The No.1 Mistake Architects Make With Their Design Fees
Image by Michael Tavrionios from Pixabay 

The No.1 Mistake Architects Make With Their Design Fees

Today I want to show you how Design Professionals can increase their design fees and profit margins with a simple change to their Pricing Strategy. 

Let’s start with a question – why do we need to change our pricing strategy?

Super Low Design Fees:

To answer this question let’s take a look at a recent article from the Architects Journal called “The era of the super low fee bid is back!”, by Richard Waite (6/12/18).

The article claims that a growing number of firms are now offering to work ‘below cost’ with fees as low as 2.5 percent of the construction cost!

In the same article the former RIBA President, Jack Pringle, warns that low design fees will either cause firms to go out of business, or give such a poor service that they’ll lose their Clients and their reputation… but who’s responsible? Is it the Architect, the Client, or both?… and can a change in pricing strategy really fix the problem? 

How to Increase Design Fees:

To answer those questions let’s turn to an unlikely source – back in the early 2000’s, one of the largest insurance companies in the United States (Allstate), decided to address the issue of low fees by conducting a customer ‘value’ survey. 

Customer Value Survey:

Image by Andreas Breitling on Pixabay

The objective of the customer value service was really quite simple – to find out what customers valued so that Allstate could increase their value proposition, attract more customers, and run a more profitable business.

The results of their survey were quite intriguing!

Value Survey Results:

You see, while it came as no surprise that the initial price of insurance plays a pivotal role in their customers purchasing behavior, what was surprising, is that the initial price was not their only consideration!

Price is Not the Only Consideration:

Many Allstate customers also reported other concerns including; the potential for costs to increase (should they tarnish their driving record with an accident or claim), and the opportunity for cost savings (should they maintain a clear record with zero claims).

So, in 2005 Allstate set about amending their pricing strategy to address the different ‘interests’ expressed by their customers.

How to Demonstrate Value in Auto Insurance:

This led to the development of not one, but four different insurance plan options, and four different price points, for their customer’s consideration.

Option 1: Accident Forgiveness Plan

First, there was Allstate’s original insurance policy called the Accident Forgiveness Plan. This plan offers all customers the opportunity to maintain their current insurance premium if they’re able to achieve five years accident-free.

Option 2: Value Plan

Then there’s the Value Plan option. This is a new option that’s aimed at the budget-conscious customer because it includes a 5% lower premium, but no Accident Forgiveness coverage.

Option 3: Gold Plan

Next is the Gold Plan option. This policy offers immediate Accident Forgiveness (for those customers who don’t want to wait 5 years) in return for a 5% increase on the Standard Plans fees.

Option 4: Platinum Plan

And finally, there’s the Platinum Plan option. This option includes the Accident Forgiveness policy for multiple claims, plus a safe-driver bonus credit, for each accident-free six-month period. The Platinum Plan option can be purchased for a mere 15% above the cost of the Standard Plan option.

Survey Results:

According to the statistics published in the September-October 2018 edition of the Harvard Business Review by 2008 Allstate had sold 3.9 million auto insurance policies, and was reportedly selling 100,000 new policies each month.

Photo by Lukas from Pexels

By 2017, nearly 1 in every 4 customers (23%) had chosen to purchase a higher-priced insurance policy by selecting either the Gold or Platinum insurance plan option.

That’s not all, at the other end of the spectrum Allstate also reported that 1 in every 10 customers was signing up to their Value Plan. These are customers who are highly price-sensitive and may have gone elsewhere for auto insurance coverage had the Value Plan not been made available.

Successful Pricing Strategy:

By any measure, the Allstate’s pricing strategy changes had been a huge success.

One of Allstate’s senior vice presidents, Floyd Yager, was quoted as saying;

“There were a lot of skeptical people in the company… but we demonstrated that car insurance doesn’t have to be about being the lowest-price game.”

What’s the No.1 mistake that Architects and Interior Designers make with their Design Fees?

Too few Architects and Interior Designers implement a multi-fee pricing strategy, like the one described in the case study above.

Design Fees and Multi-fee Pricing Strategy:

A multi-fee pricing strategy not only allows Architects and Interior Designers to serve a broader range of Clients (from price-sensitive to exclusivity driven) but it also enables Architects and Interior Designers to educate their Clients on the different types of design services available (and the benefits associated with a higher-priced service).

(Note: To help you with your fee proposal and negotiation strategy we’ve created a free Starter Kit packed full of useful resources):

Fee Proposal Starter Kit

Design Fees don’t have to be Low:

So, when writing your next fee proposal, remember, design services don’t have to be about being the lowest-price service provider either. 

Give Clients a range of design service options, at different price points, and you’ll be amazed at how many Clients choose to purchase a higher quality design service from you. 

