Episode 98: Should You Price Your Design Fee Hourly? (Re-Release)

podcast

Show Notes:

Here is another audience favorite I thought would be a great episode to replay this week. How do you handle pricing your services? Send me a DM on Instagram, and let’s chat about it!

In this episode, I am sharing my view of flat-rate pricing versus charging an hourly fee for your design services. Although I am a huge fan of value-based pricing, there are some times when you will need to charge clients by the hour. The bottom line is you need to price your services correctly so as you start to work faster you make more profit. Then continue to analyze and increase your pricing year over year. This topic is one I LOVE talking about, so let’s jump in!

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About Michelle

Michelle Lynne began her interior design career after spending more than two decades working in Corporate America. She began in the home staging arena and has since built a successful, award-winning, full-service interior design firm, employing talented designers and serving clients across the country.

In the summer of 2018, Michelle began focusing on a big gap she saw missing in the interior design industry: teaching interior designers how to run the business of an interior design business. She now engages in private coaching and leads an in-depth, 12-month group coaching program, both options focus on teaching designers profitable processes, systems, strategies, and mindset needed to run a streamlined, profitable interior design firm.

Her motto is simple: we rise by lifting others.

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Transcript

Michelle Lynne: Welcome to Designed for the Creative Mind, a podcast for interior designers and creative entrepreneurs to run their business with purpose, efficiency, and passion. Because, while every design is different, the process should remain the same. Prepare yourself for some good conversations with amazing guests, a dash of Jesus and a touch of the woowoo, and probably a swear word or two. If you're ready to stop trading your time for money and enjoy your interior design business, you are in the right place. I'm your host, Michelle Lynne.

Welcome back to the podcast everybody. I'm so happy you are here today. I'm excited because we are going to be talking about, should you charge by the hour or a value-based or flat fee. This is one of my favorite topics. And I'll tell you right now that I am a huge advocate for pricing with a flat fee, a value-based fee. And I'm talking a little bit about why. I did start my business way back in the day, on an hourly basis. And let me tell you, some of the things that came up that was so very difficult when I was charging by the hour is that one, it was a nuisance to track. Now, it was very easy to explain. So I could tell the client, I'm charging X number of dollars per hour. And wherever you are, whatever you're charging right now, just know that we're not here to judge, we are truly here to talk about some of the pros and the cons of each and why they may work out. And what works for me doesn't necessarily work for everybody. So while I am a fan of the value-based fee, there's also times where we charge by the hour and play into that.

But let's just talk about straight-up design fees. It's easy to explain, I charge X number of dollars per hour. But it's a pain in the booty to track. Like, how do you track when you are thinking about a client and their project, when you're in the shower. I mean, that's just weird. Do you put that on the client? I was thinking about you in the shower. No. Or when you're being inspired by color of a sunset or maybe some food that you're making or something like that, you cannot track all of the time spent. Even if you did, 20 bucks says you don't charge for all of it because you feel guilty. I can't believe it took me eight hours to find the perfect couch, perfect sofa. Well, it might have taken you eight hours to find the perfect sofa, but it took you 30 minutes to find the exact right rug. So when you're going through it, you're probably going to undercut yourself. And let's talk about that.

Let's go back to that hourly rate. So whatever you're charging, your client starts to look at you as a commodity, so they're gonna shop for the lowest rate. A commodity means that you are comparable to another item or service of the exact same thing. We all know that that's not the case. We know that you are going about your business differently. You have different skillsets than another designer. You have a different approach and delivery of it. So you can't compare, say my design service to your design service. Okay? Maybe you're 10 years longer in business than I am, maybe you're 10 years less in business than I am. But if we're charging by the hour, they're going to be comparing us as though we are the same. So there's that.

Another thing when you are pricing by the hour, the faster you work. the lower your income. So if you have been in business and you've gotten really good at it, you are going to be making less money. Therefore, you have to pick up more projects. And you know how hard it is to juggle multiple projects. I mean, I've talked to designers that are juggling 20 projects at a time 20, 25 projects, and they're all at different phases, and some of them might be new construction, or some of them might be renovation, some of them are decorating. But juggling even seven projects can be so difficult depending on the project. But your revenue is limited by time. So hourly pricing is great and it's easy to explain, but it's also, how do you justify all the time needed? If it takes you 40 hours to fully develop a design for a living room, the client is going to wonder what all that entails. Are you going to bill him for all the conversations, all of the email, all of the admin?

