Archive for 9 May 2008

Demystifying Fees: A pricing panel recap

I attended a pricing panel discussion today that was part of the Brooklyn Designs show. I wasn’t able to stay for all the Q&A at the end, but still managed to jot down some interesting notes. To see who was on the panel check out the description here. 

Following are some the comments I found to be most interesting. I’ve put the comments into quotes, but these are all really paraphrases of the notes I took!

“I used to bill Net 30 for purchases, but I realized my customers didn’t really 
get that. They couldn’t tell if that was a good deal for them, or a good deal
for me. Customers understand retail, so I now do my purchase pricing
in a Less Retail format. It’s actually more profitable for me and makes them
happier because they can immediately quantify the value.” 

“I can’t remember what seminar I it was, but several years ago I went to
a pricing presentation and one of the notes I took was that everyone
should go back and raise their fees 3%. Main reason: it’s not a big increase
but by the end of the year it will add up.”

“Fixed fees may seem cut and dried, but often become problematic. No
matter how well you think you’ve defined your scope of services, detailed
the project in a letter of agreement or contract, it’s 99% certain there will
be changes, revisions, delays, or other issues that will mean additional
non-projected work. Which means you have to go back to your client for
more money. That’s a situation which is never good for the relationship.”

“In commercial work, a common fee structure is a percentage of the build-
out costs. I’ve moved away from this because it causes trouble. There are
always going to be cost overruns and now the client is faced with having to
pay more to complete the job and pay you more based that…to them it feel
like they’re paying twice for other people’s problems. Again, a good way to
damage a client relationship.”

All in all, it was a pretty interesting discussion. One of the panel members has a current rate of $300/hr and charges overseas clients $350/hr! Of course, the old line about “not even a surgeon charges that much” came up, but I was thinking about that on my subway ride to the office. Most designers are independent practitioners, that hourly fees goes to cover all types of overhead that most surgeons (and many high-paid lawyers) do not directly have to account for. Meaning, the rate a lawyer at a leading law firm charges includes overhead charges, yes, but those costs are also disbursed in the rates of the jr. lawyers, the research assistants, etc. The fees are all there, but the shock of one $300/hr individual is spread out over the billable hours of several $75/hr and $150/hr other players.

And let’s face it: It costs a lot to run a business these days. Deb and I were just commiserating on the high costs of workman’s comp (not to mention all the other necessary business insurance policies) AND the fact that insurance audits seem to have become ever-more frequent.

When you look at it that way, $300/hr isn’t that much to charge to cover all the overhead (office rent, utilities, software, insurances, sampling, etc. for the main expenses) plus have enough to re-invest in your business, plus enough to pay your vendors, contract workers, etc. PLUS and most importantly, pay yourself! Because how many hours in a day or a week do you have available to bill? Certainly not eight hours a day, five days a week.

It was definitely an interesting hour! What do you think? Is $300/hr crazy or wonderful?

Note: I know I wrote yesterday that I would follow up with the second part of The New Yorker innovation piece, but I thought the pricing info was too good to sit on. I’ll get to the innovation piece next week.
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9 May 2008 at 4:26 pm 1 comment


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