*** This entry is for potential clients + the general public and with the purpose of providing insight on the cost/fees of a design firm (Architectural + Interior), the cost(s) of construction and lastly - the value associated with said fees + cost. ***
The phone call was not long... it was short lived, riddled with tension and concluded with a pithy bit of advice - how to better position the company and land the job. The advice was provided by a seasoned developer/broker to a relatively new/young design firm. The delivery was both daft and cold... 'you are 5 times more than the other firm - we are going elsewhere'. The phone call ended in one swift press of a bright red button and a besetting cacophony of thoughts - and rightfully so, because what else was there to discuss? Well, to the seemingly rapacious and naive young business owners there was a peppering of missed opportunities to say what needed to be said. However, the most grappling question - to what end?
We started M I N D M A D E knowing that there were extremely difficult conversations that needed to be had. One's that don't exist because of the mere fact that they were exactly that.... difficult. We made a sharpened decision... that we would commit to honesty and education... quite possibly to our own detriment. We saw it time and time again sitting at the traditional office. Swallowing our knowledge and foresight in order to keep the client, colleague, or boss 'happy' - and in the end it only led to a succession of 'suffering'. The design suffered, the client suffered, the team suffered, the relationships suffered. Because the deep seeded building of trust, of connection, of bond is only found in transparent, challenging and discerning conversations. That heartfelt contribution aside, it is your duty to speak up for what is good, what is true, and what is necessary for both the sake of the profession but also the well being of project and client alike. You are doing no service to anyone by silencing your knowledge, skillset, abilities on behalf of professionalism or adulation. I am at a loss for when 'professionalism' arbitrarily transitioned into 'silence'. We have lost a client or two, some followers, and many more opportunities because we have elected to 'die on this sword'. And it is okay with us - it's taxing and confounding at times but it is okay - because we know our intentions are from a place of pure respect (for time, process, people) and it isn't about us... it is to provide the best service, care and protection for our client and the project at hand.
With that - we want to take a moment to add some transparency / our experience regarding fee(s). How it is structured, why there is no set standard/prescribed methodology and the importance of finding the right fit for you (whether you are a young design firm currently cutting your teeth or a client currently seeking an architect / designer). One of our (many) main intentions/values at M I N D M A D E is to humbly and fully communicate + educate our friends, colleagues, clients, and general public on what is often seen as an elusive part of the profession. We are here to give... that's all it is. We would rather be producers than consumers and we will be the first to admit - we know a slight fraction of all things business - but we will share what we have in hopes to continue a more pedagogical conversation. Alright, lets dig in.
We started M I N D M A D E knowing that there were extremely difficult conversations that needed to be had. One's that don't exist because of the mere fact that they were exactly that.... difficult. We made a sharpened decision... that we would commit to honesty and education... quite possibly to our own detriment. We saw it time and time again sitting at the traditional office. Swallowing our knowledge and foresight in order to keep the client, colleague, or boss 'happy' - and in the end it only led to a succession of 'suffering'. The design suffered, the client suffered, the team suffered, the relationships suffered. Because the deep seeded building of trust, of connection, of bond is only found in transparent, challenging and discerning conversations. That heartfelt contribution aside, it is your duty to speak up for what is good, what is true, and what is necessary for both the sake of the profession but also the well being of project and client alike. You are doing no service to anyone by silencing your knowledge, skillset, abilities on behalf of professionalism or adulation. I am at a loss for when 'professionalism' arbitrarily transitioned into 'silence'. We have lost a client or two, some followers, and many more opportunities because we have elected to 'die on this sword'. And it is okay with us - it's taxing and confounding at times but it is okay - because we know our intentions are from a place of pure respect (for time, process, people) and it isn't about us... it is to provide the best service, care and protection for our client and the project at hand.
With that - we want to take a moment to add some transparency / our experience regarding fee(s). How it is structured, why there is no set standard/prescribed methodology and the importance of finding the right fit for you (whether you are a young design firm currently cutting your teeth or a client currently seeking an architect / designer). One of our (many) main intentions/values at M I N D M A D E is to humbly and fully communicate + educate our friends, colleagues, clients, and general public on what is often seen as an elusive part of the profession. We are here to give... that's all it is. We would rather be producers than consumers and we will be the first to admit - we know a slight fraction of all things business - but we will share what we have in hopes to continue a more pedagogical conversation. Alright, lets dig in.
