Friday, September 11, 2009

It's all about the Benjamins: Architectural Design Fees 101, Part 3

So we talked here about the basics of design fees, and we spoke here about ways that those fees get complicated and how we sometimes shoot ourselves in the foot with those fees by asking for too little up front or by not asking for add services when we asked to do work outside our agreed-upon scope of work. We know inherently that not charging enough means that the firm loses money when we don't charge enough, but what does that mean, really?

Let's go back to our hypothetical architect in the past two posts on fees. Recall, for example, that she charges her clients $85/hr for her intern's time. The intern's actual hourly rate that she gets paid, however, might be more like $20/hr. That means that the intern only gets about 25% of what the owner charges the client. Where's the other $65 going? Into supporting the firm, that's where it goes. The architect knows she has some set (or mostly set) costs every month for her building, like rent or mortgage on her office space, power and water bills, and maybe even paying for parking for her employees (either partially or in full). She has the costs of daily work, like computer and equipment leasing, internet broadband connections, and printing costs. She has to pay the overhead staff, like IT, janitorial staff, and accounting--people who keep her business and workplace working. She also has to make regular professional liability insurance payments, which protect her from her own mistakes as well as from the mistakes of her own employees and her consultants; she has to make building and property insurance payments in case something happens to her physical business; and she has to make unemployment and worker's compensation payments to protect her employees. If her firm contributes to employee health care and/or retirement funds, she has to make payments to those too. She has to build in a little room for savings for the company to help tide them over in case a client bilks them or makes a late payment or if they just flat out have a lean month or two. Oh, and she has to build in some room for profit, too.

That $65/hr seems stretched kinda thin, huh?

Sometimes it is stretched thin. One way that our hypothetical architect can make those dollars go farther is putting the right people on the right jobs. For example, she has the intern who bills at $85/hr but gets paid $20/hr, and let's say she also has a licensed but junior architect who bills at $100/hr but gets paid $30/hr. If the junior architect does all the tasks on our hypothetical MOB project--everything from research and as-builts to drawing and coordination, the architect will likely burn through a set fee from a client before the work is all done. That's because it takes what it takes timewise to get a project done, and just because the person doing the work is an architect who knows building codes as well as Revit is no guarantee that the work will be done faster or more expediently. However, the architect can make more judicious use of the fee for that MOB if the junior architect does the code study and research and writes the specs while the intern does the drawings and some product research.

Knowing that the office's billing rates must pay for all the things that go into keeping a firm going, the architect has to figure out what her expenses are per month, then figure out how busy the office has to be per month (i.e., all design staff must bill at least 36 hours a week), then figure out what to charge per hour for the different levels of design staff to make sure the income is more than the outgo. I don't know if firms have some equation that they use to figure that out, but I know that's what goes into the decision.

So what does this mean for you? It means that everyone on a project--from the partner/VP down to the intern--has to be judicious and make the best use of their time on each project. If you can tell that you'll be done with your assigned task(s) in a short amount of time, ask what else you can do after that so that you're not spinning your wheels, waiting for the boss to get back into the office so s/he can tell you what to do next. Expanding your skills, such as becoming familiar with building codes, can make you more valuable on a project team, which makes your projects more profitable overall. While being very skilled gets you a raise, your firm can charge even more for your skills to the client but still keep you least until you're licensed.

If you have a question you'd like answered, or if you would like to see a topic discussed on Intern 101, please drop me a line in the comments or via my email address in the sidebar. Thanks!

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