These Smart Pricing Techniques Could Double an Architect’s Income
“Would you like to be a starving architect or a profit-first architect?”
– Mark Lepage, founder of EntreArchitect
As architects, we graduate with romantic ideals and dreams of making meaningful designs. Profit isn’t the first thing we think about because, first and foremost, we’re artists, poets, philosophers. (We want to better the world with art and design, which is wonderful!)
But then, after graduating, we run smack dab into the reality of the business world. A tough world where art doesn’t just sell on its own; a world where you need money to do anything.
As Blair Enns, an entrepreneur and writer, would say: “It’s money that creates the white canvas that allows you to create art. So, instead of fighting it, let’s accept the fact we need money to make our art.“
Lepage even takes it a step further, saying it’s our responsibility to make money.
“It’s our responsibility to ourselves as artists and entrepreneurs, as architects and firm owners,” he writes. “It’s our responsibility to our teams, our families and our profession. It’s even our responsibility to our clients. When we embrace the power of the ‘profit first’ culture, we can be better architects.”
Here’s what he means — and how to start making money as an architect.
Don’t underestimate the importance of your pricing strategy
Let’s say John is an architect. He has about five years of experience and charges $70 an hour for his services. From his website, it looks like he hasn’t specialized in anything particular.
Not bad, you might think: $70 an hour. And you’re right. When we think in hourly rates, that seems reasonable for an architect with John’s experience. With time, it could easily increase to $100 an hour.
But after some quiet months, John gets desperate and temporarily drops his rate to $55 an hour.
What does this reduced hourly rate mean to customers and prospects?
- First of all, lower rates are perceived as less valuable. For customers, choosing the lower rate means choosing a cheaper — but less valuable — product or service.
- The fact John lowered an already average rate makes the customer believe John really needs this job, which gives them psychological power.
- Because of the hourly rate, the client sees John as an hourly cost — so the more time John spends on the project, the more the customer will have to pay.
- The result of the above facts: The customer will keep trying to negotiate. (Read: The client will be a demanding pain in the ass.) This is the type of customer who will want to discuss every time sheet and every invoice to lower the cost — and who will keep on asking questions and calling you non-stop.
- The customer’s only motivation will be to keep the costs down, so John won’t be motivated to put in the necessary hours and energy to deliver high quality and value.
I think we can all agree this isn’t where we want to be.
Working for the wrong customers at a low rate downsizes your value, your investments and your general worth. In the end, this will affect your self-confidence — and even your health — in a negative way.
Compare John to Anna, an architect with five years of experience. She has the same background and skills as John, but she took the time to think things through.
Since she marketed herself as an expert in durable solutions, she attracts people looking for knowledge of that particular field. (She does this by writing about durable construction on her blog, so she’s always at the top of local search results.)
Her approach attracts clients who value her specific expertise and approach — and who are willing to pay more for it.
She never negotiates her rates down. She doesn’t want to, because she believes she needs profit to be happy, to be stress-free, and to make her art. And she never has to, because her customers understand the value of her work.
An important skill Anna has mastered is the “value conversation”: She knows value is subjective — and she prices the client, not the job.
During a meeting where they review the customer’s wishes and expectations, Anna will make sure they both understand the success metrics for the project. Then she’ll create an intelligent quote with different options for the customer to choose from.
Because of her value-based approach, Anna has a different type of pricing: She charges a base fee plus separately priced value targets (important motivational targets that both parties define together). We’ll get more into this strategy later in the article.
Raise Your Rates
When you sell a product or service at a low rate, it’ll be perceived as less valuable. As humans, we’re always comparing prices, and we unconsciously undervalue underpriced products.
Let’s say you’re comparing new cell phones: One’s $50, one’s $89, and one’s $110. Unless you really can’t afford the others, the first thing you’ll do is dismiss the $50 phone. Way too cheap, so it must be poor quality, right?
Our brains take shortcuts like this all the time. But many architects don’t think about the psychology of pricing, and instead, make two false assumptions about rates:
- At a lower rate, I’ll attract more clients.
- At a lower rate, client expectations will be lower, so they’ll complain less.
Sorry to break it to you, but those statements aren’t true. Here’s what will really happen:
- At a lower rate, you won’t attract more clients — you’ll attract different clients. A low rate will attract low-budget clients, while a high rate will attract high-budget clients. Which would you prefer?
- Clients who look for the lowest rates see architects as a “cost”. Strangely enough, people who want to pay the absolute minimum often have the highest expectations. They want more done for less money, and try to extend the project’s scope for free. They call you on Sundays, and they pay their invoices late.
