I’ve heard a lot of debate lately on blog sites and trade magazines like LinkedIn, K+BB and KBDN over whether to charge clients retainers and design fees or not. It seems that in this economy, many cabinet dealerships do not do so because they are afraid of loosing projects to competitors who don’t. Even worse, competitors are willing to reimburse clients for the retainers you’ve charged just to steal their business (and your plans) away.
Whether you choose to openly charge clients directly for design or bury the costs in product prices, design expenses are being addressed somewhere in order to make your business profitable. Like it or not, design is a key component in the process of selling cabinetry and it is a cost of doing business that can’t be ignored. Should you choose not to address design expense with your clients, you can expect the following:
- The quote for your cabinets will likely be higher than those of your competitors who separate design and product quotes. Clients are “shopping” more than ever before due to the economy and internet savvy. Clients do not just “know” when your quote for cabinets includes the cost of doing business and the competitive quote is just for product because you haven’t spelled it out.
- Your closing ratio will be significantly diminished because clients have no vested interest in the design process and will happily take your drawings and quotes to competitors. When you don’t charge for design, it sends a message that it is without value. So why should they respect your work or that of your design staff? You don’t.
- You will have difficulty maintaining design staff, particularly those who are “commission only” because they will be spinning their wheels creating designs and quotes just to see them go to the competition. If they are salaried, you will have little justification to keep them employed when they can’t close sales.
- Your company’s reputation suffers when your focus is entirely on the bottom line and not the quality of your services. If you are not giving sufficient care to the very-detailed process of designing kitchens and baths, you can expect the eventual backlash from mistakes. Clients are more likely to share their bad experiences than good ones with everyone they know.
So if you are not currently charging a retainer or design fee but would like to give it a try, how do you determine what to charge? There are a few ways:
- Do a little market research and see what and how others are charging in your market area. Attend a local NKBA meeting (you don’t have to be a member to attend, but it cost a little more) and ask some of the other attendees. You might also join some social network sites like LinkedIn and Facebook or user’s group sites like those available for 20-20 Design, Chief Architect’s “Chieftalk” or Google Sketchup where there are several discussions among industry colleagues on the topic.
- Determine your actual design expense. If you’ve been in business for awhile, you’ll have some basis to determine the average time it takes to create the design and quote –including time spent at measuring appointments, at the drawing table or computer drafting plans (which might include outsourcing design services to someone like me), materials and resources used to create presentations, etc. Don’t forget to estimate typical change orders within the design process from the initial presentation to the time an order gets placed.
- Decide which process will work best for your business model. There are several ways to charge retainers or design fees. Some charge a flat fee, some charge a percentage of the estimated price of the project and others use a sliding scale that is relative to the size of the project. Some fees are based on the relationship with the client such as might be differentiated between builders with whom they’ve built a relationship with and homeowners that they expect to work with one time only. You might discover that design is not just a cost of doing business but might actually be a profit center.
How do you protect your work from going to your competitors? In this highly competitive marketplace, you need to ensure your work is not compromised even when clients are paying you a retainer or design fee. Along with charging fees, there are usually agreements created with verbiage that is intended to prohibit clients from sharing your work with competitors. This is not to be confused with intellectual property rights for designers which are implied. Even so, most people are not aware of such laws and assume that once they have your paperwork in their hands it’s theirs to do with as they wish. It’s easy for clients to overlook the small print and give your drawings and quotes to competitors –especially when they are offering to pay for them. So it is necessary to determine a deposit on the retainer that should be collected before any work is done or any drawings or quotes are given out. This deposit should be large enough to make ‘selling’ your work prohibitive.
While collecting a deposit might scare off some potential clients, you will ultimately find that it is a great “qualifying tool.” By eliminating or reducing time spent with look y-loos, you and your staff will have the extra time and resources you need to concentrate on developing new business, supervise existing projects, and taking care of your existing clients. Thus, you can ensure greater attention to details and eliminate costly mistakes, wasted time and resources.
Now is the perfect time to kick off the New Year with a way of doing business that is profitable and rewarding. Start taking a serious look at your design services. Si se puede!