How To Know If Your Residential Architecture Fees Are Too Low

Residential Architecture Fees

Are your residential architecture fees too low? How do you know?

Charging too little for your services can land a firm in big trouble – fees are the lifeblood of an architecture firm, and without sufficient cash flow a firm will find itself in trouble – not able to pay staff (and yourself), and not able to keep up with basic firm expenses like rent and other overhead costs.

Charging fees that are too low can also hurt your firm's competitiveness by preventing you from investing in the tools and resources you need to do your job properly.

Insufficient fees may also tempt you to rush through drawing production without proper quality control.

Ultimately, fees that are too low harm both you as the professional and your clients. [Tweet “Fees that are too low harm both you as the professional and your clients”]

So how do you know if your fees are too low?

The Justice Department's 1972 Anti-Trust settlement against the AIA put a death-freeze on any conversation about architectural fees.

In fact, the AIA's Antitrust Compliance Guidelines tell members not to have discussions with other members or competitors about prices for products or services.

Because of this, it is hard to find any benchmark or established guideline on how much residential architects should charge.

Ultimately, this is something that is learned by experience. Personally, I've heard fees all over the board from residential architects – from $2.00 per square foot on the low end to 25% of construction cost on the upper end.

Apples and Oranges

But this isn't an article on fees per se, and architects know that comparing services based on fees alone is akin to comparing apples and oranges.

Here are some tell-tale signs that you aren't charging enough for your services:

  • You often hear that your fees are the lowest (are you leaving something out?)
  • You feel timid about telling potential clients how much you charge (this may reveal an un-healthy mindset about money)
  • You aren't meeting your desired hourly rate when you calculate how much time you spent on the project (you are tracking your time, aren't you?)
  • You end up paying consultants out of your fees
  • You frequently find yourself saying, “I won't charge you for that.”
  • You work all the time but don't seem to have any money left at the end of the month

While any one of these can indicate fees that are too low, they can also be symptoms of poor project or time management.

To figure your fees, start with your desired profit margin and work backwards, based on your known costs and the time it takes you to deliver a project.

In his interview on Business of Architecture, financial management consultant Steve Wintner, AIA Emertius states that reasonable profit margin for an architecture firm is 20% (see that interview for additional information), although typical firms run at 10% or less.

Ultimately, you should be charging enough money to cover your expenses, provide great value to your clients, and make it worth your while to shoulder the risk of being in business. [Tweet “You should be charging enough money to cover your expenses.”]

Now it is your turn: do you feel you are charging enough? What are some of the warning signs you look at that your fees are too low? Leave your response in the comments below.

 

ABOUT

ENOCH SEARS

Enoch Bartlett Sears is the founder of the Architect Business Institute, Business of Architecture and co-founder of the Architect Marketing Institute. He helps architects become category leaders in their market. Enoch hosts the #1 rated interview podcast for architects, the Business of Architecture Show where prominent guests like M. Arthur Gensler, Jr. and Thom Mayne share tips and strategies for success in architecture.

29 Responses

  1. It’s 2022 and I’m just now finding this article after 3 years in business,. I read the comments as well. As a non-licensed architectural designer, I appreciated all the comments made here. Thanks to all for sharing your thoughts on this difficult subject.

    I still wouldn’t change my profession for anything on earth!

  2. I thought that it was interesting when you explained that some residential architects don’t know what the appropriate amount is to charge for their services. Even as a customer, I have considered hiring a residential architect for home renovations but have been unsure how much to expect services to cost. I will be sure to discuss with different residential architects how much we each feel is a fair price for renovations within my home and make a mutual agreement.https://cawoodarch.com/services

  3. I’ll be honest..just saw this article. I know it’s from last year. Here in northern Illinois and southern Wisconsin, most fees are quoted per square foot. I’ve heard ranges from $1.50 for basic plans to $10 a square foot. And people are paying them. I’ve seen some of the higher end plans and I have to tell you…those people are getting taken.
    If talking about fees is supposed to be illegal, then the state needs to enforce it. But then again, while calling yourself an Architect, in Illinois is supposed to be limited to what we all understand it to be, there are all sorts of ads calling for data architects, etc. That is illegal in Illinois but never enforced.

