When he started out 16 years ago as a practicing architect and partner in Socha Builders, Rob Adler did not charge anything for the creative phase. “We charged nothing so as to get noticed, and we agreed in advance that if the client was pleased with the design, they were only obligated to pay for the construction documents,” he says.
As Adler, a licensed architect, began to gain recognition, he raised his fees but still charged just 1% or 2% of the total job's construction costs. But he was competing for work with traditional stand-alone architects in his upscale central New Jersey market. “We needed to raise our fees … to improve the image we were projecting,” he says. “Prospective clients thought we didn't know what we were doing because we weren't charging enough. Once you have some level of reputation, you've got to capitalize on it right away.”
The road to creating a profit center out of design is itself a design-in-progress. Those owners identifying their companies as design/build already have made the conscious decision that design is a valuable service. But there also has to be a “mindset that it is and can be profitable,” says REMODELING contributor Victoria Downing, president of Remodelers Advantage, Laurel, Md., and co-author of a book about design/build. “Then you have to track time and schedules, watch for bottlenecks — treat it like every other part of the business.”
FREE TO FEE When thinking about profiting from design, you have to know what your market will bear and determine your rationale for selling design. Is it the No. 1 priority or is it a sales tool for construction? Your decision says a lot about who you are, what your fee structure might be, and how your company will be perceived.
Peter Feinmann began his remodeling career under the name Feinmann Remodeling. As the business grew and changed, taking on more high-end and more particular clients, the name changed to Feinmann Inc.
Now, after 19 years in business, Feinmann describes the $6 million Arlington, Mass., company as a “five-person architectural design firm with a staff of builders, estimators, and planners to implement this work.” The current name is Feinmann Inc. Designers, Renovators, & Builders.
For years, Feinmann used design as a sales strategy. “For a younger design/build company, it was a great selling tool to get people to commit and move forward,” Feinmann says. The company charged an upfront fee (4% of the total estimate), and any additional design was a budget line item in the construction budget.
“When you have a mid- to upper-mid-range client base,” Feinmann says, “this ‘blended' system where you charge for design and other design costs are included as a line item makes for a quicker, cleaner sale because you're competing against other like-firms. When you move into more complicated, higher-end design, the standard in the industry is 10%, 12%, 15%. If you want to be in the majors, you've got to play like a major.”
Feinmann is in the process of creating a separate design division because he feels that the company is “undercutting [itself] by blending.” He wants to be seen as a design firm first and foremost, and wants to compete with stand-alone architects. The company now charges design fees of 10% to 12% of the total estimate.
What drives Todd Jackson in San Diego — which he calls “an undeveloped design/build economy” — is construction. “My designers are on staff to facilitate my construction; I don't have a construction company to facilitate design,” says the owner of Jackson Design & Remodeling. “I don't have a lifelong burning desire to be the latest, greatest, and best designer in the world. I want to run a profitable company where I give clients an experience they can't get anywhere else.”