Business & Design: The Compensation Debate

Perspective on changing interior design fee structures

Hourly vs. Commission

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In recent years there’s been a notable shift in the way interior design professionals are choosing to be compensated for their work: precipitated by ever-increasing internet access to once guarded trade resources, and the struggling economy.

Many design firms are adopting a fixed fee structure, or an hourly compensation rate for their services, as opposed to what has long been the industry standard of percentage mark-ups on merchandise and services.  I decided to ask one such firm, as well as the interior design industry’s leading legal council, to explain why the shift is advantageous to designers and their clients alike.

I also canvassed residents on Manhattan’s Upper East Side for their opinions.  I think you’ll find what I learned interesting.

The idea for this post germinated last week, as our Design Editor Carl Lana and I had coffee with Frank Webb and Matthew White of Manhattan based White Webb Interior Design, in advance of their departure to attend the Leaders of Design Council meeting in Berlin.  They’ve recognized the importance of the shift in fee structures, and have adopted a flat hourly rate for their design services.  Webb, who had a successful career in investment banking prior to becoming an interior designer, shared his firm’s perspective;

.“Even if unspoken, Matthew and I always sensed that the designer mark-up somehow (and understandably) left clients feeling at risk.  Since trust is one of the most critical components of a designer-client relationship, why undermine it by insisting on a billing structure that makes them ill at ease?  By moving to an hourly fee structure, our only incentive is to buy the “right” thing for our client, and their incentive is to use our time wisely.  In the end, it’s the best scenario for both parties.”

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Eager to gain a clearer perspective on the subject, I contacted Alan M. Siegel, a partner in the New York law firm of Levy Sonet & Siegel, LLP, who serves as national legal counsel to the American Society of Interior Designers, Inc., as well as general counsel for the Association for Contract Textiles Inc. and the Decorative Fabrics and Furnishing Association.  I asked for a legal overview on the subject of flat and hourly design fees.  This is what he had to share with me;

“Albeit a somewhat recent “convertee” to the concept, I am clearly an enthusiastic believer in the benefits afforded residential designers who charge clients fixed fees for design services and provide merchandise on a “net basis” to the client– directly, or as a disclosed agent, or otherwise.  Moreover, I actually think the methodology of charging a fixed fee will become the norm in the not too distant future.

I’ve heard all the reasons offered as to why designers should not charge a fixed fee– but in reality, few, if any, withstand scrutiny.  I’ve often heard it said that I will lose money if I charged on a fixed fee basis– not so!  Quite the contrary, you may find that your bottom line at the end of the year has significantly improved. 

Every successful business requires “cash flow”.  Consider a typical residential project that has a project lifespan of twelve (12) months.  I would dare say that at least sixty (60%) to seventy (70%) percent of the designer’s work effort occurs during the first six (6) months of the project.  Yet, where design fees are predicated strictly upon client’s purchases of merchandise, the designer’s compensation is not realized until well into the purchasing phase of the project, (aside perhaps from an initial design payment made at the beginning of the project, which may or may not be credited to the client’s account at a later date); assuming, of course, the relationship has not been sooner terminated.  And does anyone doubt clients might feel uncomfortable when design fees are predicated solely upon the price of merchandise specified and purchased?

Perhaps it makes sense to charge a client on a fixed design fee basis, with monthly payments of the design fee from day one.  This way the designer can count on receiving steady “cash flow” throughout the course of the project which is needed to operate the design firm on a daily basis. Arguably, this payment methodology may diminish the monetary risk of having a client terminate the relationship after the designer has performed a good deal of services, but prior to receiving much of the anticipated fee. 

This is not to say working on a fixed fee basis is as simple as merely picking the amount of the “design fee” out of a hat.  Considerable care must be given to arrive at that amount. Furthermore, provisions need to be made for additional compensation to the designers for services not contemplated within the scope of the fixed fee being paid.”

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Perhaps you have been part of a conversation with design professionals on the subject of design fees, much like I have.  What has (up until now) been absent from the dialog has been the voice of the consumer.  Eager to hear what the ‘man on the street’ would say about fee structures, I asked my friend and celebrated interior designer Jamie Drake of Drake Design Associates what Manhattan street corner I should stand on, in the hope of eliciting the opinion of people most likely to have hired an interior designer.  He suggested I start at 79th Street and Park Avenue.

79th ParkArmed with pen and clipboard, I headed to the Upper East side at half past noon last Wednesday.  I decided to traverse the vicinity until I’d spoken to at least thirty people who responded ‘yes’ to the question: ‘Have you worked with an interior designer?’.  Easier said than done – it took nearly two and a half hours.

Once I established a previous relationship to the interior design industry existed, I asked a single question in my straw poll: ‘In the future, would you be inclined to work with a designer who charges a markup on the goods and services they provide, or with a designer who charges a flat or hourly fee for their taste and expertise?

Of the thirty people who agreed to speak with me, twenty-three were women, seven were men.  Twenty-six told me they would prefer a designer who charged either a flat fee or an hourly fee over a designer who charged a mark-up, just under 84%, and while I didn’t solicit any further information, several people expressed less than a favorable opinion of the designer they’d worked with, each citing mistrust in the relationship.  I did not ask for names.

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This brings up several interesting questions for members of the interior design community.  What is your current fee structure?  Would you consider changing you business model to accommodate the changing climate, or would you be willing to lose a potential client by standing by your existing fee structure?   Feel free to comment, I’m sure other members of the community would like to hear your thoughts.

