How to Price Architectural Services
Time-based pricing is a common practice in the architecture business but this does not mean it is the pricing model that makes the most sense or the one that provides the most benefit for you or the customer.
Setting an hourly or daily rate makes things easy when it comes to providing an estimate or billing (simply multiply your hours worked by your hourly rate) but it limits your potential earnings and can even cause clients to question your final fee. Does it make sense to charge the same for an hour of paperwork versus an hour in which you found a critical mistake on the part of the contractors? Does an architect charging $350 per hour provide precisely 7 times more value than one charging $50 per hour?
Telling a prospective client your hourly rate may seem the easiest and most transparent way to explain your pricing, but focusing on time is a flawed strategy. Instead, what you should be doing is putting a price on the value you create for a customer.
The Problem With Time-Based Pricing
If you spot a mistake on site before it occurs that saves the owner $5000, what is this worth to the client? Surely more than the five minutes in which you discovered the error.
As you gain more experience as an architect, your value increases. You learn how to understand clients’ true needs, how to deal with contractors better, how to make savings for the owner and become more skilled at design. You become more skilled and more efficient at your profession, so it makes sense that you can demand a higher payment than an architect who is just starting out.
It’s logical that as you gain experience in any profession, you can deliver the same outcome in less time, or a better outcome in the same time, so how do you justify this with a time-based pricing model? Yes, you can put your rates up over time, but you’ll still be limited by the fact that if you work faster and more efficiently, you’ll end up earning less for your efforts!
Time-based pricing doesn’t really make sense and what’s more, customers aren’t really interested in how much time you’ve spent on a project – they just want a good end result. It’s even possible that the owner can look at your time sheets and wonder why you’re spending so long to do a particular task. This can cause friction in the working relationship and disagreements when it comes to billing time.
With value-based pricing, the emphasis is placed on the end result, not on the physical number of hours you spent to get there. You are charging for your skills, experience, and the resulting value you provide to the customer. With time taken out of the equation, the customer will be happy to pay for the realization of a job well done.
The Potential in High Value Jobs
As an architect you may sometimes be asked to undertake work that provides a much higher value to the customer than a typical construction job. This may be in the form of work that is really urgent for some reason – perhaps because a building permit is expiring or because of a problem that requires immediate attention before it results in a loss of business.
In these cases you can legitimately ask for a higher price for your work because the value you provide to the client is so high. You may be saving them thousands of dollars in fines or lost business. The time you spend on these rush jobs may be quite limited, but the end value is huge. It certainly doesn’t make sense to charge by the hour for such work.
Consider how much extra you’d be willing to pay an emergency plumber if a pipe broke in the middle of the night, or how airline tickets bought on the day of the flight will usually cost much more than a seat booked months previously. Urgency demands a higher price in all kinds of situations.
Don’t think in terms of time when you’re pricing up jobs like these, as this can cause you to balk at your own prices! Remember – you’re not charging $500 for half an hour’s work, rather you’re charging $500 for something that could save your client thousands later.
Specialist jobs and expertise can also qualify for a higher fee. For example, there are only a limited number of architects who are LEED certified. If you’ve proven to be one of the few to take the time and effort to achieve this certification, it makes sense that you can charge more for your services.
Tips for Selling Your Services on a Value-based Model
Customers do not always react favorably to the fact that you do not offer a fixed hourly or daily rate. After all, this provides an easy way for them to compare different service providers. Competing on price is rarely an effective strategy for the architect though – there will always be someone who is willing to charge less than you.
Rather than focusing on pricing when you’re providing a quote for a potential customer, draw his attention to the value that you provide. This is what makes you unique and is not easily replicated or undercut by others. You may want to point out your several years of relevant experience, your specialist skills in certain areas like designing eco-friendly buildings, or your high level of customer service and frequent contact with the client.
Aspects of your service that add value for the client like this can help you to rise above the competition and you really can’t put a price on customer satisfaction.
When setting your pricing, try not to think about how long it will take you, but rather, what is the value that you will be providing to the client. You need to try and get a feel for how much each individual client will be willing to pay for the job and whatever you may think, it’s not immoral or unethical to charge different prices to different clients. If you’re working on a small project for a multinational corporation, would it make sense to price it the same as a similar project for a family of four?
In your website copy, rather than focusing on the technicalities of what you do (the features), put the emphasis on the value for clients (the benefits). Most clients don’t want to know or care if you are qualified to build to certain technical industry specifications because they don’t understand what this means for them.
Instead, point out the fact that you deliver work on time and on budget, you design highly efficient buildings that will save the owner in heating bills, you avoid the risks that come with a construction project and you work with the best contractors available.
It can also be a good strategy to focus on the problems the client might have if they don’t hire you. Beginners can make costly mistakes that may end up costing the owner thousands and contractor errors not spotted in time could set a project back by weeks. One or two horror stories from previous clients whose projects you’ve had to “fix” always go down well too.
Charge What You’re Really Worth
Every good architect should design to a high standard, offer great customer service and provide value to their clients. All these things are normal qualities that should come as standard. But if you want to start earning more and make a name for yourself as a top quality architect, rather than working more hours, find ways that you can provide extra value that is above the ordinary.
Maybe this comes from a specific qualification that is difficult to get. Maybe it’s because you specialize in a certain kinds of buildings and you are the “go to” architect for this kind of work. Or maybe it’s just because you really go the extra mile to keep your clients in the loop of all communication and ensure their project goes as smoothly as possible.
For more insight about value-based pricing, online invoicing company Freshbooks has published a great free ebook, Breaking The Time Barrier, that discusses the concept in greater detail and offers some great advice about moving away from a time-based pricing model. Read it! It only takes a couple of hours and will directly result in extra revenue.
Remember, time is the most valuable thing you have. Don’t undervalue your services and yourself by putting a (low) dollar value on it.
Here are 2 other interesting and popular articles on this topic: