Practice Management Member Conversations

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All the messages posted about this subject fall back on architecture as a profession.  Architects are the only group out of all those discussed, contractors, real estate brokers, etc. that do not seem to focus on the bottom line when setting fees for their work.  This leads to the perception by the public that the services provided are worth less, since we as a profession seem to reduce fees just to have that cool project rather than all those going after the project setting a fee based on their office's bottom line or a industry norm. 

In real estate the 7% fee is known by the public as the industry norm, does anyone see a public known industry norm for the architect's fee?  Who uses a 3% to 6% fee on a project and then expects the same respect as a real estate (sales) person who will get 7% for selling the same building the day after it opens with likely less health, safety and welfare professional risk or liability?  Do you have more expectations from a real estate broker working for 7% Vs. one working for 3%?  It is all about public respect and architects must first respect themselves and the professional services they provide as a business.  

Architects should use fees in a way that does not hurt their office's bottom line, following and enforcing Qualification Based Selection (QBS) Laws where identified as a jurisdictional legal obligation.  If the public believed the industry norm for architect's fees was 7%, like in real estate, then architects would likely get fees like real estate brokers.  Contractors bid on projects not architects or real estate brokers!  Contractors set low margins to win the bid but they also have a business plan based on careful review of the documents and the market to know what percentage they can likely make up in changes. 

Do architects ever go into a project looking at it with a business plan first, noting potential additional services and not looking at it as a cool project but rather as making a business profit from the scope defined?  Just remember what additional services are for in AIA contracts - additional work and providing an additional service product that benefits the client, right?  Once again some architects undermine that AIA contract language by including more in their services for the base fee rather than asking for additional services per the AIA contracts; just because it is a cool project.  What does that tell the public? 

Firms that expand and grow look at architecture as a business first then strive to provide their clients with the best overall building design as possible, all based on the fee, the client's budget and not just taking the project for being cool.  The Architect's whole team needs to continue to look at their efforts based on the contractual agreement for business gain throughout the entire project. Educate the client along the way gaining trust for what architects do as a business and for gaining additional services, just like contractors gain trust when in the field to get paid for field suggested construction benefits to the owner. 

Architecture is a business of putting the client's needs first over our own ambitions for designing cool projects, all for a fee that meets the office's bottom line!  You will be surprised that both can happen with a good business project work plan defined up front, based on the scope given by the client, then understood by the whole team and followed by the whole team.  Always keeping the whole team educated while educating the client throughout the entire project.  If the scope changes then that is an additional service and additional fee should be identified before proceeding with that change in scope, which needs to be understood by the entire team working on the project. 

Enjoy being an architect it has many long lasting rewards! 

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William Burmeister AIA
St. Louis MO
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Mr. Burmeister, how refreshing it is to read a post that explains, in the simplest terms possible, what it means to be the owner of a professional design firm and what the priorities, not should be, but are if the firm is to succeed in building long-term client relationships and earning a reasonable, professional fee for its 'value-based' services.

There's so much i would like to add to further support your post, but I will limit it to one observation regarding too many of my professional design firm colleagues.  Fully recognizing that none of us ever received any meaningful form of education related to 'running a business' during our undergraduate studies in architecture, it is nonetheless very easy to learn the basics that would assist us in becoming good steward's of the firm's financial resources.  As you said, failing to understand the cost of delivering a project from inception to close-out is a formula for going out of business, eventually.  Understanding the break-even cost of every member of the firm becomes an essential metric in developing the break-even cost of a project fee budget before a proposal is ever tendered to a prospective client. 

If you can effectively estimate the number of hours each project team member will be involved in delivering the basic services called for in the contract, a reasonably reliable break-even cost can be calculated.  Now, all that is left is to add-on the profit.  Be careful in doing the math, too many design professionals use the 'mark-up' approach (x% of the B-E cost) vs. the 'profit margin' approach (x% of the proposed total fee).  There's approx. a 16-20% difference between these two profit percentage calculations.

It is my professional opinion that every professional design firm has 'earned' the right to expect to be paid for the value of its services.  Of course, the fee still needs to be negotiated and if you start with a higher percentage than Realtor's charge, you're likely to negotiate a reasonable profit margin.

Thanks again for a great discussion.
Respectfully,
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Steve L. Wintner, AIA Emeritus
Founder-Principal
Management Consulting Services
The Woodlands, TX 77380-1414

It's easy to focus on justifying "value" to ourselves and colleagues in this and any industry, but the important view is that of the client and marketplace. If there is no market for your services, either by local economy, skill-set, or service offerings, there is no value in the business.

Indeed, few architects get business education--more are now getting MBAs to augment their B.Arch or M.Arch. But even MBAs are not directed in their education to focus on what's important to the client/customer.

