The Interior Designer's Guide to Pricing, Estimating, and Budgeting

Theo Stephen Williams

• Publisher: Allworth
• Year: 2010
• Print ISBN: 9781581157185
• eBook ISBN: 9781581157697
• Topic: Architecture
• Subtopic: Interior Design

This second edition is updated throughout and includes additional material on time management and numerous interviews with leading designers. Empowered by the step-by-step guidance in this book, interior designers will be able to establish prices and budgets that make their clients happy and their businesses profitable. Written by a designer and veteran expert on pricing, estimating, and budgeting systems, the book provides practical guidelines on how to value the cost of designing commercial or residential interiors, from the designer's creative input to the pricing of decorating products and procedures.The book shows how to determine a profitable and fair hourly rate, balance the client's budget with his or her wishes and needs, negotiate prices with suppliers and contractors, write realistic estimates and clear proposals, manage budgets for projects of all sizes and types, and position the firm's brand in relation to its practices. Interviews with experienced interior designers, case studies, and sidebars highlight professional pitfalls and how to master them, from daily crisis management and self-organization to finding the perfect office manager.

1 Why Me?

You’re probably wondering why you picked up this book in the first place. In our industry, pricing, estimating, budgeting, and everything that revolves around those three things, are more than a royal pain—and everyone knows it.

You’ve had the highs of that corporate client who had to get it done and never balked once at your pricing. You didn’t even give him a written estimate. He begged you to just give it to him over the phone. The day of your presentation, he got so excited, he called some of his colleagues in to show off your ideas. You even got paid two weeks after you submitted your invoice. Now, isn’t this how every interior design project turns out? Wrong.

Sure, it might happen every once in a while. But, realistically, this isn’t going to be the norm, even if you are one of those design-firm names seen in every awards annual, industry magazine, and big trade show. Even the award winners and big-name designers have to get down to basics—pricing, estimating, and budgeting.

When I started my own design business in 1983, I truly expected the worst. I sold my car so that I wouldn’t have car payments. I paid off all of my credit cards before quitting my job in anticipation of not being able to make minimum monthly payments. I even went so far as to lie to my parents, telling them that I had gotten laid off so they would feel sorry for me and lend me money if I couldn’t scrape up enough work to feed myself. I moved a twin bed into my bedroom to allow room for a desk, drafting table (this was in the prehistoric pre-computer days), and supplies; a two-bedroom apartment would have been too expensive.

Well, doomsday never arrived. In fact, business was so good that after two short months of paying towing bills due to my “new” used car’s constant breakdowns, I bought a new car. My zero-balance credit cards were once again activated, to the delight of my wardrobe. Exactly one year after breaking free from the entanglements of the corporate ball-and-chain, I bought my own home and created a comfortable studio space to welcome clients and vendors. And I did it all with profit. You can profit too, by establishing guidelines and simple disciplines for yourself that will soon begin ticking like clockwork.

Profit—you’ve got to have it to survive. Sure, you can get by for a while breaking even on jobs. But it won’t be long before you burn out, shrivel up, and change careers. Interior design can and should be a lucrative industry. Just how profitable you are depends on the basics: What are your rates? Are your estimates comprehensive yet concise? Do you have an efficient method of project management? This book will help you answer these questions and give you ways to accomplish the feat of profitability.

Profiting from your interior design business is essential not only for you but also for the entire industry. There are three reasons your business can fail: 1) You don’t have enough sales, 2) You are not charging enough for your services, or 3) You are mismanaging budgets. You are doing a great disservice not only to yourself but also to your colleagues across the nation by not charging your clients enough money for your work in order to be profitable.

Why you? Because you love being an interior designer, you want to be successful, and you know that to achieve the ultimate successes of it all, you’ve got to be a savvy businessperson. And if you’re not the master of the issues detailed in this book, you can forget any business dreams in interior design . . . I hear there’s a burger joint down the street looking for a few good flippers!

The Quintessential Rose-Colored Glasses

I can promise you that the three hardest things you’ll ever do in the business of interior design is figure out how much to charge for your services, how to do an estimate, and how to manage project budgets completely and efficiently. We designers tend to walk around wearing rose-colored glasses, sporting the latest in designer frames, and never even thinking about how much we should charge for our work. Why should we? Our work is cool, and getting into colors and textures is so much fun—someone will pay for it.

There is a stigma in the design world surrounding money issues. Having to deal with them can seem worse than anything you have ever imagined for yourself. But wait! It’s not so bad—really! You can even delegate a lot of it. The truth of the matter is that once you find out how to successfully perform the tasks of pricing, estimating, and managing budgets, you’ll probably want to perform them yourself. There is no greater feeling than taking complete ownership of a project—and that means administratively as well as creatively.

This book is written by the ultimate wearer of those aforementioned rose-colored glasses. So it’s really true—you can have your rosy glasses and your financial acumen, too. Once you are the master of your pricing, budgeting, and estimating destiny, others will want to talk to you about it, they’ll want you to lecture at design conferences, even write books. Because, you see, we’re all so afraid of the subject.