D E S I G N F E E ( S ) ::
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First, let's establish two speculative projects in attempt to aid in the conversation ::
Let's call them COTI (a commercial office project that is a renovation to an existing space or what is often called a 'tenant improvement') and NeCoSiFaRe (a new construction single family residence) ::
Let's call them COTI (a commercial office project that is a renovation to an existing space or what is often called a 'tenant improvement') and NeCoSiFaRe (a new construction single family residence) ::
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COTI
- 15,000 sq ft Office Renovation - Renovation to an existing building / previous tenant - Single floor in new glass high rise - Premium grade finishes / design - Located in KC (geographical location does play a part) - $100 / sq ft (a very rough estimation for sake of conversation) - Construction Budget = $1,500,000 |
NeCoSiFaRe
- 2,500 sq ft Residence - New Construction - concrete, wood, brick, metal house - Modern two story style home - Medium grade finishes / design - Located in KC (geographical location does play a part) - $200/ sq ft (a very rough estimation for sake of conversation) - Construction Budget = $500,000 |
A few considerations to add on top of these numbers that will play a part in future calculations::
Tenant Improvement / Renovation projects are typically more expensive than new construction (as it pertains to fee). Why? There will be additional drawings + documentation (existing conditions + demolition drawings) and more time with detailing and minding design with instances such as where new meets old, etc. Also, as projects decrease in size the fee actually increases in percentage/costs (proportionally of course). Confusing? Without a doubt - but sometimes the smaller jobs actually require more work - from a time, commitment, coordination and detailing point of view. At the end of the day - the reality is that the small jobs just aren't as lucrative as bigger jobs - even as much as we believe every project has promise. We will visit this among many other variables are considerations under section 'VECTORS'. But now, let's talk the assorted approaches to fee structure...
Tenant Improvement / Renovation projects are typically more expensive than new construction (as it pertains to fee). Why? There will be additional drawings + documentation (existing conditions + demolition drawings) and more time with detailing and minding design with instances such as where new meets old, etc. Also, as projects decrease in size the fee actually increases in percentage/costs (proportionally of course). Confusing? Without a doubt - but sometimes the smaller jobs actually require more work - from a time, commitment, coordination and detailing point of view. At the end of the day - the reality is that the small jobs just aren't as lucrative as bigger jobs - even as much as we believe every project has promise. We will visit this among many other variables are considerations under section 'VECTORS'. But now, let's talk the assorted approaches to fee structure...
The three most typical structures are as follows ::
1. Per Sq Ft - a set cost per sq ft.
2. Hourly - a pre-determined fixed hourly fee per person working on the project.
3. Percentage basis (fixed fee) - based on the construction budget / cost of a project.
And sometimes - the formulas will be interwoven just to cross check the numbers + logic. It's a type of checks and balances if you will. None the less, here is a summation of each approach.
1. Per Sq Ft ::
- From our experience - this is most antiquated way to approach the fee process - with the main reason being that this fee structure simply cannot keep up with inflation. We have been a part of meetings where folks are white knuckling $1 or $2 a sq ft for architectural fees. This multiplier simply isn't relevant any longer - the 1 or 2 dollar mark that folks were used to seeing are a price point of the past... and with the rapid climb of operational costs (hardware, software, insurance, lease rates, heightened salary standards, the increasing demand for amenities, etc etc - you know, overhead) that come with running a business and the jaw-droppingly high costs of the current construction market these numbers should be more along the $4 or $5 per square foot mark. Now that we have established an era-appropriate price per square foot let's plug them into our projects
COTI = $1 x 15,000 = $15,000 and $2 x 15,000 = $30,000
NeCoSiFaRe = $1 x 2,500 = $2,500 and $2 x 2,500 = $5,000
- v e r s u s -
COTI = $4 x 15,000 = $60,000 and $5 x 15,000 = $75,000
NeCoSiFaRe = $4 x 2,500 = $10,000 and $5 x 2,500 = $12,500
SCRUPLES ::
Now - keep in mind this is solely architectural / interior design fees - not any/all the (presumable) consultant fees that come with each potential project. Consultants can include several third parties... such as civil engineers, mechanical, electrical, plumbing engineers (MEP), structural engineers among a plethora of other specialty trades (think landscape, energy, and others) To the point - this shows some inconsistencies / problems with this model. A. this is probably a smidgen high for COTI and B. undeniably low for NeCoSiFaRe... we will run some additional numbers / comparisons a little further in this section.
