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.
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.