So just all of that justification for me, like I said, I'm telling you how I do business. It might not be the right thing for you, but the anxiety that it caused for me to send that invoice and wonder what the client was going to say. What sort of pushback I was gonna get. So in addition to that, I was billing after the services had been rendered. So if you're billing by the hour, if you're not interested in doing a flat fee, at least bill in advance, and then chip away from that, because if you provide the service and then you don't get paid, there's no way to go back and undo the service that you provided. But you can get paid in advance and at least chip away so that you're getting paid for the work that you're performing.

Michelle Lynne: Hey, y'all, as my interior design business grew, there were some struggles that quickly surfaced. It was balancing, management, just all of the things that come together, and especially when it came to consolidating my marketing efforts, my client relationship management, social media planning, website building, all the things. I felt like Dr. Frankenstein, just trying to tie all of these things together and it didn't really come out very pretty. I thought it would be great if I could find something that would bring everything together into one place. And I believe I have found it. The support of Sidemark, growing your interior design business has never been easier. It will be available this spring. Sidemark is an all new, all-in-one software that organizes sales, marketing, and business services all in one convenient location. By signing up for Sidemark, you too can get access to all of the essential tools needed to help your business succeed. With features such as a built-in website builder, a custom sales pipeline, email marketing, client relationship management, scheduling on a calendar, and more. This is going to expand your interior design business and make it a breeze. Go online now to join the waitlist at mysidemark.com. You will receive 10% off your first year and get notified of all of the new and exciting updates yet to come. Visit mysidemark.com to start your journey towards successful business growth without the stress and join mysidemark.com today. You won't be sorry.

Michelle Lynne: So hourly pricing, again, it's easy to explain, but it's a nuisance to track. You never charge for all of the time spent. Clients shop for the lowest rate. The faster you work, the lower your income is. So your revenue is limited by time. And then you have to justify all of the time spent or needed. So for me, that's why hourly pricing just was not working for us. What does work for us at ML Interiors Group is the value-based fee, or it's a flat rate. Basically, it's been a game changer in our business. And it's crazy how scared I was to do it. So let me just acknowledge that. It's a very scary process to change from hourly to flat fee. We go into a lot of depth in this in my paid mentorship program, The Interior Design Business Bakery, and we do lots of exercises and we do a lot of prep of the client leading up to it. And then also the experience that we deliver is fabulous once they have signed the contract and agreed to the price.

But one of the biggest reasons that clients dig it, because clients really do love the fact that it's just a flat fee, and so do I from a cash flow perspective, but what it does is it removes the concern for the client of how much is this going to cost. Because who likes to go into an open-ended purchase? How much is this going to cost? I don't know. But my hourly rate is X number of dollars. Okay, well, what do you think it's going to cost? Okay, well, it could probably cost, you know, let's just say 80 hours times X number of dollars. Well, what you're doing is you're giving them the calculations and they're trying to logically figure out what you're doing. Like, what are you doing with your time and my money? Instead, if you just tell them it's gonna cost you X number of dollars. It's just gonna go ahead and sit with them and it's either gonna be valuable to them or not. There's a lot that goes into the process of warming up a client to receive a bill or an invoice for $10,000, $20,000, $30,000, $50,000, and more. It's not just here, sign on the dotted line.

So I do a lot of teaching on that also, I have a free workshop depending on when this is coming out. When this podcast is released, it's called Rolling in the Dough. So it's a five-day workshop that helps you qualify, quote, and close high-end clients. And we go through a lot of the steps that it takes to get to the point of them signing a large contract. But you have to know how to calculate your fees, before you get to that point and slide that contract across the table. So you can tell them, it's going to cost you X number of dollars and that's firm. This installs confidence to an agreed-upon amount immediately. So you're going to have the people that are looking to hire you, they're going to be professionals. Professionals hire professionals. And if you're charging, you know, a very low hourly rate, and very low is relative, but what it does is, it lowers their expectations of you and they treat you more like the quote-unquote, hired help. And there's nothing wrong with being the hired help. So please just don't email me any complaints on that. But it takes you from being brought in kind of as a, and it is a service, but as a servant treatment, and it elevates you to an equal professional. And I've been treated both ways. And I don't have any issues with it. But I can tell you that it is much more fun to be treated as a valued professional than it is to be somebody who just shows up hourly and doesn't have the same level of respect.

