by Michael Strogoff, AIA

In a recent article, “Watch Your Project Schedules to Maximize Profitability,” author Norman Rosenfeld, FAIA, provides some excellent advice about developing and monitoring project schedules. He also offers good insights about the dilemma architects face when they exceed their project budgets but still need to satisfy clients’ expectations. The author also correctly points out the importance of knowing how much effort similar previous projects have required to evaluate future fees.

In my opinion, the article also contains some dangerous assumptions. The first, that architects should base their fees on the amount of time required to successfully deliver a project, can undervalue the contributions that architects make and puts the profession at risk. When I present seminars and training programs on negotiating value-based fees, I ask how many architects think that they can, within any degree of accuracy, anticipate how much time a project will require. Of the thousands of architects whom I have polled, fewer than a dozen have raised their hands. Rosenfeld and the people in his firm have had many years of experience. And he probably would agree with what I’m about to share. His deep understanding of nuance, however, is not that of his audience—much younger architects and emerging professionals. A finer point needs to be put on this topic for their benefit.

I find that most architects resort to negotiating fees based on the anticipated time expenditure. For many, that can be hard to do realistically. Furthermore, to engage a client, who will likely know even less about the intricacies and demands of architectural practice, in a dialogue about the projected hours, can be problematic.

The second faulty assumption is that the value to a client of an architect’s services is necessarily based on the time required to deliver a project. Whether it takes your team 100 or 1,000 hours to complete a project is far less important to a client than the amount of creativity, innovation, leadership, technical knowledge, and business acumen you bring; the level of service and responsiveness you provide; and the results the client receives. In this era of rapidly rising construction costs and interest rates, one could argue that architects who deliver projects more quickly provide greater value to their clients.

Citing projected results—not projected hours
In my opinion, negotiating fees that are commensurate with the value an architect provides requires a different frame of mind. First, view your fees in terms of the talents and experience, judgment, and skills you have obtained over years, or decades, of practice. Then find a compelling way to tell your clients what types of results they can expect from hiring you. For example:

Here’s what you can expect from our involvement: an image that captures your distinct identity; a palette of colors and finishes that creates a buzz every time a customer enters your store; a lighting system that uses up to 40 percent less energy than your existing system; and a level of service and responsiveness that makes you feel that you are our only client.

Notice how this statement stops short of making specific promises but is far more compelling than:

Our fees are based on the following tasks: select finishes and colors—12 hours; develop conceptual design alternatives (maximum of 3)—40 hours; specify lighting system—16 hours; weekly meetings—120 hours.

With owners such as retail clients and developers, whose benefits are directly linked to financial outcomes, tie the marginal costs of higher fees to the added results they can expect:

We recently completed a study of the last 15 retail stores we designed and that have been open for at least one year. One of the most interesting findings was the correlation between store revenues and our fees. The owners who paid us the highest fees and spent the most on construction ended up with the highest sales per square foot. When we talked to these owners, the consensus was that the last 20 percent or so of fees they paid—their marginal costs—yielded the highest return on their investments.

Even with owners whose building types are not ordinarily thought of as investments, such as educational facilities, libraries, or custom homes, discuss the relationship between your fees and the value they are likely to receive. Here are some examples of the types of results that owners value.

• A housing developer builds four more units than envisioned after an architect gains zoning approval for subdividing a parcel into 12 lots.
• A manufacturing company saves 18 percent of its energy costs—more than $140,000 per year—after an A/E team designs a new energy-efficient cooling system and specifies a new heating control and monitoring system.
• A research facility is funded almost entirely from contributions after the research institute features models and renderings of its architect’s innovative design in its fundraising efforts.
• Employee sick leave and absenteeism decrease 8 percent after a client company moves into a newly designed LEED®-certified building.
• An environmentalist and his family move into a design award-winning house that incorporates innovative sustainable features including a heating and cooling system that uses no fossil fuels.
• Following an extensive and dramatic remodel, a retail store receives widespread publicity and outperforms its competition in sales per square foot.
• Change orders on a $28 million remodel of a city hall are less than 1 percent after an A/E team painstakingly documents existing conditions as part of their construction documents.
• Voters overwhelmingly approve a bond issue for a new school after the school district’s architect makes a series of public presentations about the district’s 20-year masterplan.
• All 240 homes in a planned unit development are pre-sold within two weeks after the model home opens to the public.

By citing recent results and discussing value from your client’s point of view, you can transform the client’s perspective and justify fees commensurate with your value. If a client starts comparing your fees against fees that other firms charge, try responding by:

1. Acknowledging that your fees are more expensive
2. Attributing the higher fees to the level of staff and depth of experience you will assign to your client’s project
3. Guiding the discussion back to your project approach, the level of service you provide, your specialized experience, and the results you have helped other clients achieve. The goal is to get clients to view your fees as an investment, not as a cost.

The bottom line
The value of architectural services is solely in the eyes of the beholder (i.e., your client). So why base fees on your projected costs or on a specific profit target? The approximate number of hours a project will require tells you only the minimum fee that you should be charge, but it tells you—and your clients—nothing about your worth.

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