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Written by CJ Dellatore

18 thoughts on “Business & Design: The Compensation Debate”

  1. Hi Carl,
    I do a lot of remodels and mid-range budget type projects, where a lot of purchasing through my business does not really happen. All my clients shop the web openly and are trying to stretch their dollars as much as possible. I want to help them do that but still need to stay in business. I think the design dollars in this mid-range budget area to be had by designers are really growing these days. More people want good design than ever before. The struggle becomes how to offer that to this level of client with the education, skills, resources, and expertise of a million dollar decorator and still make a profit.

    I charge by the hour for design time and then if and when I do get to order product for projects, I have a small mark-up there. It seems to be working, but I always welcome purchases made through my studio. It allows just that extra control I can have to put a project together completely for a beautiful outcome.

  2. Considering that designers have lost such a huge amount of the market, down to 2 percent of usage nationwide. I read this information a few years ago in the Home Furnishings Industry Magazine. I disagree with the solution of selling merchandise at wholesale. I would suggest a dialog on why such a decrease has happened. I believe, the industry as a whole has not supported the independent design community. The buy- in to obtain resources, minimum ordering requirements, and catalogs, sampling, insurance, etc. is so expensive. I invested thousands in product and exclusive lines, only to find that a few years later they went “public”, invested in furniture lines, then was unable to maintain their yearly goals, due to illness, and I had to reinvest to obtain the products again. Owning an Interior Design business with a Designer Showroom allowed better discount structure than going to buy as an independent designer. According to accountants, if a business makes a 20% profit that is good. I charged a retainer based on square footage and normal specialty mark-up and gave service, service, service.

    I am in a community that has been hit very hard economically, with most furniture stores going out of business except for a few lower end and not many designers left. I have been trying different fee structures, clients are not following through on their projects. Clients are shopping everything, then they are unhappy with the results they ordered online. The value of the designer has been destroyed by the loss of perception via media, all of the do it yourself – anything goes, mindset. The Showrooms at market allowing the public to purchase on certain days. The programs that show where to get it and how to do it and disregard the knowledge it takes to put the room/home together as a whole. A friend used the design fee only, and I made a significant amount more than she did, for the same headaches. Not to be negative, but we all have the same amount of time in a day, this job is not easy and can be very costly if you are not detail oriented and do not have excellent communication skills. Where do you get the money for corrections when a mistake happens in ordering? A good design, I believe can be life changing, can heal and create harmony within the home, that is priceless. When designers are valued for the skills they poses, which are many, then the selection of furniture, the fabric, the shape, the scale, etc. will maintain the just integrity it deserves and not be wholesaled to the public and designers will be paid for the creativity and knowledge they must have to create nurturing environments. That is what needs to be taught to the consumers. Hourly fees do not cover the cost of what is being purchased. Clients are fickle and mistakes are sometimes made, you need to be able to maintain a good reputation for future business and that requires replacing and or correction, an expense that should be included in the cost of doing business, which is not available in an hourly fee. Sorry, this is so long…..just sayin….

  3. I do wonder about only using hourly. I can spend hours finding just the right piece for the room. Preparing my client for the amount of hours it will take to design the space is what I’m learning how to determine.

  4. I agree with the hourly/flat fee approach. But do you advise any markup if the firm is maintaining wholesale accounts and placing orders on behalf of the clients? Or are you assuming every city has a NY market where there are a gazillion shops as well as design centers and the retailer/showroom handle all the purchasing, leaving the designer to simply, well, design? Just curious. Many thanks!

    1. I’m not sure how to answer your question definitely Jleann, as my experience is in the New York market. Several designer friends tell me they charge enough hourly to cover the back office work required to make purchases, and some charge a nominal percentage fee above net costs to cover that work. One thing is certain, consumers are incredibly savvy these days, and a breach of trust which used to take months or years to impact a designers reputation can spread in minutes on social media. I’m of the idea, much like Mr. Seigel, that doing everything to make the relationship work for both designers and their clients is of the utmost importance.
      Thanks for your comments!

      1. Thanks for the reply. if possible, please clarify the range of a “nominal fee”. Keep in mind that credit cards eat up to 3% alone. Thanks!

        1. I’m not sure I can answer you definitely Jleann. You would need to consider the area you live in, your business overhead, and your skill to accurately gauge your fees. What I do think is important is that we adjust to the new economics of design.

  5. I am on the front lines of this as I work with so many interior designers. I have been advising a combo. The word “mark-up” is quickly becoming a curse word for clients. When clients can’t see the mark-up they think the designer…well F-up. (Kinda rhymes) That is exactly what it will look like to them. Clients are smart savvy shoppers themselves. The art of interior design is completing the vision, so putting a fee on that and an hourly rate is perfectly acceptable to clients. In the end by incorporating a combo your clients will rhyme fee with glee. Consider a combo on all your projects and outlined the details in the agreement. Set realistic expectations early.

  6. I have always charged an hourly rate and find that helps keep the homeowner feeling in charge of where their money is going. I also take my designer discount at places I source from. It is my buffer for when I have to make returns and choose not to charge my client for the time those returns would take. I have operated this way for 15 years and have never once had a client express distrust or not be happy in the end.

  7. Again, great post Carl! I prefer flat fee. I have a flat fee rate per room for renovation projects. Two of them actually, one for just ideas and decor, one that’s a bit higher if it includes finishes etc. I will charge an hourly fee if it’s a consult only, 3 hour minimum. I very seldom charge a mark up at this point, but IF I do, it’s on my net cost. I’m happy with what I make, and my clients know up front what they are getting and how much it will cost…so no hidden fees and agenda’s. And yes, I still have to work out how to add for additional work that comes along once the project has started. Looking for the right verbiage to put in my letter of agreement up front to take care of that contingency. Thanks for keeping the lines of communication open in our business! Cheers!!!

  8. I am making the transfer to a flat fee structure and will see how it will work out in the end. I hope to report back on my observations in the future.

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