I don't know how to describe it better than that. Again, for those of you who've been around, hopefully, you know my heart and I'm not being disrespectful for the service industry, because this is a luxury service that we provide. So I'm going to trip over my own tongue on that here on the podcast and just leave it unedited. But hopefully, you guys understand the gist of what I'm trying to say. So we want to be treated as a professional. And this instills confidence upfront to this professional, but it's also a familiar pricing model to most. So for example, your smartphone subscription, it's a set number of dollars every month. We're not going back and forth and doing those minutes things as much. Internet, you could be on the internet 24 hours a day or two hours a day, and you're still paying X number of dollars per month.

It's the same thing when I go, you might be shocked if you've ever seen me to know that this is not my natural hair color. It's true. It's not. But I can go to my hairstylist, and I know exactly what I'm going to pay for, you know, cut, color, highlights, lowlights. It's a fixed number, whether it takes her two and a half hours or takes her three and a half hours. It doesn't matter. This is what I'm paying. It's the same thing. If you go by a car, you know exactly what you're paying and exactly what you're getting. Now, you could negotiate some of that by saying you don't want the heated seats, or you don't want the leather seats, you don't want, you know, the fancy sound system. So you can pull some of that but that's the same thing with your pricing. If you're trying to get a project done and you're pricing it out, and you say okay, so for these three rooms, it's going to cost X number of dollars. And they say, well, I don't want to pay X number of dollars as a flat fee, then you can say great, well, what room do we want to remove? So it's the same thing when you go buy a car, okay? Well, if you don't want the leather seats, we can take some money off and if you don't want it heated, then we can take some money off blah, blah, blah, blah, blah, it's the same thing.

So the shock value there is going to be decreased because then it's not gonna be that never-ending invoice every month for the next two years. When is this going to end? Holy cow, I can't believe I've paid you a bazillion dollars. So you get from point A to point B, which is a signature and payment a lot faster. Speaking of faster, if you work faster, you make more money. So if you charge the equivalent of what you would have charged for 40 hours, but you get things done in 32, well, then you've automatically, you're coming out ahead twice.

Now, I think the biggest obstacle to overcome if you're going to switch from flat fee to, no switch from hourly to flat fee is the fear of miscalculation and the fear of losing money if you miscalculate that fee. So when you roll into that, there's no way I can teach you how to do this on a podcast, Again, another plug for my Interior Design Business Bakery, we've got a ton of exercises and we go through and we collect data and information and so forth as we do this over the course of a year. But immediately, you can calculate it by, I mean, you could today, go figure out how many hours you're working on designing an average living room, take your hourly rate that you're charging, and flip that into a flat fee. That's the super-duper, itty bitty basic, put your toe in the water, way to do it. What you need to do ongoing is collect data to analyze and increase your pricing year over year over year.

Michelle Lynne: Imagine trying to bake a cake without a recipe. You kind of know what the ingredients are, but you don't know how to put it all together. After lots of hard work and trying different combinations, all you are left with is a sticky situation and a stomachache. Babe, running an interior design business can feel exactly that same way. That is why I created The Interior Design Business Bakery. This is a program that teaches you how to bake your interior design business cake and eat it too. If you don't want to figure out the hard way, and you want guidance to follow, a recipe that has already been vetted, someone that has already been there and done it and will help you do it too, then check out the year-long mentorship and coaching program, The Interior Design Business Bakery. If your interior design business revenue is below $300,000, or if you're struggling to make a profit and keep your sanity, this is the only program for you. You can find that information at designedforthecreativemind.com/business-bakery. Check it out. You won't regret it.

Michelle Lynne: Now, we base our pricing off of the square foot and the layers of complexity that go into each room. So there's a lot more that goes to it. But I'm hopeful that I might have, quote-unquote, convinced you to seriously look at the option of a flat fee to present to your client. It's also fabulous because you can budget out your year. So this podcast will be coming out January/February-ish, I would challenge you to go grab a spreadsheet or a calendar or a blank piece of paper, whatever works best for you, and take a look at how much revenue do you want to create this year. And it doesn't matter if you're listening to this podcast and it's August, it doesn't matter. So go get the same thing, figure out what you want to make in the next 12 months. If you want to make, and I'm just saying this because it's an easy number for me to calculate right here. If you just want to create revenue of $100,000, then what you're going to do is you're going to take a look and say okay, so I need to have five projects with a $20,000 design fee. Or I need to have one project with a $50,000 design fee, and five projects with $10,000, or I need, it's a combination so whatever you're comfortable with, wherever you are in your business.

