Today I want to show you how ‘Anchor Numbers’ can help (or hinder) your fee proposal success rate. Let’s start with the basics, what are ‘Anchor Numbers’ and how do they impact your architectural fees?
What do anchor numbers have to do with architectural fees?
Although many of us believe we make financial decisions based on solid, rational financial criteria, in reality, this rarely happens. When making financial decisions many of us (and our Clients) are frequently influenced by factors other than just the fee.
One of the most common factors is a concept known by Behavioral Finance experts as ‘Anchoring and Adjustment’.
To explain how anchoring and adjustment relates to architectural fees let’s take a look at a popular experiment from the Fee Proposal Workshop.
Attendees are then given a small piece of paper which includes a number (at the top) and the letters ‘A’ and ‘B’ (down the left-hand side).
Attendees are then asked to look at the photo, and answer the following question:
“Is the number of people in the photograph higher, or lower, than the number at the top of your piece of paper?”.
Once attendees have written down their answer, we follow up with a second and final question:
“How many people do you think are in the photograph?”
We then collect the pieces of paper and prepare the results.
The twist to this experiment is that half the group receive a piece of paper with the number 284 at the top. While the other half receive a piece of paper with the number 1,423 at the top.
How does anchoring and adjustment Work?
When we tally the results, we find that those attendees who have the number 284 return an average response of 338 people in the photograph.
While those attendees who have the number 1,423 return an average response of 978 people in the photograph.
Now, we’re all looking at the same photo, at the same time, when asked to make a guess, so why the huge difference in response?
It would appear that by including an arbitrary ‘Anchor Number’ on the participant’s piece of paper we’re able to influence their estimate by more than 300%!
(Note: To help you apply ‘Anchor Numbers’ to your fee proposals we’ve created a free Starter Kit packed full of useful resources)
Why does anchoring and adjustment work?
You see as human beings, when we’re placed in a situation of uncertainty or ambiguity, we subconsciously use information that’s available in our environment to help us make a guess. Which is exactly what is happening in this experiment.
That innocent-looking number at the top of the attendee’s piece of paper isn’t so innocent after all. Attendees are subconsciously anchoring to that number and then adjusting to find an answer that feels about right.
As simple as this experiment may appear this same process plays out in many other types of financial transactions too.
Have you experienced anchoring and adjustment before?
For example, retailers always leave the original price tag on anything they’re discounting… why? because they know the original price tag (anchor number) will have a strong emotional impact on the buyer.
It’s not just the price in isolation that’s influencing our purchasing behavior, it’s the savings that really make us feel good.
How can architectural fees benefit from anchor numbers?
Problems arise for Architects and Interior Designers when Clients anchor on the low design fee numbers, frequently provided by the competition.
When faced with this dilemma don’t just lower your design fee to meet the lower-priced competitor’s fee as this will only devalue your design services and encourage a fee war.
Instead, try providing the Client with a range of different fee and service options, at different price points. Make sure one of the price points is close to the competitors fees and the others are incrementally higher.
How can fee and service options combat low anchor numbers?
By providing a range of different fee and service options you’ll be able to achieve three goals:
- You can bridge the gap between your design fee and your competitor’s design fee, without simply lowering your headline fee.
- You can demonstrate the benefits that your higher-priced (and more involved) design service has to offer.
- You can encourage Clients to choose design services based on scope, not just fee.
If you’re not sure how to provide design fee and service options don’t panic! Here is an example of how options can be applied to design services: How to Benefit from LEED Certification and Decoy Pricing.
Options are the foundation of any successful fee proposal strategy and it’s a subject that I’ll be covering in detail in the coming weeks.
Let us know what you think:
Do you offer a range of design fee and service options in your proposals? let us know in the comments section below by saying “Yes” or “No”.
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Where to from here?
To learn more about this concept and other Design Fee Psychology traits here are some options (Resources) that are available for you to use right now:
1. How to Benefit from LEED Certification and Decoy Pricing (Blog): https://blueturtlemc.com/blog/how-to-benefit-from-leed-certification-and-decoy-pricing/
2. The Design Professionals Guide to Design Fee Psychology (eGuide):
3. The Ultimate Fee Proposal Workshop (Continuing Education Points available):