Why You Should Never Lower Fees
While attending the American Institute of Architects (AIA) National Convention in Philadelphia in May, I had an interesting conversation with several peers regarding the pricing of our professional services.
As a strategist for the firm MKThink, I noted that our hourly rate for design strategy is much higher than a firm would charge for standard interior and architectural services. And while I am a licensed architect, I recounted that one of the reasons that the AIA appellation does not follow my name on my business card is because I prefer that clients view me as a consultant first and do not use the fact that I am a licensed architect to question the rate that they should be compensating me.
For standard professional services, though, what can interior design and architecture professionals do to ensure that we are compensated for the full value that we bring to the table? The simplest response: Never lower fees.
I often hear the complaint that many clients do not understand the monetary value of the services that designers offer. But, in order for clients to understand, we all need to consistently charge the full cost of our services. Sure, that may be easier during robust economic times, but it should also hold true during the more difficult years, too. And there will inevitably be tough times ahead.
Here are three specific reasons why design professionals should never lower fees:
Someone will always do it cheaper
If you lower your fees by five percent, someone else will always be willing to lower their fees by that much or more. Part of selling yourself and your firm to potential clients requires quantifying the accurate cost for your quality work and services, even when that may come at a premium compared to the competing firms.
Besides, do you really want a client that is hunting for the best bargain? What kind of work would ultimately come out of such a partnership? If you are in a position in which you constantly have to cut costs to compete, consider refocusing your practice on the types of clients that you can be of the greatest service to, and, more specifically, those who understand the value of your work.
You forfeit future bargaining power
Once you give a client a discount, they will always expect it, especially if you prove you are able to deliver a full set of services at the discounted rate. Raising your price after the fact inadvertently forces the client to reevaluate the relationship and consider whether or not they should stay with you or switch to a competitor.
For most firms, especially during economically challenging times, agreeing to reduced compensation from one client usually means doing the same for all new clients. That potentially results in an entire portfolio of work that will never pay you for your full value.
Your profit margin goes down
Firms determine their rates for a reason. But no matter how the equation comes together, the best practice is to base it on the right numbers that will make a business profitable and sustainable. Cutting fees ultimately requires the firm to work harder to make up for lost revenue. It means you need more clients or projects than you would otherwise likely need to carry. When that happens, it is not always possible to ensure the best work is consistently delivered to all clients.
During my conversation at the AIA Convention, one firm principal admitted to calling competitors to ask them why they are lowering fees. He said that he takes the time to educate them in basic economics, hoping they understand that lower fees collectively devalue the entire market. Surprisingly, some of his competitors actually listened to his advice and held strong, even through the recession. Today they are all the better for it.
You may think that now—when so many firms are trying to keep up with all of the work that they currently have—is a curious time to be addressing this topic. But, why not? Rather than wondering why design services continue to be devalued, now is actually a good time to revalue the rates that you have been charging. Ask yourself and your management team: Is the firm being compensated adequately?
When the next down market occurs, get creative about cutting your overhead—but not necessarily your staff. Evaluating your fee structure now will enable the firm to not have to reduce its rates in the future.