2. Hourly ::
- Deep waters here... I will do my best to keep this one as concise as possible. When a potential client inquires about an hourly fee proposal - we strongly discourage this venture. Why? At the end of the day this model is unfavorable to the client. Consider two main reasons - A. we deeply believe in going the extra mile... whatever it takes.. . and if we are billing hourly this will add up quick as we very well could spend time researching, discussing, reworking, etc. Its a difficult metric to pin down - what should be billable and what shouldn't - and I assure you, if we billed all time contained it would only lead to additional frustration / confusion. B. the standard billing rates are very expensive... with younger design staff clocking in at any where from $65 - $95 an hour and principals / senior staff heftily punching in at anywhere from $95 to upwards of $200 an hour. Let's run a breakdown analyzing the two projects with the following assumptions ::
COTI = approximately three months total design time at 40 hours /week - we will put one staff on it at half time (young designer @ $75 per), one staff on it at quarter time (principal @ $125), and one full time (project manager/designer @ $95).
NeCoSiFaRe = Let's keep it consistent for simplicity's sake.
COTI = 240 hours @ $75, 120 hours @ $125, and 480 hours @ $95. Total = $78,600
NeCoSiFaRe = 240 hours @ $75, 120 hours @ $125, and 480 hours @ $95. Total = $78,600
SCRUPLES ::
This might go without saying - but this isn't including several things :: consultant fees, overtime or the phase of the project known as 'construction administration' (the phase of the project when it is actually being built - which can take an exorbitant amount of time). Some projects (especially of this scale) can take upwards of a year... so, as you can imagine - those costs can quickly become burdensome. And, quite frankly, this is a condensed timeline - four months is a more flattering schedule. On top of that and as previously mentioned... we take pride in getting it right - which can come equipped with spending the additional time on said goal... and believe it or not, we have a heart - and feel the client shouldn't pay for our moral choice of pursuing that level of service / execution - which oddly enough is where we see our 'value added' as a design company.
3. Fixed Fee / Percentage based ::
All of the above options have their place... however, this is our preferred path (as it is with most design firms) for several reasons. Probably the most important - it streamlines the expectation and the price associated. - without costs inflating at an excessive or displeasing rate. Now, the success of this arrangement is dominantly driven by the contract. I will be the first to admit - I have previously been overly and overtly critical of contracts (yet, there are still some forms of them that I strongly disagree with) - until I realized it is another layer of communication that holds the truest of intentions - to get everyone on the same page. It is meant to protect both parties as well as set the standard for all the pieces and parts in the multi-faceted process. This might be a good time for a conveniently self-excusing caveat - the simplicity stops there and we will further investigate 'contracts' a little later in the entry . The range of percentage roams anywhere from 5% upwards to a luxurious 20% of the construction costs. Geography carries the hierarchical influence in this percentage - with the coasts seeing the the upper echelon of said percentage. The midwest (from select experience) flocks towards the lower / mid range of the spectrum. The average being somewhere in the 7 to 8 percent range... I have been a part of projects being as low as 4.5 or 5 and peaking at 9 to 10%. Again, this is the multiplier of total construction costs. (aka 'hard costs').
Where this one differs? This is including ALL required consultant fees - (with the exception being Civil Engineering)... To reiterate - this helps streamline the process and clearly identifies all the professional/intangible expenses to the Owner. So, lets cut to the chase ::
COTI = $1,500,000 x 8.0% = Total = $120,000
NeCoSiFaRe = $500.000 x 7.0% = Total = $35,000
Sticker shock? We hear that more times than not. And I get it! The fair minded, descent architects/designers will your respect your project, your dollars, and the responsibility our career carries. Now - lets work backwards... Remember this includes consultant fees.