  4. That’s fascinating that it’s illegal to talk about the fees each architect charges. I was under the impression that many did architecture just as a contract, or hourly? I’ve never heard (in my extremely limited experience) of someone charging per square foot. That seems a little silly to me when considering a floor plan that is spacious, yet not complex.

  5. Love the discussion. If we were cut throat lawyer like business people we would fight the anti-trust ruling. Want a precedent: look at this crap. A current schedule for lawyer fees. http://www.laffeymatrix.com/see.html
    The AIA has failed the profession by not overturning the ruling, and in general putting design above the BUSINESS of architecture. Attend ANY seminar put on by construction lawyers filled with an audience of contractors. They all focus on the business of construction. The making of money. You will learn more in an hour than in six years of college and 15 years in a firm. Let’s build a new set of rules. 1) Never work for free (personal volunteering is still encouraged). 2) Always ask for a retainer large enough to cover the work you have done/are doing through the next invoice and collection period. Do not apply it to anything but the very last invoice. 3) Bill every minute. Require phone App time tracking and enforce billable ratio minimums or goals. 4) Never pad your bill, but charge a fair price for every expense (unless it’s worth more as a business write off like mileage!) 5)…

  6. There’s a lot of questions wondering how much we should charge in fees yet not 1 person has stated what their fee structure is?
    What is it for a ground up residential project? Fee structure if per sqft? Renovation project? Commercial? Etc.
    We can answer these questions here & now.

    1. Hey Chris, I encourage anyone to share their fee structure here. There is no law against that. I also encourage all to participate in the 2015 Small Firm Fees and Billings Survey – I’ll be releasing the results later this year. The more people who participate, the more information we can share! Fill out the survey here:
      http://www.businessofarchitecture.com/survey/2015-small-firm-architectural-fees-and-billings-survey/

  7. Good to see Mr. Stitt is still at it! He was the original Small practice Guru! Once could say he is a father figure to Enoch & Mark, and all the rest who are helping us try to “get this thing right”!

    Thanks Richard!

  8. What do you mean by “FEES” in California? Never heard that one before. I love you guys talking about this subject matter. Why is it that Architects are always Hush hush about this issue?
    Let’s pull this out of the land of darkness and discuss it the way we should.
    thank you

  9. I’ve been struggling with the question of how a client’s expectations about fees has changed since the recession. Not that I want to meet that expectation necessarily, but I do want to be able to discuss why my fee might differ from that expectation.

  10. It’s interesting to read the comments here!

    We’ve been having the same conversation for decades.

    After 20 years in the profession, I’ve moved away from Architecture and am now in the business of procurement. I compare rates from competing firms all day long and I can tell you that what I see in the industry is a regression on hourly rates not an increase.

    This is being driven by competition and the value perceived from the Owner.

    By and large, I see Principal Architects and Engineers charging less than $200 an hour. That’s right! My benchmark shows that the average rate charged by an Account Executive is $158.00. Compare that to a Construction Program Manager who’s average rate is $122.00.

    What’s the difference?

    The base pay of an Architect V is an average $80,745 ($39.00 per hour). That leaves $119.00 for profit and overhead.

    The base pay for a Construction Manager II is an average $124,196 ($60 per hour). That leaves the company with $62.00 for profit and overhead.

    But wait! The Construction Company also makes 10% to 15% on the Cost of Work. This is where they make the bulk of the profit for the organization.

    The Architects work product is a drawing. The Construction Manager’s work product is a building. See where I’m going?

    The AIA has told us to stay out of the construction. WHY? We know more than the field guy with a GED about building than he thinks he does.

