Transcription
Are you pricing your interior design services correctly? If you're worried that you may be undercharging, you're not sure how to structure your fees, or you're struggling to cover your costs, this video is for you. By the end of this video, you'll know exactly how to set profitable pricing. You'll avoid common pricing mistakes that a lot of designers still do, and you'll know how to structure your fees in a way that allows you to delegate and grow. And I'll also share my pricing calculator for free that allows you to plug in different numbers, and it's going to automatically calculate a few different things that you need to include in your pricing if you want to be profitable.
Let's start with the common pricing mistakes that a lot of designers do that I don't want you to make. The first one is that you're basing your rates on the competition. So, you've done a little bit of research about what other designers in your area do. You want to be competitive, but you have expenses. You have different things that need to be taken into account, and you should spend a little bit of time calculating this before you set your rate at whatever rate the competition is, um, setting for themselves. So, understanding the minimum hourly rate that you need to charge if you want to be profitable is key. And we're going to talk a little bit more about this in this video because I will explain to you how you can figure out your hourly rate, but this is one of the top mistakes is not considering everything before you set your rates apart from looking at what the competition is doing. Also, you know, you could be more expensive than the competition. It depends if you have the same niche or not. But regardless, it's about the value, the worth that you're bringing to a project. So, it's good to have an idea, but you shouldn't base your rate based on what other people are charging.
Mistake number two, and I've seen it firsthand with one of my clients just a week ago, she does not factor in the time that we call non-billable, which is all the admin stuff. It's all these little admin tasks, or writing up a brief for your outsourcing firm. So, in that instance, she was delegating to us, and she needed time to pull together the information and send it in a brief that made sense to the team. And all these hours are not accounted for, which means she's doing all this work for free because she feels bad that she would ask the client to pay for her time to put together the information to delegate, or for doing all these little admin tasks, all the invoicing, all the research. And this is completely wrong. It's part of the project and it should be included in your fee proposal. So, thinking that, no, I can't possibly ask for my client to pay for this is a mindset issue that you need to solve ASAP if you want to have a sustainable business and a business that grows and that will not have to close down, uh, its doors in one year.
Mistake number three, especially if you're starting out, you might be doing this. You're undercharging because you don't want to lose clients. So, imagine someone comes up to you and you're preparing the proposal, but you have this feeling that they will never pay you for the rate that you want to be paid, which is your worth, what you think you're worth. You underestimate or you just lower your fee because you feel like if you keep your normal fee, or the fee that you would like to charge, they will not sign with you. And as a result, it's not highly motivating because you might do this when you get started to be able to gain experience, have a few clients that you can then use as a case study for new, new inquiries that come in. If you keep doing this, you're going to lose motivation because nobody wants to feel like they are paid a fraction of what they should be paid, and your entire business is not going to feel like it's bringing you a lot of joy and motivation if you keep undercharging because one, you're not going to be profitable. So, working 40 hours per week, 50, 60 hours per week on something that is not bringing you money is not motivating. And you can go all in and it's my passion, I'm not in it for the money. If you are doing it and it's literally the hours you would spend on a full-time job, it needs to be profitable. Think about your family, you need to be taking care of them, and you can't be away from them all day long and not make money.
Mistake number four, you don't have a structured pricing model. I know a lot of designers charge hourly. This is not just the issue because when you charge flat fee, you also have to estimate your hours. It's about not having any idea whatsoever of basic budgets for different project types. And if you don't have any idea, your inquiries, your prospect clients don't have any idea, and they most likely will not even want to get to the discovery call if they don't have a basic understanding of your rates. And this could be a minimum budget to be able to work with you on an e-design project, on a, a small consultation project, or a full build. They need to know at least the minimum budget they should be allowing for, because otherwise they're not even going to move to the next step, which is talking to you over a discovery call. So, you're missing out on a lot of opportunities to sign new clients because you're unclear about your pricing model. If you don't price for profit, you're always going to be stuck in a loop of doing everything yourself, and you're never going to be able to scale. And that's what we want to fix in today's video. So, stay tuned and let's get into it.
Okay, in this second part of the video, we're going to do two things. We're going to review the three main pricing models, and then I'm going to help you, I'm going to teach you how you can calculate your hourly rate. I'm going to give you basic ideas of hours for different types of projects, and all of this should help you to have an understanding about what you should allow for in terms of hours for your next project. First thing, we need a pricing structure that is not only going to cover your costs but allow for profit. There are many ways that you can price your services. I'm only going to go over three.