- Traditionally, consultant fees for commercial projects cast about a 30 - 40% net on the total. Run it ::
COTI = $120,000 x 65% = $78,000
- And New Construction Residential will cover Consultants anywhere in the neighborhood of 20% - 40% total fee (dependent upon specific needs of the project).
NeCoSiFaRe = $35,000 x 70% = $24,500
SCRUPLES ::
Believe it or not - even with this being a preferred mode of pricing - it can still be difficult to pin down. On top of that it does have quite a few assumptions (and therefore inherent flaws) that even a child can punch holes through. However, in our humble opinion, it is the most binary, intelligible and conclusive way to provide a comprehensive cost for a project. Below, we will address some of the formidable factors that could weigh on the inked price tag.
V E C T O R S ::
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After spending an excessive amount of time finding the right idiom / metaphor for this little excerpt... vectors seems to work. There are inputs / data / formulas / information that very well could act as inputs that effect the overall 'behavior' of the proposal / contract. These are usually pulled from a knowledge pool of previous experiences and/or instances that were either problem points or positives. They are nothing more than a multiplier of the overall formula... this is abstract but these coefficients are often real attributes of the conversations and considerations that ultimately derive the final cost.
- CONSTRUCTION BUDGET
- CONSTRUCTION BUDGET
- the validity / accuracy of the percentage based approach comes down to one main factor - the construction budget. We (architects / designers on the whole) are typically selected after a budget has been established. However, we strongly recommend speaking with the firm of your liking about assisting with running numbers. What we often find is that most budgets are very very lean or void of some check boxes we would like to see. As the Boyscouts say 'proper planning prevents poor performance'... or worse yet - surprises... which scare, frustrate, or stagnate. Design firms have a solid and empirical grasp on tangible costs associated with realized projects. And with the stupefying and unapologetic increase of construction - projects that are a few years old are already behind on the escalation front. This is a meaty topic that carries a level of importance deserving of its own entry but yet, here we are...
- bigger project = bigger team... which ultimately means more time - more contracts, more meetings, more discussions, more managing, more coordination... and in this profession - with time comes money.
- the client plays a huge role. Whether it is a client (and entailed project) that will get publicized, or if there is an opportunity for heightened relationships because of that contacts connections, or if there is an opportunity for repeat business. In a big small City - and Kansas City is exactly that - we are only as good as word of mouth. 90% of our projects are from word of mouth. So, the client plays a role and the conversations held in the initial meetings always carry weight. Same applies on the opposite side of the spectrum - non-profits, heartfelt organizations, start-ups, organizations with limited capital, etc. We have drastically reduced fees or if at all possible take it on pro-bono if we can.
- I hate to say it - but its just a matter of acknowledging the reality of this point... some jurisdictions (Cities, States and Organizations) are simply more difficult to work with and either require additional scopes of work and/or more time with additional coordination demands or time associated with working diligently, thoroughly and sometimes cyclically with said groups.
- If your project is coming equipped with one of the numerous potential accreditations such as LEED, WELL or designed to these standards (even if certification isn't pursued) then it comes with an ample amount of added research, paperwork, coordination. So, an added price tag.
- If everyone is busy... they have the luxury of marking up their fee - because they are eating... and eating well. I am not saying that all firms participate in such but it is a real possibility. Greedy? Eh, not so much.. There is a need for additional capital to bring on additional talent if the job is won. If that firm is already at max capacity in terms of workload, they will need to bring on additional staff to take care of the project with the attention and quality it deserves.
- If the Architecture firm is one of a certain caliber (possibly under the infamous 'startchitect' tag) then they will undoubtedly come with a premium... wrong, right, or indifferent - just the way the cookie crumbles. Similar to a concert... if it's a big name artist with a larger fan base / following - then tickets will be more costly than a cover charge at the dueling piano bar.
- There is a running joke of adjustments that I've always found humorous that are never actualized.
- Shrink Fees - this applies two ways - whether is a client that will cause an increase of visits to your psychologist or if it is a husband/wife team where you will end up playing psychologist.
- Family fee. - working with family introduces its own set of fun - it can be equally as difficult.
- On reputation... I have had a potential client or two who were feeling particularly comedic request a discount - because we can be ... well ... particular. What can we say... we care.