    We need to start thinking like an Owner. Where is the value?

    Good Design? Yeah, but as previously noted, how do you quantify that?

    Savings on change orders, okay, but what’s that worth 15% of construction cost?

    We’re making the wrong argument!

    Why NOT also do the construction?

    Architect Lead Design Build is a real trend that I’m hoping picks up some steam. Especially for you guys in the Residential sector. House additions and new homes are easy to Construction Manage.

    Lets stop trying to make all our profit on our rates and lets focus our efforts on the thing that gives Clients that most value. Let’s pull more profit from each project rather than chasing more projects to make more profit.

    The AIA has been wrong in telling Architects to stay out of Construction. They are even softening their position on this. We need to retain control of the work through the whole process. We need to spend less time drawing. We need to spend more time building. Once we start to do this, then we will begin to see greater profits.

    I think the argument that we should charge higher rates is wrong in so many ways. What we need to do is get out of the office and make stuff. Realize that the value the Owner wants is first and foremost a house (or a deck, or a porch, or a new kitchen). AND they also want it to be well designed! We can offer BOTH.

    With that concept in mind, think about how you could beat every contractor you know if you offered a Client that?

    THEN think about how much profit you will make when you double your billable hours by also being the CM and then also charge a percent mark-up on all of the cost of work!

    1. Luis,
      You raise a number of interesting points, and I agree with most of them. From the architect’s own standpoint, architect-led design/build has the potential for bringing in the most profit.

      I am from a generation where the architect’s fiduciary responsibility was drummed into us, and design-build (regardless of who is leading it) used to be frowned upon due to the conflict of interest. That potential conflict of interest has not gone away.

      I don’t have a problem with D/B in a setting where the Owner is knowledgeable and may even have his own construction manager. However, where you have an Owner who may be doing this for a first and only time, do you have any thoughts on how to deal with ethical issues that might arise? When you have a novice Owner with an architect representing the Owner’s interests vs. an experienced contractor, you have relatively balanced parties to the construction contract. With the Owner and Architect as potentially adverse parties with some contradictory goals, not so much. I can see that some D/B contract structures might reduce potential ethical conflicts, though.

      1. I think it is important to realize that Providing professional architecture services grew out of the construction industry. Prior to the formation of the AIA (1850’s) , design services were provided complementary by the builder/contractor. The AIA was founded to establish a profession of professional architects – getting paid for providing design services as a separate entity.

        Why did this happen? Because buildings became more complex – requiring more specialized players. And they continue to become more complex, hence the end of the “architectural engineer” and the emergence of the specialized consulting engineer.

        I tend to side with Richard. I’m an architect, not a builder. Nothing irks me more than builders who think they can design. So, I don’t want to pretend that I know how to build, just because I know how to design.

        It’s also important to know that the AIA forbid construction by its membership. Why? Because they saw it as a conflict of interests. Contractors would get “kick backs” from material suppliers, and the AIA felt that architects could not be unbiased – act in their clients BEST interests – , if they were getting cash incentives to spec certain products. Very noble, on the part of the AIA. However, virtually everyone else is profiting from some type of material mark-up! Even kitchen and bath designers I know make little on their design services, but get commissions from cabinet companies and tile companies, etc. How come we’re the only ones missing out on this?

        Now, we can also talk about the labor distribution in the architecture profession. I will save this for another post, as I have to generate some drawings in order to put food on the table! No commission or mark-ups for me! 🙁

        1. @ Edward,
          Re your comment: “However, virtually everyone else is profiting from some type of material mark-up! Even kitchen and bath designers I know make little on their design services, but get commissions from cabinet companies and tile companies, etc. How come we’re the only ones missing out on this?”