Number one is charging by the hour. I still have a lot of clients charging by the hours. It's fine if it works for your business, but there are a few things that you need to be clear about. First, I would think that hourly rate works best for consultation packages, e-design packages, add-ons, not for full build because when you get into this huge project that also has like site visits, installation, it's going to be a huge project that you probably want to have a flat fee for. Regardless, you need to understand how to estimate hours. And the best way to do that is to track your time on a few projects to understand approximately how long things take. I see a lot of designers who have absolutely no clue how much time tasks really take, and that's why they underestimate because a task that they think might take five hours, in reality, will take them ten hours, which means that they're cutting their hourly rate in half, and they're never going to make profits, or they're never going to be able to delegate because the profit margin now has disappeared. Making sure that you are able to estimate the hours correctly is key. So, the next parts will be really useful for you to see approximately, and those are rough, but I think they will give you a pretty good idea about the hours that you can include for each type of project. But also, as part of our services, we always help our clients making sure that the fee proposals have a scope of work that is accurate, that for each stage of the project, the hours are estimated correctly. So, to be able to help prospect clients, that's mistake number four that I told you about where they have no idea what to expect. If you say for e-design projects, my hourly rate is $150, and the minimum number of hours on this type of project is 10 hours or 15 hours, then it's easy for them to understand what the budget, the minimum budget, is going to be to work with you on any design project. The last thing I want to say about the hourly rate, it seems like a fairly straightforward model. There's one thing though that I do not like about this, is that you're basically telling people that your worth on a project is only measured by time. And the thing about your worth being tracked by time is that you're not really considering the value of the project that you're creating for this family. For example, it's a house that they will be living in for many years to come. And your value, the value of the services that you're providing, shouldn't only be measured by the time you're putting in because otherwise, you could also say, I have been working for 20 years, gaining experience, working on many projects, knowing what mistakes to avoid on site. You have 20 years of experience that are basically condensed in those 20 hours that you're spending on the client. Your worth is all these years that you've gained experience plus the time that you're putting in. So, it's fine if it works for you. Make sure that you calculate the hourly rate so that it makes you profitable in a way that works for you. It's not about the designers next door. It's about you and what you need to one, cover all your costs and be profitable, two, take care of yourself and your family, and make sure that your business can not only survive but thrive.
We're going to move into the flat fee and the fixed package. For the flat fee, you're still going to have to estimate the hours that you're going to be spending on the project, except after that, in the fee proposal, you would deliver one price. Instead of saying that it's going to take you 50 hours, you're just going to say that your rate for this project is X, and this is what's included in the package.
Number three is charging per square meter. It's a popular way of charging for your services. For example, on your website, you could say that full house projects are charged at $200 per square meter, depending on complexity. Again, it's great for large renovations, commercial projects, but what are you going to do if it's a very intricate project? There could be projects where it's quite straightforward and it doesn't require a lot of time spent because it's a fairly simple building and the design proposal is also very simple. But when you get into these very complex projects, you might spend double the time. So, charging per square meter has advantages and disadvantages. You need to see for your business what makes the most sense. And the last thing I, I will say on the pricing models is that you can also use a combination of two. For example, you could start with a flat fee and then you save for additional revisions. So, you have to say what a revision is compared to a full redesign, but for each additional revision, we will be charging by the hour. So, if that comes to that, everything that sits outside the scope of work will be charged hourly at your rate of $150, $180, $200 per hour. It depends on you, but you could do a combination of two of those models. And as I said, even if you charge a flat fee, you need to know your baseline hourly rate to ensure that you're profitable.
How to calculate your rate using the formula that I'm going to, um, post on the screen so that it's easy for you to copy and then you can work on it on your own. It's going to be the expenses plus the salary goal plus the profit margin, all of this in parentheses, divided by the billable hours. This will give you the minimum hourly rate that you need to be profitable. Let's take an example of a calculation for a full-time designer. We're going to, the business expenses are about $5,000 per month. It could include anything. $5,000 is probably on the very higher side, but everything that you have to pay for in terms of softwares, I'm also thinking if you use AutoCAD, everything that you need to pay for in your business, if you have an office, for example, you're going to have to pay rent. All of this needs to be included in your business expenses. So, if you are not spending enough time right now looking at your finances, it's the right time to do so. You need to know what goes out every month and what comes in. And what goes out would usually be quite standard because it's going to be recurring expenses that you have. The, what comes in is going to be a little bit different because it depends obviously on what projects you're going to be working on, but let's have on average a $5,000 per month expenses. Then the desired salary you want to be able to make $10,000 per month. The profit margin, it's always around 20% that you have to account for. Three, that's $3K. Billable hours per month, let's say 80. So, this is after admin, meetings, project management that are factored out, but let's say about 80 hours per month, which is only about 20 hours per week of actual billable hour work. So, if we calculate that, it's $5K + $10K + $3K, all of that divided by 80, and that's $225 per hour. So, if your expenses are lower, you don't need to be making $10,000 per month, all of this, even the profit margin, everything will go down, and your hourly rate will go down. Check with standards. Even if other designers are charging, for example, $150 per hour, you could be charging $180 per hour. It just depends what type of clients you're targeting, what your reputation is like. If you are quite popular in the area, people are keep recommending you, you can charge more. Just use this as a base to understand what is your minimum hourly rate that you need to charge to be able to be profitable and make the money that you want every month. And as I said, the top mistake is that most designers undercharge because they do not count the hours like client emails, admin, and marketing. All of these hours are on, on your own time. They're non-billable. But some of it, like client emails, should be billable. Everything that has to do with the client, you have to account for.
