If you are starting your interior design business, you are no doubt researching interior design fee structures and comparing the ways that you can price projects. You might also have priced a project using one of these methods and been burned, which is not unlikely as many inexperienced interior designers look at what other designers are charging and then think that that is a great way to set their interior design fee structure, but make a big mistake in the process because they weren’t experienced enough to price using that system properly.
In this post we are covering interior design fee structures, what they are, when to use them and the pros and cons of each and also provide you with an interior design fee structure template. Please note that this is part of a series of posts about this topic and reading this post alone won’t provide you with all the information you need to price your interior design projects accurately. This post is more of an introduction to interior design fee structures so that you get an understanding of the industry-standard ways that designers price and have a chance to think about whether one or a few of these interior design fee structures might work for you, especially if you’re just starting out.
Interior design percentage based project pricing is where you price your services based on a percentage of the construction fee. This is traditionally how interior designers and architects priced their projects. The benefits to pricing as a percentage of the construction fee in your interior design fee structure is that this system has been tested for so many years, it’s actually pretty accurate in terms of the workload involved versus a fair fee for the project.
The major disadvantage to using this interior design fee structure is that clients see a conflict of interest in that they think that it is in your interest to increase the price of the project. Even though they don’t realise we are bound by a code of conduct and that isn’t the case, it’s hard for them to see it otherwise, so this is probably why less and less designers are pricing this way.
Percentage Based Pricing Overview
Pricing your interior design services per hour means this is where you get paid for exactly the time that you charge out. To do this effectively you obviously would be keeping an accurate time sheet that also describes the work you’re doing so that if the client ever questioned the price, you can back up your costs.
Hourly pricing as an interior design fee structure is great for when you don’t know how long a project will take, but in that case, I would still provide an estimate of hours with a cap, because the disadvantage of pricing per hour is the worry that the project hours and price could escalate far beyond what you’re expecting. Also, you want to be able to organise your time efficiently so that you can fit other projects, so estimating the amount of hours a project will take is still an important step when pricing per hour (even if you don’t know how long it will take – take a calculated guess!)
Just another note on hourly rates, you should understand what your hourly rate is no matter how you price your projects we will cover in our next post.
Hourly Rate Pricing Overview
Pricing your interior design fees per square foot or in metres squared is where you provide a rate and multiply that figure by the area of the property. So, if you’re working in imperial units you would multiply your rate by square feet and in metric you’ll multiply your rate by metres squared.
The pros of these types of interior design fee structures is that if you have a few projects under your belt, you can work this out relatively accurately based on your experience. Also, if you’re working on design as well as build, this is a neat way to price to clients (once you have some data!) The cons however are that unless you’ve got all that knowledge you’re gambling, especially if the project is highly complex.
So if you’re thinking about pricing your interior design services by square feet, I would only consider this if you’re an experienced designer who has completed similar projects previously or are working on simple decorative or furniture install projects where the figures are easy to calculate, especially if you’re at the beginning of your business.
Hourly Rate Pricing Overview
Pricing your interior design services as a fixed fee, lump sum or as a package simply means that you provide a price, and you complete the project within that price. The benefit of these interior design fee structures is that if done properly, both you and the client should have no doubts as to what you’re going to get for the price and both of you can budget your time and expenses accordingly. This is actually an excellent way to price low-cost or fast jobs and services such as E-Design.
The obvious downside is if you haven’t specified what you’re going to include in the price or haven’t bothered to work out how many hours the project is going to take you, you’re going to under-price your projects every single time.
Lump Sum / Fixed Fee / Package Pricing Overview
Day rates are typically how we price short or quick projects that require a concentrated amount of work across a day or a few days. The benefits here are that you’ve agreed that the project requires short bursts of intense work on your part, and you get paid for that work.
The disadvantages, however, of interior design fee structures that charge day rates are that it can be hard not to work overtime (which is underpaying yourself) and it’s difficult to make a profit on this type of work because the client often wants to see you working and if you complete the job faster, the client might feel like they have been taken advantage of.
Day Rate Overview
Cost price and markup fee structures is how many interior designers price when they’re selling furniture or other products. It includes charging the cost of the item plus a fee on top which is typically a percentage rate.