          In California, at least, architects can lose their license for getting undisclosed compensation from sellers of specified products. Here is the language from the Rules of Professional Conduct:

          “(1) An architect shall not accept compensation for services from more than one party on a project unless the circumstances are fully disclosed to and agreed to (such disclosure and agreement to be in writing) by all such parties.
          (…)
          (3) An architect shall not solicit or accept payments, rebates, refunds, or commissions whether in the form of money or otherwise from material or equipment suppliers in return for specifying their products to a client of the architect. ”

          However, I know that plenty of designers (and a few architects) still get “referral fees.” (wink, wink) I guess designers can get away with it because they are unlicensed. And professional organizations such as ASID have ethical guidelines regarding undisclosed compensation, but a complaint needs to be filed. Hard to do if the client never even learns about it.

          This is totally different, though, from architects directly selling products they are specifying at a markup, and this is certainly allowed. (In a retail sale, the issue of undisclosed compensation doesn’t come up.) I have often provided products, including furniture, on my projects, and I think architects miss the boat BIG TIME by not doing this the way interior designer do. Perhaps they are confusing markups with kickbacks as being unethical.

          1. Yes, Richard. It is what it is. Architects are providing a professional service and are licensed to protect the health, safety , and welfare of the public. So, we are getting a fee (hourly or flat) for providing that service, which usually includes producing construction documents, which can be very laborious.

            Think about a realtors 6% commission for a sale (price fixing if I ever saw it!) This is money people don’t bat an eye at as they don’t see it or “feel” it! Yet, charging 6, or even 8% to provide creative design services and produce a thorough set of CD’s is seen as taking them to the bank!

            We just did a 3 million dollar home here in Des Moines. The client hired a prestigious landscape architect who flew in from Chicago. Take this with a grain of salt, but the client told us the LA would bid the project and then get an additional $25K “commission” from the selected contractor! My boss and I rolled our eyes in disbelief! The client thought nothing of this – even though that money is really coming our of her pocket. Meanwhile, after numerous revisions, our fee ended up at around $100K (3%) and they have balked and dragged their feet on paying us!

            We have a tough job of justifying fees, especially for our creativity and design services we provide. Most residential clients simply don’t think we are earning what we are asking for. And when you are in a market like Des Moines competing with builders, lumberyards and unlicensed “architects” (people still think they are architects!) who charge less, as they have no liability….well, let’s just say it’s always a fight!

            But, I am interested to know how architects could do it the way interior designers do, with out providing construction services.

            1. I was president of a very large ASID chapter here in CA. (Over 500 designers, as I recall) I offered to do a program for my AIA chapter showing them how to incorporate interior design services into their practice. I was showing them forms, how to do proposals for furniture, how the buying and ordering process works (purchase orders, acknowledgments, etc.), designer-specific software for tracking orders, etc. All of the “insider” stuff on how designers do it.

              Yet, there was VERY little interest in this program. So the opportunities are there, but I’m not sure what it takes to get architects to see the bigger profit picture. Architects often complain about not having enough work, but there could be additional profit centers in kitchen design, lighting design, landscape design, or interior design, maybe with some extra training, but the money is just left on the table for others.

            2. Hi Edward, thanks for your comments.

              Until we take back control of construction, Architects wont have opportunities for additional income streams.

              Interior Designers are key members of the installation and decoration team. They provide the furniture, paintings, etc. and (maybe Richard can confirm) I think they hire tradesmen and mark them up too. The point is that they do the design and the “construction”. Notice the quotes!

              The field of competition you just described is EXACTLY why you need to consider Architect Led Design Build.

              Imagine the value you would have brought your Client (the one with the $3M house) if instead of just producing drawings, you were there every day during construction?

              Instead of 3% ($100K) to just develop the drawings, lets say you develop simple set of drawings that was sufficient for plan approval and permitting and just conveyed the basic intent of your design. Then you went on to plan the work and put in place all of the trades that you needed to perform the work. You are just a manager! You arent hanging sheetrock. As the construction progressed, you continued to develop your design, but instead of imagining it in your office, you saw it being built.