To prove just how powerful this method is, here are just a few comments from people who’ve taken the Fee Proposal Workshop training course, and implement a multi-fee pricing strategy:

Design Fees
Design Fees

For ideas on how to offer design service options at different price points see the following post: How to Benefit from LEED Certification and Decoy Pricing. 

Alternatively, if want to learn how you can implement this strategy without delay… check-out the Fee Proposal Workshop

Let us know what you think:

Are you implementing a multi-priced design fee strategy on your architectural projects? Let us know in the comments section below by saying “Yes” if you are, or “No” if you’re not.

That has been a quick look at the many benefits associated with a multi-priced design fee strategy for Architects and Design Professionals.

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Ready to Implement a Multi-Priced Design Fee Strategy?

The following is a list of resources that are available right now to assist you with creating your own multi-fee pricing strategy:

1. Design Professional’s Guide to Design Fee Psychology (eGuide):
https://blueturtlemc.com/product/design-fee-psychology-eguide/

2. The Ultimate Fee Proposal Online Training Course (CE/CPD points available):
https://blueturtlemc.com/feeproposalworkshop/

3. How to Benefit from LEED Certification and Decoy Pricing (Blog): https://blueturtlemc.com/blog/how-to-benefit-from-leed-certification-and-decoy-pricing/

This Post Has 6 Comments

  1. Karen Richardson, K.R. Designs

    Yes, I do offer and communicate the “why’s” of the options. Offering the “What I’m worth”/hr. was not working so I had no choice but to think about how to educate the potential client – but first you have to get your foot in the door!

  2. Matthew Michael Agee

    After attending Blue Turtle Consulting’s Fee Proposal Workshop in 2017, we comprehensively restructured our proposal format around a multi-fee pricing strategy. Unfortunately, our results weren’t very encouraging.

    Many potential clients presented our proposal to competing firms who countered by offering all our deluxe services at our discount-service price point. We couldn’t match those low-ball counteroffers without losing money, so those Clients selected the competition…nevermind our skepticism that said competing firms would actually deliver our presented services.

    Our more-experienced clients (those not easily-swayed by empty promises) instead expressed confusion with our non-traditional proposal format, and often requested that we restructure the proposal accordingly. We never got a sense of the multi-fee pricing strategy working to our advantage, at best it merely slowed down the fee negotiation process and at worst clients felt we were obfuscating offered services.

    Multi-fee pricing strategies sound great in theory, but our experiences haven’t borne fruit in practice. Might be the clients and markets in which we play.

    1. Ian Motley

      I’m sorry to hear that it’s not working out for you.

      How do your Clients typically respond to your traditional single-fee, single-service approach?

  3. Peter Wislocki

    I also attended a Blue Turtle workshop, and, as a lecturer in professional practice matters (which includes fee bidding and architects’ appointments) as well as being a hands-on practitioner (with experience both as a director of some very large firms as well as my own emerging business) I am very intrigued by differential pricing.

    We nearly always quote for core services plus optional extras. For example, a planning application package for a small job might include only plans and elevations, satisfying minimum validation requirements, under the core service, but many if not all of our clients pay additional fees for CGIs, design and access statements etc even where LPAs don’t insistent on them. We keep this very simple and transparent, however, without giving it any fancy branding.

    I also very strongly believe in differential pricing. As my clients might read this I need to make clear that we try not to charge some of them far more than others for the same service. No two clients are the same, and no two fee proposals are the same. It’s very much the Audi / VW / Skoda / Seat approach – lots of cars share the same platforms and key mechanical components, but the quality (and perception of quality) varies, as do the prices. As long as everyone feels they are getting good value-for-money and we make a profit I’m happy!

  4. Dion Seminara

    I did AIA online series offered by blue turtle and got some one on one consulting from Ian quite a long time ago.

    I have split our standard 6 step design process into three different design packages and from this found it easier to at least sell client some type of service most of the time.

    I have also always offered as pre-design service a free meet and greet at my office where we explain non client specific stuff and a paid design advice orally presented service. Over the years I have sold hundreds of thousands of dollars of just advice alone. I do think many in our industry are missing out by not charging for advice. What doctor would do anything for free!

    For me my view is if a prospect will not pay a small fee then to me they will hardly pay a large fee for actual design services. Maybe this is small minded but for me and for the type of work I do I feel comfortable with the way I operate and feel the options I offer give my prospective clients clear choice and it is choice that will sway some people to buy and then buy ongoing much more highly priced services.

    I also offer clients additional upgrade services once they have advanced into there chosen design packages.

  5. Ian Motley

    Hi Dion, I’m so pleased to hear that you’re benefiting from offering 3 different service packages. We’ve found it to be hugely successful with both our Clients (Architects) and their Clients too.
    Thank you for providing feedback it’s greatly appreciated. Best, Ian

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