There was a point in my business, I had no confidence that I could charge 50 freaking thousand dollars for my ideas. And then of course, some implementation, but just I'm just telling you here, it's not from a bragging perspective, it is a possibility perspective. The first time I slid a $10,000 design fee across the table for the contract, I nearly peed down my leg. I'm not kidding. And looking back, hell, that client got steal. Now it would easily be $60, $70, $80,000 of a design fee for my team for what we implemented there. So just know that you're not alone, where you start, and learning how to calculate these details, but you have to start.

And so going back to the whole annual 12-month budgeting thing, it's fabulous because you're writing these things down and then they're gonna happen because once you put it out there into the universe, you're sending out this energy, you're gonna be shocked at how these things come true. But from a budgetary standpoint, you can also take a look and know that these are the goals that you have and how can you break them down into smaller bite-sized projects in order to get there. Did you ever think you'd be able to budget and forecast your fees? I'm telling you, it's possible.

So as a recap, the value-based pricing, it's a logical perspective, and it removes the concern from your client, how much is this going to cost because you're telling them straight up. You're earning their trust. You're instilling confidence into the client that you can get the shizzle done and this is what it's going to look like. It's a familiar pricing model to most people. The shock, it reduces the client shock. But you also have the ability, because you can't say, I can get that room done, it's going to take me 40 hours, or I'm going to get this house done and it's going to take, let's just say 100 hours. And for the record, I'm just making these numbers up. Forty hours, yes, it could be very reasonable for a living room, it just depends on what the client is anticipating. So don't use those numbers, if you're new as a measure for your timeline. But let's just say you're calculating a house and you've got these three, four rooms and they are shocked at the fact that it's going to cost $20,000. Okay, well, great, then what room do you want to take off? We can bring it down to 15, we can bring it down to 10, whatever you're most comfortable with. And hopefully, as you're going through your sales process, you're peppering in numbers that it could look like, so that you don't walk them through this entire process them thinking that you're charging, you know, low. I don't know what to say, that you're charging, you know, $20 an hour or whatever, they're anticipating their total is going to be $2,000 for their whole house, like whatever that looks like. So you're just gonna pepper that in, in your conversations as you're leading up to the design fee.

Again, my free workshop walks you through all of this. But again, it's work faster, you get more profit, and then you can continue to analyze and increase your pricing year over year. So that's what I've got for y'all today. The pros and the cons. The differences between hourly versus flat fee. It's been a game changer for my business. Plus, you don't have all that administrative work. Yes. So for the record, you still need to track your time, but you don't have to send an invoice every darn month and work on collecting it. So you're saving time, you're not working as hard with all of those details.

So usually I wrap up by thanking my guest for being on the show today. So I'm going to thank myself. Thank you, Michelle, for being on the show today. Oh, I've really enjoyed it. Yes, I am a dork. I'm very comfortable with my dorkiness. But if you need any more information, if you can benefit from more resources surrounding the business of running your interior design business, join my growing community on Facebook. Yes, I know, it's Facebook, it might not be your favorite platform but it's a great platform for the group. And it's called the Interior Designers Business Launchpad. So while I don't take myself very seriously, I do take business very seriously. And we are there to share. So I look forward to seeing you there. And wherever you're listening to this podcast, drop a review, please, it definitely helps us stay relevant. So until next time, take good care.

Michelle Lynne: Hey, y'all. If you love the show and find it useful, I would really appreciate it if you would share with your friends and followers. And if you like what you're hearing, want to put a face with the name and get even more business advice, then join me in my Facebook group, the Interior Designers Business Launchpad. Yeah, I know it's Facebook, but just come on in for the training and then leave without scrolling your feed. It's fun. I promise you'll enjoy it. And finally, I hear it's good for business to get ratings on your podcast. So please drop yours on whatever platform you use to listen to this. We're all about community over competition, so let's work on elevating our industry, one designer at a time. See you next time.

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