Is he profitable? “If my month is profitable, then it’s OK if some projects are more or less profitable than others,” he says. “Design and creativity are not commodities that can be defined and predicted like lumber. The image that the project portrays in the end is the billboard that finds me the next client.”
Orren Pickell Designers & Builders, outside Chicago, has seven separate LLCs, one of which is Orren Pickell Remodeling Group. Its fee structure, says architect John Anstadt, managing principal for the architecture division, is between 5% and 7% of the construction cost. After deriving a scope of work, an estimated budget is established, clients sign a design agreement and pay an initial $3,000 deposit to retain design services. The money eventually goes toward the total job fees and covers efforts in due diligence, field measures, photography, and an initial design meeting. Then Pickell spends two to three weeks coming up with preliminary concept drawings. This is followed by a design presentation meeting with the client.
Pickell comes up with a second budget and gets paid for one-third of the architectural fees (one-third of the 5% to 7%). They begin construction documents and produce a set of CAD drawings. Another meeting is held, at which Pickell is paid one-third of the architectural fees. The final third (minus the retainer) is paid after final construction documents are ready and reviewed.
For a $300,000 kitchen, design fees would range between $15,000 and $21,000. Profit varies depending on the amount of time spent or materials or outside consultants used on the job.
For clients uncertain about their scope or budget, Heaney’s Rockland Architecture uses a design development agreement — a time and materials agreement with reimbursables (mileage, consultants, and blueprint reproduction for example).
If clients are certain, Rockland uses a fixed-fee design agreement. In either case, clients are sent an update every two weeks and billed once per month for the hours spent. (In the case of a fixed-cost agreement, the hourly billings are deducted.) In this way, clients can see how far they have progressed in the project.
Occasionally, the design work exceeds specifications. “If, for example, we factor in three concepts and the client ends up changing it to five or six concepts, that’s clearly over and above what we discussed,” Heaney says. If the design team can’t make up the costs elsewhere, the client is billed for the extra work.
To arrive at project scope and architecture fees, Heaney uses an in-office consultation and client “homework,” such as a project-specific questionnaire and a design criteria form, to help clients prioritize their needs and goals
His lead architect then goes through the documentation and fills out a spreadsheet that has line items for design labor (which makes up the bulk), consultants (engineers, interior designers), and materials (things like paper and binders). The architect calculates how many hours would be required for due diligence and design analysis, schematic design, design development, and construction documentation.
The spreadsheet contains different rates (depending on which employee is responsible for a particular task) for specific activities such as CAD work, field measurements, and code studies. Clients pay a $2,500 to $5,000 deposit or retainer, depending on project size.
Rockland uses a “design priority sheet” to track where the company stands and how many hours are spent. Using QuickBooks, Heaney compares his budget to actual costs by month and year-to-date.
With the salaries of three architects and Heaney, overhead is fairly high, but Rockland Architecture typically shoots for — and gets — 40% gross profit on design.
Stacey Freed is a senior editor for REMODELING.