Starting New Service Lines: Why Higher Pay Does Not Mean Decreased Profits

Evelyn M. Lee, AIA, writes a regular column for Contract on business practices in design and professional development. Based in San Francisco, Lee is regional workplace manager, west coast lead at Newmark Knight Frank. She holds graduate degrees in architecture, public administration, and business administration. Currently a member of the AIA national board of directors, Lee received an AIA Young Architects Award in 2014. Her website is evelynlee.com. Visit contractdesign.com/businesspractice to read all of her columns for Contract.

I have been known to say that the design profession is three recessions away from extinction. This is not to be fatalistic about where we are headed but rather to start a conversation about how we can adapt to continue to thrive in the future. Most architecture and interior design practices are perilously tied to the cyclical nature of the construction industry. Each recession brings with it the inevitable migration of individuals who leave, never to return, having found employment in other industries that often offer better work-life balance and greater benefits with higher pay. Why would they come back to our industry, especially if we let them go at a time when they needed the most support?

Survival Strategy
To combat the loss of workforce in our industry, I advocate for design firms to be more entrepreneurial and consider new lines of service that will allow them to be stable even when their clients aren’t building. In my role as a workplace strategist, clients come to me in times of growth as well as regression, especially when they are looking to spend less to make more. And while I currently work at Newmark Knight Frank, I cut my teeth at an award-winning design firm that had enough foresight to start a strategy group. When other firms in the Bay Area were letting individuals go, it managed to grow. So why then, have other firms not followed? I was recently reminded how our industry’s lack of business training often prevents us from fully realizing new strategic opportunities.

Balancing Act
At the end of last year, I was called to serve as a reference for one of my fellow strategists. A design firm was looking to grow a new strategy practice and wanted confirmation that my former co-worker was the right individual. I happened to know that my friend was excited about the firm but had been in protracted discussions because his current salary was higher than what people at the firm with the same years of experience were earning. I encountered this hesitation from potential employers no less than four times when I was looking to make a move to what I hoped would be another architectural practice. In the end, it is ultimately why I ended up making the jump to the real estate industry.

The problem is that the firms were comparing apples to oranges. Most likely you are not paying your admin staff at the same scale as your design staff based on their years of experience. Similarly, if you start a new service line that requires a different skillset, and allows you to charge a higher hourly fee because clients value it, why are employees in those roles held to the same pay scale as those in traditional practice areas?

Invest in Your Future
So how do you figure out what to pay and how much to charge? Fundamentally, you should approach starting a new service line as if you were starting a new business. Better yet, it should serve as an opportunity for you to rethink your entire practice approach.

That means you must do the necessary due diligence to understand how to price services, and what the talent you need to fulfill those services expects. If you are uncertain where to begin, I recommend a little reverse engineering. Look at potential competitors in the new space and use employment websites like Glassdoor to understand how much they pay their employees who have similar skillsets to the ones you need. From there you can begin to determine how much you can charge for services provided by those individuals.

I realize the exercise of potentially identifying and starting new services within your practice is not easy. This holds especially true at a time when you are just trying to find talent to fulfill the work you already have. On the other hand, the best time to figure out how you are going to survive as a firm through the hard times is when you have the wherewithal to spend some time and money on determining a more sustainable solution over the long run. The crux of the cyclical construction industry is that it is predictable. Knowing this to be true, how we respond could prevent the extinction of our profession.