W H E R E D O E S I T A L L G O ? ? ? ::
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One of the hardest and potentially dream shattering realizations - is how expensive it is to run a business - especially in this professional service sector of world. I wanted to shed some of the mystery that comes with margins. And let's be clear - this is a labor of love - I am not writing this from yacht #2, sippin' on yak, en route to the Cayman's while eating escargot from a Tiffany and Co spoon.
Okay - real quick, because the main purpose of this entry is whats to come ::
RENT = $1,350 / MO
PAYROLL = $13,650 / MO
INSURANCE (HEALTH + PROFESSIONAL) = $2,175 / MO
SOFTWARE = $1,750 / MO
HARDWARE = $500 / MO
MISC EXPENSES (OFFICE SUPPLIES, MEALS, AD MARKETING) = $1,000 / MO
PROFESSIONAL SERVICES (ACCOUNTING, LEGAL, ETC) = $500 / MO
TAXES (INCOME) = $4,800 / MO
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SUB-TOTAL = $25,725
CONTINGENCY / RESERVES (10%) = $2,575
TOTAL TOTAL = $28,300 / MO
Let's multiply this by the three months we designated for the project = $84,900...
This isn't completely fair - since we mentioned that two of the team members are half time or less... but this rundown magnifies the reason we simply cannot focus on one project at a time (which breaks our cold little hearts - because that is every designers utmost desire - creativity and quality requires time and focus, so the more you are being stretched thin - the more each project is 'neglected' or at least taken from) . The dire need to have two or three projects going at once is an inalienable truth in order to keep food on the table and the lights buzzing overhead.
*** ASSUMPTIONS OF 3 STAFF MEMBERS AT SALARIES OF $55,000. $75,000 AND $95,000 ***
Okay - real quick, because the main purpose of this entry is whats to come ::
RENT = $1,350 / MO
PAYROLL = $13,650 / MO
INSURANCE (HEALTH + PROFESSIONAL) = $2,175 / MO
SOFTWARE = $1,750 / MO
HARDWARE = $500 / MO
MISC EXPENSES (OFFICE SUPPLIES, MEALS, AD MARKETING) = $1,000 / MO
PROFESSIONAL SERVICES (ACCOUNTING, LEGAL, ETC) = $500 / MO
TAXES (INCOME) = $4,800 / MO
--------------------------------------------
SUB-TOTAL = $25,725
CONTINGENCY / RESERVES (10%) = $2,575
TOTAL TOTAL = $28,300 / MO
Let's multiply this by the three months we designated for the project = $84,900...
This isn't completely fair - since we mentioned that two of the team members are half time or less... but this rundown magnifies the reason we simply cannot focus on one project at a time (which breaks our cold little hearts - because that is every designers utmost desire - creativity and quality requires time and focus, so the more you are being stretched thin - the more each project is 'neglected' or at least taken from) . The dire need to have two or three projects going at once is an inalienable truth in order to keep food on the table and the lights buzzing overhead.
*** ASSUMPTIONS OF 3 STAFF MEMBERS AT SALARIES OF $55,000. $75,000 AND $95,000 ***
W O R T H V S V A L U E ::
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Alllllllll that - to get to this. My initial intention in sharing such petty thoughts was to shed light on the current status of architectural fee(s) - some of the assumptions at play - and yes, even some of the politics.
I'm not going to sit here and rag on firms, people, processes, capitalism, or anything of the like. As a matter of fact - quite the opposite - seeing that these things make the 'competition' possible - and that is what makes this perplexing stronghold called business so dauntingly beautiful. It provides this insanely endless possibility to mold a business model to what you deem best. It's an incredible freedom that comes with even larger responsibility. A. Larger. Responsibility.
This is what I can say about competition, the service industry and the entailed design firms involved... pay heed (no, not the Jayhawk's reference). There are two subjects that I'm referring to specifically - A. the contract and B. the folks at the top and the respected history of 'service'.
