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.”
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.”
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.
Armed 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.
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.
Written by CJ Dellatore