In other words, you should never undervalue your services. By setting high rates, you’ll attract better customers (and better projects!).
Want to learn more? Here’s an entire article on doubling your hourly rate.
Rethink Your Pricing Strategy
In addition to raising your rates, you also might want to change how you structure them.
The most common pricing methods for architects are:
- Hourly rate
- Fixed price
- Percentage of construction costs
In this post you can find the low-down on each of these strategies.
While these methods can work in certain situations, they’re still all time-based methods. Which creates a subtle incentive to be inefficient.
And which means that, as architects, we’re disregarding the value we create when determining our price. Instead of debating the value of services delivered, we’re debating the value of an hour’s time. One of the consequences of this mindset is clients continue to perceive architectural services as a cost — rather than a value.
In other words, time-based billing places a value on the clock, and not the outcome.
Let me ask you something: What’s the highest hourly rate you’ve ever charged? $100, $200, maybe $300?
Put in a different way, this means none of us, in a span of an hour, has ever done anything worth more than $300. Doesn’t that seem crazy to you?
“By designing better buildings, architects can create spaces that are healthier, more productive, more efficient, and less costly to operate and maintain,”
explains Scott Smith.
“This puts real money in the client’s pocket.”
Some real-life examples include:
- Negotiating a concession during a zoning meeting that saves your client tens, or even hundreds, of thousands of dollars.
- Discovering a construction mistake early, so the cost for fixing it is negligible compared to what it would’ve been at a later point.
- Designing a parking garage capable of accommodating 10% more vehicles in the same footprint, producing revenue that flows right to the client’s bottom line.
- Placing glazing in a wall section that increases a building’s rentable area and thereby increases cash flow.
- Fitting an extra apartment in a building, allowing the developer to earn additional profit.
Using value to drive pricing
Shouldn’t you benefit from these changes? Instead of using your time as the only driver for your fees, shouldn’t you try and incorporate the value you deliver?
Of course, “value” is subjective; everybody values your services differently.
For one person, the value of your service and expertise will be a lot higher than for another. While you might interpret this negatively at first, it’s actually a beautiful thing. You can think of it as the “willingness to pay.”
As Investopedia explains, this is called the “subjective theory of value”:
“Let’s say you have one wool coat and the weather is extremely cold outside… In a case like this, the wool coat might be worth more to you than a diamond necklace. If, on the other hand, the temperature is warm, you will not want to use the coat, so your desire for – and amount you value – the coat wanes. In effect, the value of the coat is based on your desire and need for it, and so it is the value you placed on it, not any inherent value of the coat.”
In other words, you need to find a way to determine the value your services hold for a prospect or customer.
Lots of architects think this is unethical — and it’s not proper to invoice, say, $10,000 for one day of work.
But in my opinion, this is wrong. If your customer is getting $100,000 of value because of the work delivered on that day, why shouldn’t you be entitled to a portion?
How to Implement Value-Based Pricing
Find a niche
Different customers are willing to pay different amounts for the same service.
So it’s important to attract the customers who will value your services most — and therefore pay the most for them, too. Clients are always willing to pay more for specialized knowledge, so it’s a good idea to find a niche.
Niches can include particular market segments (the politics of municipal water systems), project phases (permitting experts), project delivery methods (Engineer-Procure-Construct, or EPC specialists), project delivery options (high-speed production), and technologies (intelligent transportation systems), to name just a few. They can also include other aspects of the value spectrum, like strategic planning, conceptualization, financing, commissioning, operation, and maintenance.
Once you’ve determined your niche, then you can establish your expertise through press hits, blog posts, speaking opportunities, and so on.
Master the value conversation
“Value is like beauty. It’s in the eye of the beholder.” – Blair Enns
Once clients get into the habit of thinking of design in value-added terms, there will always be enough money to do the job right — because good design literally pays for itself.
In his book “Pricing Creativity,” Enns explains the business side of things: how to apply the “value conversation” and establish “value pricing.”
Enns says you need to have 4 conversations with your client — here’s how to get started.
1. Prove your worth
Before actually talking about value, you should first have a “probation conversation.”
During this conversation, you’ll prove your expertise — and in the client’s mind, will move from vendor to expert practitioner.
Just imagine walking into a store and immediately being accosted by a chatty salesperson. If they start off with a sales pitch right away, you’ll dismiss them. But if they prove their expertise first, you’ll trust them more.
This transitional moment — when you’re no longer viewed as a salesperson but as an expert — is crucial. The customer now trusts you and your judgment.
P.S. This is also why we recommend niche businesses. Fewer architects with your expertise means fewer options for the client. If you specialize in something and know your craft, you’ll be viewed as an expert much more quickly.
