TAKING CHARGE One of the first — and most important — decisions a company must make after bringing design in-house is how to charge for the service. According to Strite, there are a few established models.
“Essentially, you can charge hourly, you can charge a flat fee by project, or you can charge a percentage of the total sale,” he says. For his company, Strite has elected to charge using the latter model.
Since bringing designers in-house full-time, Bob Fleming, owner of Classic Remodeling, in Johns Island, S.C., has seen his average job size significantly increase. The company has more than tripled its volume since making the switch two and a half years ago. Photo: Brett Flashnik | WpN “Tracking costs hourly is a burden on the company and on the client,” he says. “It is difficult for us to track overhead, and the client is constantly distracted worrying about how much time they are spending making design choices.” Using the percentage of sale model, Strite is certain to make a margin on his design labor, and is even able to credit some of the fee back toward construction if the design work is lighter than expected.
Many remodelers, says Todd Miller, of QMA Design + Build, in Ventnor, N.J., are tempted to use design as a “lost leader” — a means by which to secure construction, but not a revenue source in itself. “I’ve never understood this philosophy,” he says. “You would never give away remodeling services. Why give away design?”
Miller charges for his design much the way he would charge if he were subcontracting the service, charging market price and then marking that up as well. Otherwise, he points out, if there is a slowdown in the market, where does the money come from to get through it? He is able to weather market fluctuations by charging properly for design.
Potter charges hourly for work performed by his designers. To quell clients’ anxiety over being on the clock, Potter tells them to expect to spend about 5% of the total job cost on design. By charging hourly, he is also able to avoid overcharging some clients whose projects require very simple design work and subsidizing others whose jobs are more complex.
For those just starting out offering design services, more than likely the design fee will be an evolving figure. Paul Eldrenkamp, of Byggmeister Associates, in Newton, Mass., began by subsidizing his design services. “We started out with charging a flat fee for design,” he explains. “It gave us a bit of leeway to make mistakes. We had the resources to do it. Eventually we got our fee up to around 8% to 10%.”
Whatever method you ultimately choose, your office staff will now be charged with the added task of tracking design costs, related overhead, and revenue. McCutcheon tracks all design costs and revenue separately so that he knows exactly what his design margins are. “We track all of the overhead separately as well,” he says, “from labor burden right down to the number of square feet the department takes up in our office. We set a monthly [gross profit margin] goal and manage to those.”
Miller goes a step further, dividing his construction and design departments into separate legal entities, each with a unique tax ID number. “Using this method really allows us to track our costs and to see if we’re making money,” he says. “It’s difficult to have two companies in terms of keeping up with taxes, benefits, and the books. But we think it’s worth it to have a clear picture of our numbers.”
Fleming, for whom design is not a profit center, doesn’t price design separately but does track it as its own line item. “We don’t show it to the client in the cost of the project, but there’s an additional 10% margin for design,” he says.