Designwire Daily: from the editors of Interior Design magazine

Principals Roundtable: Tighter Fees a Huge Challenge

by Staff | Tuesday, October 23, 2012 | 2 Comments

Nokia in Silicon Valley by Gensler, the firm ranked number one in Interior Design's Top 100 Giants according to earnings; however, many firms still struggle to attain their pre-recession level fees. Photo by Nic Lehoux.

This is the first in a series of articles that will cover the main issues discussed at the recent principals roundtable held by Interior Design and IIDA at NeoCon East in Baltimore, Md.

It should come as no surprise that the 20 or so top executives of design and architectural firms who attended Interior Design and IIDA’s principal’s roundtable last week agreed that they are working harder, longer and more intensely than ever before. The kicker, however, is that they are also earning the same or even less than they earned prior to the 2008 recession.

“Clients expect more, but aren’t willing to pay more,” said an executive of a large global design firm. (To ensure a frank and open conversation about the high priority issues impacting the design industry, Interior Design and IIDA agreed not to identify attendees.)

In fact, many who attended the roundtable held at last week’s NeoCon East in Baltimore, Md., don’t see the shrinking fee structure changing any time soon. “They want more services for less,” said a principal of a mid-sized design firm.  “The problem is that as the fees go down, it is hard to get them back up again. This impacts everything.”

To understand how tighter fees have impacted companies, many in the group noted that firms used to assign ten designers to a project and now assign only three. Even working and focusing on one project is a luxury from a bygone era, with most designers tackling several at once to be more cost-effective.

Question: Are stagnant or declining fees for the same or more work than you did four to five years ago the number one issue facing design firms today?  Respond here.

Most assigned the blame to brokerage firms who are branching out into areas traditionally handled by design or architecture firms. “Brokers are setting the tone, sending out RFPs to firms and telling clients that this is the way to get the best price,” said an executive of a large design firm, adding that brokers are also moving into the planning and programming stages. This, she said, is happening increasingly in the corporate field.

Added another design executive: “The best value is not finding the cheapest partner, the cheapest designer or architect… but that’s what they are hearing from the brokers.”  The group agreed that sometimes a broker would advise a client to go for a higher priced space, convincing them that they can save on the build out. This often leads to unrealistic expectations when it comes to the fees and scope of work.

“The solution is to write concise, tight contracts. We will do these five things for this much,“ said one executive from a large design firm, adding that clients usually understand once you show them that that their requests are outside the agreed upon scope. Still, she pointed out, a firm is more constrained with new clients compared with repeat clients who have worked through the issue before.  Nevertheless, she said: “ It can’t be architecture by the pound.”

Question: Do you find the increasing influence that brokers have with clients hurts your business and creates unrealistic expectations?  Respond here.

Still, business has picked up with multi-family, healthcare and higher education leading the way. It’s an increase relegated to certain regions of the country, with a strong showing in the D.C. areas, for example, thanks in part to government projects. “The work is healthy, but the fee structure is not,” said one design executive, adding that her practice is inundated with work due to new construction. “Still it’s hard to make money. You can’t deliver the hip, the cool and the new at this fee structure.”

And that, on nearly every level, is what clients are looking for  and expect without having to pay additional for it.

Next week: A look at how Hospitality’s growing influence across all market segments has impacted how design firms work and compete.