“How much profit my small design firm
shall expect initially?”
“How much fee should I charge without
losing the client in a cut-throat competition?” “Which pricing structure
is right for my firm?”
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These
are some of the common dilemmas of the start-up design firms. As design
continuously evolves during the project Lifecycle, it heavily impacts the
overall project cost and timeline. This is one of the reasons why most clients
are also unsure of how much a designer is going to cost them at the end. Thus,
clients like to make a safe choice by selecting more experienced designers in
comparison to the new start-up companies. This may sound like a bad news for
young firms, but I consider this as an opportunity. Young companies are more
flexible and have a chance to offer more innovative work-packages and pricing
structures that can indeed benefit the client. And it is up to your marketing
campaign to get this message heard.
Pricing
structures are subjective and there is no right or wrong method to choose from.
Apart from the pricing models that are used locally in your region, your firm
may benefit from introducing some of the following models that I consider
beneficial to small design firms:
1: The art of “Free” services:
Thus,
giving your services for free is not an ideal situation where you end up doing the
hard work without any payments. But don’t you feel excited when you a get a
high-tech speaker free with a purchase of your new laptop? Free ‘goodies’ and
‘add-ons’ have always been very popular marketing tool for selling products.
But can it be applied to architectural or design services?
Design
some add-on services for your client such as basic 3D renderings, co-ordination
with other consultants, assistance in managing contract documents, etc., which
does not take too much effort for your firm but is a of great value to your
client.
Providing
free services for community work, professional associations, charitable groups;
is not only a way to earn good reputation, but also a way to earn new contacts
and build your professional network for future potential projects.
2: Packaging:
‘If you have a hammer, every problem is a nail.” – Abraham Maslow
Having a larger toolkit is a way to see every problem with a new solution. Every
project is unique and so its need for your services. There are more than 100 possibilities of services an architect may offer.
Create
innovative combinations of the services that you offer and package them
together to customize it for your client. This will not only make you more competitive,
but also attractive to a larger market base. Especially in difficult economic
conditions, breaking down your services into parts and customizing the needs of
a project, is an effective way to win over other competitors.
3: Fee as per the degree of ‘difficulty’:
Most architects like to charge their fee as a fixed percentage of a project
costs. But is designing a residential building different from designing a
hospital building? Does it take equal efforts?
Of course not. Projects differ in their scope and required design inputs.
HOAI (Honorarordnung für Architekten und
Ingenieure) is a regulation for architecture and engineering services in
Germany. It suggests five different fee bands for the projects with different
degree of difficulty. Fee Band I is for projects such as parking garage and
temporary structures which have a very low degree of design efforts. Fee Band V
is for projects such as museums, libraries and other landmark buildings which
have a very high degree of design efforts. Different Fee Bands are charged
with different amount of fees.
For
Example,
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If
a 100,000€ project is under Fee Band I, as per HOAI, architects can charge fees
between 8500€ to 10,200€. But if a 100,000€ project is under Fee Band V, he/she
can charge fees between 18,000€ to 19,700€. This
can also be a very
effective method to convince your client to justify the
design
efforts and its value. This
pricing model can also be applied not only in Germany, but also in other
countries as a reference to Image Courtesy: www.freedigitalphotos.net formulate your own fee structures.
4: Barter:
This model is getting acceptable
in recent times with architects working for real estate developers.
Architectural firms choose to buy a property equivalent to their project fee in
the developer’s project. This is a win-win situation for both parties as the
developer doesn’t have to part with cash and architect is sure of receiving the
full fee at the end of the project.
5: Lump sum:
This is widely accepted and very popular method. The firm charges a fixed fee
as agreed on the contract irrespective of the project cost. This method
eliminates the disputes arising from design changes. In such a contract
condition, an architectural firm is advised to calculate their fees after
including the risks involved with the changes in project scope or delay in time
due to circumstances.
The above are just a few examples of some new ways to use ‘Pricing’ as your ‘Marketing’ tool to win new projects and stay ahead of
your competitors. With time, these models will also keep changing; but it is
important that you always innovate in how you represent your pricing structure
and stay competitive without crossing your expenses.
Other related Posts:
Further reading:
[1] Book: HOAI 2009 – official scale of fees for services by architects and engineers
[1] Book: HOAI 2009 – official scale of fees for services by architects and engineers
[2] Scale of charges set by Council of Architecture, India.
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