Exorbitant design fees?
Your architect or designer may not be making as much as you think
by Richard Morrison, AIA, ASID
I occasionally hear from people who are shocked by some of the hourly rates that architects and designers charge, perhaps anywhere from $75/hour to $250/hour or more. No doubt they are comparing these rates to their own hourly income (or the annual equivalent) as an employee, and imagine that these design professionals are just raking in the money. As a public service to my design colleagues, I am going to let you in on some of the “behind the scenes” financials.
The reality is that an hourly rate needs to cover much more than what a design professional takes home as his/her pay. Let’s take a billing rate of, say, $120/hour as an example.
To start with, not all time is billable. Most independent practitioners and owners of firms are thrilled when they can get 50 percent of their time billed. Some of the non-billable tasks that owners of firms must deal with are: accounting and billing, meeting with prospective contractors and product representatives, marketing, phone calls from non-business sources, fixing the printer that’s just jammed, attending trade shows and seminars, setting up filing systems, dealing with their insurance agent, listening to employees’ or colleagues’ gripes — well, the list is endless.
So, if only 50 percent of the time is billable, that means that each billed hour must cover two working hours — effectively creating an income rate of $60/hour.
But there are many expenses that need to be paid out of this money: office rent, new computers and software, insurance, phones, office supplies, professional licenses and dues, non-billable consultants, reference books — well, the list is again almost endless. It’s not uncommon to see 50 percent of total revenue go towards this “overhead” of maintaining an office.
So now we are down to a net (pre-tax) take-home revenue of maybe $30/hour from that original $120/hour — hardly supporting an opulent lifestyle in this part of the country. Of course, some professionals can reduce their overhead to the bone and work longer hours to generate more income, but it’s not a get-rich-quick profession.
The situation is somewhat similar when a design office bills for employees. It is common to see billing rates of 2.5 to 3 times the actual hourly wage of an employee. So if an employee is being paid, say, $25/hour, you will likely be billed $60-$75/hour for that employee. Remember that the employer is paying not only the direct wages of $25/hour, but also for vacation days, sick days, workers’ compensation insurance, health insurance, training days, and other non-billable time. The billing rate must cover not only that employee’s costs, but also general office overhead costs such as an office manager and rent on a larger space, and the equipment and supplies needed by that employee. Oh, and maybe a little profit, too.
While all of this is likely to be self-evident to anyone owning their own business, hopefully, those who don’t will now understand the reason for these “exorbitant” design fees. I always encourage people to focus on the overall value that is being provided by a design professional. Usually, it far exceeds the fees being charged.
Richard Morrison, AIA, ASID, is a Menlo Park architect and interior designer
