Unlocking Architectural Success: The Crucial Shift in Design Fees You Can’t Miss
In the dynamic world of architecture, setting the right design fees can make or break your success. Today, I want to reveal a game-changing strategy that can elevate your design fees and profit margins. But first, let’s confront a pressing issue: the prevalence of super-low design fees.
The Problem of Super Low Design Fees
A recent Architects Journal article titled “The era of the super low fee bid is back!” sheds light on a concerning trend. Firms are offering services ‘below cost,’ with fees plummeting to as low as 2.5 percent of the construction cost. The implications are dire, as warned by the former RIBA President, Jack Pringle—low fees could lead to business closures or, at best, tarnish a firm’s reputation.
So, who’s to blame? Is it the architects, the clients, or a shared responsibility? More importantly, can a shift in pricing strategy truly solve this problem?
Learning from Allstate: A Pricing Revolution
To answer these questions, let’s turn to an unlikely source: Allstate, one of the largest insurance companies in the United States. Faced with fierce competition and low fees in the early 2000s, Allstate tackled the issue head-on by conducting a customer ‘value’ survey.
The Customer Value Survey Revelation:
The value survey aimed to understand what customers truly valued, allowing Allstate to enhance their value proposition, attract more customers, and ultimately run a more profitable business. The results were eye-opening.
While the initial price played a significant role in customer decision-making, it wasn’t the sole consideration. Customers expressed concerns about potential cost increases in the event of accidents or claims and sought opportunities for cost savings with a clean record.
Allstate’s Multi-Faceted Approach
In response, Allstate revamped its pricing strategy, offering not one but four insurance plan options at different price points:
Accident Forgiveness Plan: Maintain the current premium after five accident-free years.
Value Plan: A budget-conscious option with a 5% lower premium but no Accident Forgiveness coverage.
Gold Plan: Immediate Accident Forgiveness for a 5% increase on standard fees.
Platinum Plan: Accident Forgiveness for multiple claims plus a safe-driver bonus, available at a 15% premium.
Success in Numbers
By 2017 Allstate had sold 3.9 million auto insurance policies, with 23% of customers opting for higher-priced plans. The success of this pricing strategy shift was undeniable.
Architectural Pricing Revolution: The No.1 Mistake to Avoid
Now, let’s apply this lesson to architecture. The number one mistake architects make with their design fees is only offering one fee and one service option. (i.e. failing to implement a multi-fee pricing strategy).
Unlocking Architectural Success with Multi-Fee Pricing
A multi-fee pricing strategy empowers architects to cater to a diverse range of clients, from those driven by price sensitivity to those seeking exclusivity. It also provides an opportunity to educate clients about the various design services available and the benefits associated with higher-priced offerings.
Conclusion: Design Fees Beyond the Lowest Price
In your next fee proposal, remember that design services don’t have to be a race to the bottom. Offer clients a range of design service options at different price points, and witness how many choose higher-quality services. As the success stories from our Fee Proposal Workshop participants attest, a well-crafted multi-fee pricing strategy can transform your architectural practice.
Ready to Transform Your Approach? Access Our Free Fee Proposal Mini-Series here.
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