process because you're the one kind of in the driver's seat, right? It's a lot of desk work. It's a lot of, you know, pretty predictable steps in the process. You might even be doing trade day, right? But you can pretty much estimate how long it's going to take you for every task in the design process so you can control your time. Once you do your design presentation. There are too many unknown variables that can cause your time to spiral. You can Have damages, you can have backorders, you can have, you know, any number of issues that come up. And it's gotten harder with post pandemic design to keep a handle on that on on those hours. So that's our favorite. It's super important with hybrid billing method, that your contract has a very clear outline of what tasks are considered part of the flat fee scope of work. 

And when does hourly kick in? Okay, so we actually have a fee schedule of the different tasks and when they happen, and that is included with our contract. So typically, flat fee is all of the design work that happens through the design presentation. So concept, design, presentation, design, development, and then the final design presentation. Plus, we include one round of revisions, and we say that that's not to exceed X number of hours. And we sort of base that number of hours on the size of the project. So that's kind of a delineation, there is everything up to design one round of revisions not to exceed this many X number of hours. 

And so it's important in the design meeting, and up to 24 hours after the presentation, that your client clearly identifies anything they are requesting as a Reselection. So you, you want to determine how long you will need to provide those. So let's say one weeks, let's say you give a design presentation, you're going to want to make sure that you tell your clients 24 or 48 hours you decide, you know, our take the weekend, right, I need to know by Monday, we got approval on most things, there's a couple of things you're still thinking about, we need an answer by Monday, right. And then let them know, after we get your feedback and your final requests for Reselection, we'll get those three selections to the to you by the end of the week, by Friday, upon delivery of those revisions, remind your client that you are at the point where hourly kicks in and any further revisions will be charged by the hour based on the contract. So that's kind of how we formulate it, we do think it's super important to remind your clients of when that kicks in. Because if you don't, it can be confusing. And then you send them an invoice and they're like, Whoa, I didn't realize we were already an hourly and you're like, Well, yeah, it's in our contract. So we tend to take take for granted that so much of this is so clear to us. But this is kind of the first time perhaps for the client working with you. 

So it's important just to keep those reminders in place so that there aren't any surprises, you can keep a great relationship with your clients. So after that, we send a weekly email every week to our clients with an end of week update. And inside that, and a week update, we include a just a bullet point of our time that week, and then they get a full report at the end of the month along with an invoice. So that's how hybrid works for us. And, and we do hybrid for kitchen renovations, we do it for furnishing projects. And pretty much most most any of our projects, we charge the hybrid method, but every now and then we have the flat fee in our back pocket and the hourly in our back pocket. So I want you to just start to think about you know, is are you willing to have more than one method of charging, you need to be the one that decides at the project level project by project basis case by case basis, how you think you should charge for that project. So looking at the scope of work, looking at the clients looking at the all the information that you know, and say, you know, this project, it's going to make total sense to do flat fee or hybrid or hourly. And then from there, that's how you would present your proposal. I hope this helps. My challenge to you this week is to track your time. 

So I'm gonna give you a little tip. And I love the tool harvest I will put a link in the show notes. I like I've been using harvest since day one. I do know that a lot of project management software's out there like Hauser IV have time tracking tools, I think they're okay. And if that's if that's what you used, that's great if it's better than not using anything at all. But if you decide that you want to use a different tool, I think harvest provides a lot a much better interface. And it's much easier to visually we're such visual people right to visually see how you're tracking on your time on a project. So you can set up template projects that have the design phases broken down and the tasks already listed out. So we have that set up. So anytime we're adding a new project, it can automatically populate all of those tasks. We don't have to re add them every single time. And then, you know we we turn that timer on anytime we're sitting down to work on a project they do a couple of years ago started a desktop version like an app that you can download on your laptop And I like this one because it has a little drop down menu where you can add, you know, start the clock, right, basically start the clock. And then if I get up and I walk away for, let's say, an hour for lunch or something, and I come back, I'm going to see a little pop up that says, hey, you've been idle for about an hour, how do you want us to treat that time? Do you want to build it to the client? Do you want to delete it, and then you can move on quickly, maybe I wasn't eating lunch, maybe I was over at my design desk. And we were talking through the team and I were talking through what we wanted to do for the project. And so it's like, no, we're gonna build out to the client. So I do love the desktop version, because it has that little reminder that pops up. And then finally, it also has a phone app. So if I'm headed off to a client meeting, I just turn it on. And do it that way. You can also track expenses, so mileage, parking fees, any of that stuff that you're gonna get reimbursed for by your client. Harvest also allows you to do that. And then the other thing I like about harvest is harvest allows you to set up projects can customize how you want to build for your time. So it can you can customize it at the project level for flat fee, hourly or hybrid. So it has a ton of flexibility built into it, which is why I prefer to use it over some of the other built in ones that are in like house or IV or design files, those kind of things. But you don't have to use harvest, right, you can use a spreadsheet if you want, you can keep it super simple. I just wanted to share harvest with you because it's my preferred time tracking tool. 

But my challenge to you this week is whatever we make sense to you. If it's a tally mark, and you're telling ours do it that way, it's better than nothing. But I want you to track your time because I want you to be able to go back at the end of a project and be able to do that audit to say, Okay, we charge this much money. This is actually how much time it took us. At the end of the day. What's our number what's what are we making on these projects, because you've got to be profitable, profitable in order to stay in business and get more projects. So I hope that helps. 

Thank you so much for hanging out with me today. I hope this brings a little bit of clarity to kind of the preferred methods of charging for services and when different ones might make sense for you. So I will see you next time on another episode. Until then have a wonderful rest of your day. Bye. Thank you so much for letting me spend part of this day with you. If you're loving this podcast, please share it with a friend who you think might also love it. Or perhaps you can take just 30 seconds to open your podcast app and leave us a five star rating. And if you have just an extra minute, go ahead and leave a review. This helps me so much and it helps other designers like you to find the podcast. It also adds fuel to my motivation to keep making great episodes just for you. However you choose to help. Please know I appreciate you so very much. Thank you, my friend. Have a wonderful rest of your day and I'll see you next time