Next step, I will teach you how to price for delegation. Delegation is not an expense. It's an investment. If you want to have a business that is sustainable, profitable, you will need to delegate. Being profitable without having at least one other person, you cannot do everything on your own. There's just too much to handle for one person in a business, and because your skills and time are limited, the quality of the service that you provide will suffer. So, if you want to increase the value, you want to make sure that you have enough time to be a CEO. So, understanding your finances, understanding where you want to be in five years or even six months, uh, having enough time for strategy, you can do all this in as a one-person business. And if you have a family on top, I'm sure you want to spend time with them. So, you're going to have to start delegating. And you need to work on your mindset. You need to see delegation as an investment and not as an expense. But I will show you how you can start delegating by using this formula. Number one, you're going to figure out what tasks you want to outsource. I have a free checklist. I will link it down below that will allow you to understand all the tasks that need to be done in your business. The ones that sit inside your zone of genius, the ones that are too consuming, you don't like doing them, anyone else can do them better, provided that they have the skills and they will do them at a lower hourly rate than yours. All of this, you will delegate or you will eliminate or you will automate them. You will use this checklist to figure out what task can be outsourced. It could be drafting, it could be admin tasks, it could be procurement, it could be install coordination, it could be marketing, whatever it is, you're going to figure out right now what are your priorities in terms of what you want to outsource because you're not willing to do them anymore.
Next, you will need to know the outsourcing costs. So, if you delegated to a team like ours, our hourly rate is $78 per hour, which is still half of what an average designer charging $150 rate is. For all the hours that you delegate to us, you will still make profit because we only charge half of your hourly rate minimum, and you will have freed up all these hours to work on something more valuable, to provide a better service, because you have challenges on a project and need to go to site more often. Whatever it is, you will still make profits on those hours, but you have to be able to estimate them correctly in the first place. It's the same thing as if you were to do the project. If you estimate that the project will only take five hours for a delegating team, but in reality, it's a ten-hour project, you're not going to be able to delegate. So, estimating these hours is as important as estimating the hours if you were to do everything on your own.
Okay, now we're going to move into a quick estimate of hours for different project types. This is a rough estimate, but it might help you save a little bit of time when you're estimating projects. So, if we start with a baseline fee of $150, one e-design and room refresh, those are smaller projects. It could be between 20 and 40 hours, depending on what you do. And if your hourly rate is $150, it's going to be between $3K and $6K. Number two, a mid-size project. So, we're talking one or two rooms. It could sit between 50 and 80 hours, talking about $7,500 all the way to $12,000. Next up is the full residential service, between 80 and 150 hours, so $12,000 to $22,500. And the fourth one is the full home design and project management. And this one can range between 200 to 300 plus hours, sitting between $30,000 and $45,000 plus in terms of fee. As I said, I put together a pricing calculator so you can plug in your numbers, and it's going to automatically calculate based on the percentage that you want to allocate to each phase, how much you should charge per phase of the project, for all the admin tasks relating to that project, for delegating hours. So, if you want to delegate 15% of the entire project, or 20 or 30, this calculator is going to help you find out what you should be charging for your, for a specific type of project. Of course, it's a calculator that gives you great estimates, but then you have to do the work a little bit more in detail as to, you know, outlining all the different phases of the project, understanding what this specific project requires, and then see if those hours need, can be lowered or can need to be higher. When you start working with us as a client, when you start delegating to our team, we will give you a complimentary pricing call with our project manager, so that she can help you either put together packages that will work for your niche, for your services, for your business, or help you with a specific fee proposal, so that we can ensure that you will be profitable even by delegating hours to us. Our top goal is ensuring that you're profitable, that you're not paying out of your own pocket for delegating, that we increase the quality of the work that you're able to produce, and that we free up time so that you can focus on your zone of genius, on the tasks that bring you more joy, and also have more free time to take on more projects so that you can grow your business. That's how you grow a business.
If you want my free calculator, please type in "pricing calculator" in the comments down below. If you enjoyed this video, don't forget to like and subscribe. It helps me create better videos. And you can also tell me what you need to see. What information would be valuable to you at this stage in your business? I'll see you in the next video.