This can be a great way to charge for large projects where you’re acting as the shop (known as principal designer in some areas) and selling lots of furniture, but it’s obviously not a great way to charge if you’re doing a whole set of designs for free and only getting paid for the furniture you sell, especially if the client doesn’t buy the furniture.
Cost Price & Markup Overview
Value based pricing interior design has become more popular now with business coaches being a thing. But essentially, this is choosing a number that you want to charge and charging that! If you work out your interior design fee structures correctly (and I will give you a formula to do this in the next post), this is an excellent way to charge because you should be making an excellent profit – that’s the whole point of charging this way.
The big con to this, however, is if you don’t know how to price your project profitably anyway, even if you think it’s a good figure, you’re still likely to undercharge.
Value Based Pricing Overview
Time boxing interior design fee structures is when you agree to a specific set of services to be completed for a specific amount of money that are required to be completed in a specific amount of time. So it’s similar to working for a flat fee in a way, but you’re breaking down tasks per client rather than designing services yourself and offering specific things.
The pros here are that clients simply pay for the skills they want from you so you can see how that is also a downside because you may not like doing technical drawing for example, but that’s what you’re constantly hired to do. This can work well however if you find a win-win with the right services and fees.
Time Boxing Overview
Working regular hours on retainer is where you’re paid a set fee each month or week to deliver interior design services typically to someone else in the industry like another designer, architect or like I did to a developer.
This can be a really great interior design fee structure to use because you get a guaranteed regular income and you typically get paid even if there isn’t any work, but the downside is that because you’re working with people within the trade who need to make a profit on the work you’re doing, the pay is typically what we call a trade rate, so a reduced margin of profit.
Pricing your interior design projects per phase is where the fee is broken down into project or construction phases. The services are itemised and can evolve with the project. This is how I price my larger or complex projects as this works for projects that span across a few years as you get to reassess the fees at every stage.
The downside to the phase pricing fee structures however is that you can’t price every project like this because this is too complicated for small projects or simple services such as consultations.
Phase Pricing Overview
Combination pricing is simply that, using more than one method and combining them. This is typically an excellent way to price your larger projects because they might take a few years to complete or you might be offering a full interior design service that requires different approaches depending on the phase.
The cons of pricing this way, however, is that the client can get confused as to why you’re changing the method of pricing for different parts of the process when they just want a simple answer to their question “how much do interior design services cost?” Remember that a confused mind never buys. So this could be overcomplicating things for your client.
Combination Pricing Overview
In some parts of the world, we call this bidding and in others we call this tendering. This happens more on larger or commercial projects where you’re often invited alongside other designers to provide a fee which might include a design proposal as part of it.
The downside of this is that you typically need to do some free work to win the project and if you really want the project you don’t just throw an hour at it! Some offices work weeks for free to try to win bids, but the upside is that if you win this type of project it’s typically a large or exclusive project that gives you exposure or iconic projects.
I’m sure you have researched how much do interior designers charge per room? Well! As the title explains, this way of pricing includes interior design fee structures that require you to complete a room, typically from start to finish for a fixed price. This is my pet hate (all designers have one!) In essence, this is a fixed fee or lump sum price for a full-service design.
The pro of pricing a fixed rate works for small projects where the scope of work is defined. On a full project that is phased from start to finish, that is REALLY difficult to do however, (even for an experienced designer because there are so many variables from design complexity to varying briefs, to room sizes, to styles, to clients, to budgets!) so this is not a way of pricing that I would ever suggest is a good idea.
The pro is that it seems easy and clear, but beware!
Pricing Per Room Overview
This isn’t technically an industry-standard way of pricing or considered interior design fee structures, but its’ worth discussing because you might not know you’re doing this. Sliding scale pricing is where you offer a price based on what you think the client can afford. I’d say this is never a good idea because you can never safely “assume” what a client can afford and it’s important not to confuse your client not seeing the value in your service with not being able to “afford” your service.
So the pro is that you’ll probably get the job because you’ve underpriced it, but the downside is that you’ll no doubt feel resentful when your client spends more on a table lamp than they did on your fee.
Sliding Scale Pricing Overview
After looking at the industry standards for pricing interior design projects as well as other typical interior design fee structures, you hopefully now have enough information to make a decision around which methods you’re likely to use depending on the amount of experience you have, where you are in business and the types of services you’re offering.
Now that you know the basics, in our next post, I will show you how to start pricing your interior design projects and where to start!Jo Chrobak