2. Find out what they want
The next step is the “qualifying conversation,” where you perceive a lead and determine if an opportunity exists for a sale.
You’ll discuss the customer’s budget, needs, time frame, etc. You’ll also uncover their desired future state — what’s really important to them.
Let’s say the client wants her future home to be a refuge for her and her family. What’s most important is the design is tranquil, light, airy, and environmentally-friendly (and therefore economical).
“One of the biggest advantages of value based pricing is that it invites a full dialogue between the owner and the architect at the very beginning of the job, so each party fully understands what really matters most to the project,” writes Simpson. “This alignment of interests creates both synergy and leverage, which makes for a richer design process and a better outcome for all concerned.”
3. The value conversation
Now it’s time for the “value conversation,” which could turn the potential client into a new customer.
It usually consists of four steps:
1. Commit the client to their desired future state
Have the customer confirm the desired state she mentioned earlier (ie: the house will be tranquil, luminous, spacious, and economical).
2. Agree on the metrics of success
Try to quantify what the client wants, letting her reveal success metrics. Examples might include isolation values, quantity of space, number of parking spots, environmental performance, increased daylight, acoustics, thermal comfort, indoor air quality, carbon and water footprint, ease of maintenance, etc. Here’s an article with further examples.
3. Agree on the value
Assign value to this future state, which has already been translated into metrics. Ask questions like: “If we accomplished this (metric XYZ), what would that mean to you? What’s it worth?”
Some metrics will be easy to quantify — like electricity savings — but others will be harder — like better acoustics. Remember, however, that value is subjective, so you’re trying to determine the value of a metric for this customer.
New technologies, such as building information modeling, also make it easier to quantify design value.
4. Offer pricing guidance
Make sure the client hears a price from you before the meeting is over. You don’t want to learn they can’t afford you after you’ve put in time and work drafting a quote.
Before you leave, you should always share a price: “I’m going to come back with some options, and they’re going to be in the X to Y range.”
Here’s a tip: Start with a high number!
There’s a principle known as “anchoring,” which says the first piece of pricing information will affect everything that follows. (Really interesting psychological research has been done on this.)
That means if you mention a high price first, the second or third option — the range you’d like the customer to accept — will seem a lot more reasonable.
Imagine comparing backpack prices. You’d like to spend about $50, but the first backpack you see is $120. Wow, that’s a high number, you think. The next one’s $80 — and suddenly, that seems like an acceptable price. Powerful, right?
Don’t think of anchoring as deceitful. You’re offering options, and letting the client decide. Plus, you’re making people understand what your service is truly worth.
In the construction industry, customers often see your service’s full value only when the project is done — maybe when they’re doing a walk-through or maybe during their first few weeks living in a new building.
That’s when it hits them that you did a wonderful job; that you thought about many things that would’ve never crossed their mind. That’s why being an architect is tricky: Your value is only perceived after you deliver your work.
All that to say: Don’t feel bad about using little tricks to make sure your client recognizes your value before starting.
4. Land that fish
Now that the value conversation’s over, you can start determining your rate. Based on the value you can create for that specific client, think of what would be fair compensation for you.
One more sales trick to keep your sleeve: a psychological principle called choice architecture.
Basically, it says to offer choices.
With just one pricing option, you put your client in a take-it-or-leave-it position — which you never want to do. Human brains are wired for contextual comparisons; we need them to make choices.
If you only offer your client one price, they’ll look for additional quotes from other architects. So, no matter which pricing model you’re using, give multiple choices.
Let’s say you’re charging 15% for architectural fees. To apply choice architecture, you’d give three different options:
- Lower option of 12.5%: Minimum services like construction drawings and follow up of the project
- Middle option of 15%: Some additional services like 3D modeling, illustration, rendering and estimating
- Highest option (anchor high!) of 20%: Complete package — the most you could do for that client: existing conditions surveys, interior design, kitchen design,
In general, think about pricing the client — not the job. There’s no need to always use the same three options in your proposals.
You can also consider combining value-based pricing elements with traditional pricing methods.
“If the value-added approach is used, then the base fee can be lower and the upside can be higher,” explains Simpson. “Smart clients will understand that it’s in their best economic interest for the design team to hit as many of the value targets as possible.”
“Adding these incentives to the contract will provide motivation and focus for both parties. The client should not resist paying “extra” since the value targets, when met, will actually add revenue or profit to the bottom line.”
With all this advice, even poets and philosophers should be able to make a living off their art.
Time to apply these precious sales techniques to your advantage — and to profit first.