Let me clarify. Every level of service has its place... and if you have heard it once - you have heard it a million times - you get what you pay for. Let's recall the initial maxim of this entry - 'you are 5 times more expensive than other firms we have used, we are going elsewhere'... The thing that comes as the biggest surprise to us - the question of 'why' is avoided in the vast majority. Why is the why evaded with such doggedness? Let's use this time to introduce a little visual aid - one that has been fervently shared like the happenings in the most recent episode of the latest and greatest tv show (currently watching - Stranger Things 3) ...
This is what I can say about competition, the service industry and the entailed design firms involved... pay heed (no, not the Jayhawk's reference). There are two subjects that I'm referring to specifically - A. the contract and B. the folks at the top and the respected history of 'service'.
Let me clarify. Every level of service has its place... and if you have heard it once - you have heard it a million times - you get what you pay for. Let's recall the initial maxim of this entry - 'you are 5 times more expensive than other firms we have used, we are going elsewhere'... The thing that comes as the biggest surprise to us - the question of 'why' is avoided in the vast majority. Why is the why evaded with such doggedness? Let's use this time to introduce a little visual aid - one that has been fervently shared like the happenings in the most recent episode of the latest and greatest tv show (currently watching - Stranger Things 3) ...
The math on this one is straightforward - you can only pick two. I can adamantly and openly say that I am more excited now than ever that the window of the industrial age mentality is nearing the 'closed' position. With this transition, the shear magnitude of transitioning from redundancy, repetition, color within the lines into what is being expressed in the marketing + ad world as passion, care, connection (think tech), character/personality. We are (in the broader sense of civilization) finally starting to realize the importance individuality, art, story, personality, the human element and all the things involved that create a personality or show a sense of character. That is where remarkability happens, that is where trust is forged, relatability found, value determined. Hence, the graphic above.
I will be the first to tell you that we are not the cheapest - especially up front. What I can tell you is that you will - guaranteed - get a remarkable product - you will get 'unique' from a team of individuals who care deeply about this profession, your project and every single facet of the process.
And let's also talk pragmatic application + logistics - the contract. We always encourage prospective clients to ensure that the offerings are apples to apples. For us - a maximum price is the most respected route. All in, no added expenses/reimbursables (like printing, travel, etc.), we include/cover all the necessary consultant fees, and we typically include all phases of the project (schematic design, design development, construction documents, and construction administration). Each contract obviously varies based on specific needs/conversations but as a general rule that's what we strive to offer - all in, lump sum, no added costs. This is significant - as prints, travel, construction oversight (which some firms will go hourly for this service) will accumulate quickly and will eventually and possibly end up surpassing what we originally proposed as our fee (originally seen as far more expensive). Not to mention some contracts are structured with verbiage that expresses as costs change in construction (think change orders, unforeseen conditions, tariffs, added scope, etc etc) so does the fee. Let's consider this in one of our fantasy projects. COTI increased in construction costs from $1.5M to 1.75M due to several change orders, inflation of materials, and a labor strike - well, here is how it would effect the fee ::
COTI = $1,500,000 x 8.0% = Total = $120,000 (original)
- v e r s u s -
COTI = $1,750,000 x 8.0% = Total = $140,000 (adjusted)
We don't believe in this method / contract format; we just can't seem to wrap our head around how this makes sense as a legitimate billable. So, theoretically - that just saved you $20,000. So that was part A (the contract). Now, part B. (Services provided)... Added services, scope creep, renderings, animations, virtual reality, furniture selection, etc etc. These are relatively abstract services that can really come back to bite you in the long run (in terms of accumulating dollars). I have been at firms where renderings run anywhere from $500 to $2500 a piece (yes, that's each... so, if you get 4 - well, you get the point) - animations entering in at $2500 (average) and VR models can reach upwards of $5000 to $7500... these are real costs with real implications. We believe these to be an intrinsic part of the design process. So, in my humble opine, these should provided to the client at no additional cost. (It should go without saying - this is within reason). Why? Because it is part of communicating the design - and if your designer/architect is not doing their utmost to communicate the design then its nothing short of a disservice. I believe our job is to be master communicator's - of concept, of story, of design, of understanding - all to get the end user excited and comfortable with the service/product they are paying for. I can't express this enough. We are in the business of communicating creativity... It's tough - it takes blood, sweat, tears, and an unfathomable amount of time, dedication, care and know how... but step up or step out.
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