              You spent less time drawing, more time designing, you retain creative control over the entire project and the owner only had to deal with one person through the whole project.

              I guarantee that the revenue you would have generated under my scenario would have yielded your firm well over $100K maybe even 10 times that much!

              Guys we are selling ourselves short. We need to take back control of construction. We are not artists. We are Architects. Master Builders.

              Look through Enoch’s videos (by the way he’s not paying me to say this), he has several good primers for Design Build and specifically Architect Led Design Build.

              Even if you don’t agree with me, I’m happy that we are having the discussion.

              Thanks for the comment.

      2. Richard I negotiate Design Build contracts all the time. There can be conflicts of interest but in my opinion, these conflicts come up mostly when you let the GC sub the design. That is truly the tail wagging the dog. As Architects, with that fiduciary responsibility, I like to think that we are far more likely to stay above bar.

        Dishonest people will always exist, but there are ways to deliver Design Build services that give complete transparency to the Owner. When properly structured a Design Build project relieves all parties from risk and take away both the opportunity and the motivation for conflicts of interest to arise.

        I actually believe that Architect led DB is MOST needed when the Owner’s are not savvy about construction. The ones that are most savvy will be quite capable of discerning a good GC from a bad GC. The others are the ones that are most at risk. Less savvy owners need professional leadership from someone with THEIR best interest at heart.

  11. There are several items here which I feel need to be observed in more detail, not just in relation to fees, but in approach to earnings (profit, revenue) in general.

    From my observation, I see the need to consider very closely, the full extent of the amount of work that has been done or needs to be done on any project, to see not only what actually has been charged for but also ‘what else’ can be charged for. It seems that understanding this information makes it easier to repackage your fees and convey these to a client who doesn’t necessarily understand what you bring to the tablet.

    The second is gaining insight into how other consultants; project managers, quantity surveyors, building surveyors, interior design etc… who essentially carry out architects’ services, calculate their fees. How can architects reclaim some of these fees and perhaps some of the services, without necessarily doing any extra work. What is the value of the architect performing these roles, instead of (or alongside) other consultants.

    Lastly, I touch on the subject of architects’ general acceptance of low fees and earnings in the first place, which perpetuates the cycle of low fee earnings. How does the architects’ approach to financial worth and value begin to change?

  12. I use the surveys provided by FEES out of California and especially RS MEans as a starting point. I send a copy of the surveys with my proposals to show how I compare. Works pretty well. I actually go a couple of points over because I provide services not included and, mostly, to eliminate the folks who are trying to push the fees down toward zero. I don’t want to compete for last place.

    1. Thanks Chris – RS Means is good as it is 3rd part. although the last time I checked, they gave a wide range percentage – I think it was 5 to 25%. So, justifying where you fall in that range might be tricky.

      I always have a hard time with percentage of construction as, to many people it translates into a sales commission.

      Again, one has to know where the market is at, and be confident of their expertise. This is tough for a new firm as they likely don’t have a portfolio or a history to rely on.

      I’d like to know more about “FEES” . Any concrete info is always helpful.

  13. Richard – You touch on (in my opinion) one of the most overlooked reasons for hiring an architect – SERVICE! The value of going thorough a thorough design PROCESS with a professionally trained and licensed architect. This SHOULD set us a part from the rest. Yet, so few people realize the value this can bring.

    Just yesterday I sat across from a prospective client. A young builder trying to convert an old church into a house. He bought in a crude set of plans he drafted (on velum!) – said it took him and his dad over 4 hours to produce them! He opined “So, why would I want to waste your time re-working this design”. I mentioned that he could spend $150K on his remodel and still have a very flawed project. I tactfully pointed out some things I thought were not working well. He began to get irritated. Mentioned that he had a budget of $150K and so he wants to keep permit drawing costs to a minimum! And because he’s going to build it, he just needs a set of drawing so he can get a permit! My boss even explained that thorough plans help avoid the $10K errors that come up on the construction site! He didn’t buy it!