I urge all architects to spend more time ON their businesses (as compared to just being IN their businesses), first by looking for business help or coaching external to the industry. New, more effective, approaches to the concept of "value" are not coming from within the architecture professional community, but from "out of the box" coaching. Check out companies like OneCoach.com and Seth Godin's blog http://sethgodin.typepad.com/. Do the research to find out who are your ideal clients, how to get their attention, and how to get them to keep coming  back to you.

Not even 20 years ago, the architectural professional community was in the marketing dark-ages. Many architects still in practice are being left in the dust by competition sauvy to current trends in marketing and client-focused, value-oriented, business practices. This is just as important as embracing sustainable design strategies or building information modeling tools in your practice.

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David Clarke AIA, Senior Architect
Williams Design Group, Inc.
President-Elect, AIA Southern New Mexico Chapter
Las Cruces NM
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Original Message:
Sent: 01-10-2011 19:32
From: Steve Wintner
Subject: Architecture is a "Value Based" business! Architects designs protect the Health, Safety and Welfare of the public!

Mr. Burmeister, how refreshing it is to read a post that explains, in the simplest terms possible, what it means to be the owner of a professional design firm and what the priorities, not should be, but are if the firm is to succeed in building long-term client relationships and earning a reasonable, professional fee for its 'value-based' services.

There's so much i would like to add to further support your post, but I will limit it to one observation regarding too many of my professional design firm colleagues.  Fully recognizing that none of us ever received any meaningful form of education related to 'running a business' during our undergraduate studies in architecture, it is nonetheless very easy to learn the basics that would assist us in becoming good steward's of the firm's financial resources.  As you said, failing to understand the cost of delivering a project from inception to close-out is a formula for going out of business, eventually.  Understanding the break-even cost of every member of the firm becomes an essential metric in developing the break-even cost of a project fee budget before a proposal is ever tendered to a prospective client. 

If you can effectively estimate the number of hours each project team member will be involved in delivering the basic services called for in the contract, a reasonably reliable break-even cost can be calculated.  Now, all that is left is to add-on the profit.  Be careful in doing the math, too many design professionals use the 'mark-up' approach (x% of the B-E cost) vs. the 'profit margin' approach (x% of the proposed total fee).  There's approx. a 16-20% difference between these two profit percentage calculations.

It is my professional opinion that every professional design firm has 'earned' the right to expect to be paid for the value of its services.  Of course, the fee still needs to be negotiated and if you start with a higher percentage than Realtor's charge, you're likely to negotiate a reasonable profit margin.

Thanks again for a great discussion.
Respectfully,
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Steve L. Wintner, AIA Emeritus
Founder-Principal
Management Consulting Services
The Woodlands, TX 77380-1414

Has anyone been involved in a federal contract where the A/E selection was under the Brooks Act (40 USC 541-544), but the fee was limited to 6% based on 41 USC 254 (b) since the selection was not a "sealed bid" process?   Just read an article on a law suit between NOAA and a firm concerning this fee restriction (http://www.constructionweblinks.com/Resources/Industry_Reports__Newsletters/May_30_2005/sixp.html).

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William Prather AIA
Prather Tucker Associates, Inc.
Springfield IL
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Original Message:
Sent: 01-10-2011 19:32
From: Steve Wintner
Subject: Architecture is a "Value Based" business! Architects designs protect the Health, Safety and Welfare of the public!

Mr. Burmeister, how refreshing it is to read a post that explains, in the simplest terms possible, what it means to be the owner of a professional design firm and what the priorities, not should be, but are if the firm is to succeed in building long-term client relationships and earning a reasonable, professional fee for its 'value-based' services.

There's so much i would like to add to further support your post, but I will limit it to one observation regarding too many of my professional design firm colleagues.  Fully recognizing that none of us ever received any meaningful form of education related to 'running a business' during our undergraduate studies in architecture, it is nonetheless very easy to learn the basics that would assist us in becoming good steward's of the firm's financial resources.  As you said, failing to understand the cost of delivering a project from inception to close-out is a formula for going out of business, eventually.  Understanding the break-even cost of every member of the firm becomes an essential metric in developing the break-even cost of a project fee budget before a proposal is ever tendered to a prospective client. 

If you can effectively estimate the number of hours each project team member will be involved in delivering the basic services called for in the contract, a reasonably reliable break-even cost can be calculated.  Now, all that is left is to add-on the profit.  Be careful in doing the math, too many design professionals use the 'mark-up' approach (x% of the B-E cost) vs. the 'profit margin' approach (x% of the proposed total fee).  There's approx. a 16-20% difference between these two profit percentage calculations.

It is my professional opinion that every professional design firm has 'earned' the right to expect to be paid for the value of its services.  Of course, the fee still needs to be negotiated and if you start with a higher percentage than Realtor's charge, you're likely to negotiate a reasonable profit margin.

Thanks again for a great discussion.
Respectfully,
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Steve L. Wintner, AIA Emeritus
Founder-Principal
Management Consulting Services
The Woodlands, TX 77380-1414