    Well, my boss doesn’t believe in turning down work, so we’re going to help him get a permit! And his father is a friend, It’s not the way it should be. But, a far more common occurrence here.

    Still, the message that an architect can bring real value is what is so lacking in this profession. it is why architects are rarely appreciated, and why architects often make less than a journey trades person on the site!

    We at ArCH are trying to shift the public’s perception in regard to hiring an architect for a home project. We are emphasizing the value of the design process – and how a well drafted set of plans will save money! It’s a big ship to turn as, for many decades, our profession has promoted itself as the choice for an avant-garde piece of artwork, not a well designed home and design/construction experience! Hopefully through our efforts we will see a shift in thinking!

  14. Thanks for shedding light on this, Richard. I agree, everyone is way too paranoid about the fee subject (dDid I just say “fees”?, I hope Big AIA Bro isn’t looking in)

    But, determining one’s value -especially if you are just establishing a new practice can be very tricky. I remember the first time I interviewed for a high end, Chicago Northshore home. I quoted a fee way out of the ball park (probably 3 times what the people were expecting). Hey, I had no idea! And, I didn’t have the confidence to follow up and see where the client was at.

    How does one know what their services are really worth?

    1. Hey, I grew up on the North Shore of Chicago!

      Anyway, I think that value is VERY hard to establish for architects primarily because perceived value is all over the place for prospective clients, and a little murky for architects, too. The biggest issue that I see is that some clients value excellent design, while some — maybe even most — don’t. Or at least they like good design (when they perceive it) but really can’t put a cost figure on it. Yet, most architects don’t perceive the value that they bring to the table beyond “good design,” and therefore certainly can’t sell it. Even worse is when architects are competing by selling products (i.e. plans) rather than services. Sort of like an attorney selling “will drafting services” (low value, people can buy get software to do this.) rather than “estate planning” (high value, can save money down the road, and has ongoing benefits).

      However, I think MOST clients would agree that saving time, saving money (maybe by having lower built-in contractor contingencies, or ability to get apples-to-apple bids), having reduced problems during construction through clear condocs, increasing market value, having someone able walk them through a myriad of material choices, dealing with the headaches of building/planning departments, checking on the quality of construction, etc. are all things with clearly assignable values, though they might differ a bit from client to client. So lots of potential values there. I guess one way to find out is simply to ask the client what their primary objectives and concerns are, and show them how your services will meet those.

  15. The AIA Antitrust Consent Decree has put the fear of God into price discussions, but has anyone actually read this? Pretty much it told the AIA: “to amend its Standards of Ethical Practice, rules, bylaws, resolutions and any other policy statements, to eliminate therefrom any provision which prohibits or limits the submission of price quotations for architectural services (by its members) or which states or implies that the submission of price quotations…is unethical, unprofessional, or contrary to…policy.” Not too draconian, and certainly nothing about even just discussing fees to be more competitive.

    In an abundance of caution, the AIA has discouraged discussing fees at any organization event. But that is not the same as being forbidden to discuss fees AT ALL, especially outside of the AIA. Price fixing is illegal, but I don’t think most want to get together to conspire to fix minimum fees. I certainly don’t want anyone to tell me what I should charge. However, I think that not knowing what is being charged in the marketplace actually leads to non-competitiveness. It should be my right to charge less (or more) than my competition.

  16. Ahhh..If it were only that simple, Enoch. Before one can set up a profit margin, one must know….How much are MY services worth….that is how much is someone with similar specific expertise, in my particular locale, and in my specific market (s) charging? And how much is the market willing to bear? Getting this information can be difficult to obtain – a crap shoot! so, typically some assumptions have to be made. Once these are made, one can put together a business plan that includes direct expenses, overhead, and profit.

    So, how does one find out what their services are worth?

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