At a recent international design conference, I, along with almost two thousand other designers, sat in a packed conference room listening to three top-notch design-firm owners discuss “the business of interior design.”They all showed their work and discussed, in panel style, how they had obtained the projects and what types of awards they eventually won with them. I found myself getting agitated, because this wasn’t about “business” at all.

Finally, during the Q&A, an astute designer in the audience asked my favorite guy up there (a popular speaker at these conventions), “How much did you charge for the XYZ [not its real name] museum project?” Well, ladies and gentlemen, my favorite Mr. Guru blew it big time. He stuttered and faltered, and from the fortieth row I saw those telltale signs of stress bead onto his forehead. His answer was that “it was proprietary information.” We were all there in that room to learn about the business, and this guy let two thousand people down. During the conference the same person who had asked the question happened to be in my pricing seminar. I had hoped she would be. I answered her question. Of course, I didn’t know for sure how much my colleague had charged his client . . . but I knew how much he should have charged.

I believe that I can draw a pretty unanimous conclusion about interior designers. I have interviewed over a hundred design-firm owners for various articles, books, and other projects, and if my Mr. Guru is any example—as the other interviewees were—we all like making money. We like to spend money. We like to have nice living spaces that look like a photographer could come in at a moment’s notice and take a shot for a home interiors magazine. We like nice clothes and we wear trendy (rose-colored optional) glasses.

But another unanimous conclusion to make is that we don’t like managing and pricing the projects we are lucky enough to obtain. And yet it is absolutely necessary to have a systematic and fearless approach to these tasks. The solution is in these pages. You will find different types of forms, checklists, and tips prescribed from a compilation of ongoing research over the course of my twenty-one-plus years of owning a design business.

Use the appendix of this book as a detailed reference for suggested forms that will help you achieve organizational and administrative efficiency. You will find specific types of forms, such as invoices, estimates, and time sheets, and discover those pages that contain the information you want to study and modify for your own use. This appendix was written by Tad Crawford, author of Business and Legal Forms for Interior Designers. That book contains more substantive, specific forms and includes ready-to-use formats on CD-ROM for your use and personal enhancement (see the selected bibliography).

So, lighten up about the money issues already. Relax, sit back, and enjoy the fruits of your labor even more by learning about new ways to price, estimate, and manage the plethora of projects that are cascading in your direction. Equip yourself now with a highlighter or notepad to create an edited version of this book for your future reference.

Making Your Mark

Your decision about how much to charge for the services you provide is a most significant one. Establishing rates presents many challenges and raises many questions:What is the economy like in your area? What are the average rates now being charged for the services you will provide? Do you want to be on the low end, high end, or in the middle? Ultimately, you will want to set a price that’s high enough to cover your expenses and earn you a profit, and low enough to be competitive for the work you do.

Always think about pricing in direct connection with profit—they really do go hand in hand. Also, be business-minded when you approach this decision. Study your individual situation using the guidelines provided in this chapter. Establish your pricing with self-confidence, and know that this is one area of your business that deserves a little science, math, and introspection. I promise, it’s not as hard as you think.

You’ve heard words like overhead and profit a million times, but when you personally decide to go solo—either by freelancing, setting up a small studio, or hiring a staff—suddenly, these words fall squarely from the skies above onto your vulnerable shoulders. Wouldn’t it be easier if you could look up, see the words coming down, and catch them with ease as they fell your way? Now you can!

Overhead is defined in Webster’s as “of or pertaining to the operating expenses of a business concern.” Many designers refer to it as a mysterious journey into the unknown. Fortunately, you’re not one of those designers. Just being aware of the existence of overhead is enough to get you started thinking a bit differently. Overhead is truly something to embrace with understanding and openness—not to run from in fright or denial. It is the difference between knowing whether you are able to afford the huge loft studio that perfectly reflects the city’s colors beneath you or the small-but-quaint efficiency office with no windows and a copy machine down the hall. More importantly, understanding your own overhead will help you immensely in establishing correct pricing, estimating, and projecting budgets that will make you more profitable!

Making your mark means setting your course, understanding your process and your personal motivations. Maybe money isn’t your number-one goal . . . it seldom is for interior designers. Just know that, in order to maintain a strong professional status in not only your community but also in the global design community, you must develop a process for your business. I hate to use terms like system and business culture, because most people will tell me,“Look, I started my own firm so I wouldn’t have to follow any rules or have any corporate culture.”

My reply is,“Good luck.”Why not create your own unique corporate culture instead?

Understanding Some Accounting Terms

Do yourself a magnanimous favor right now and learn some basic accounting terms. You should have a tax accountant do your taxes for you; if you have employees, you should have a certified public accountant (CPA) or full-service accounting firm helping you. Take your accountant to lunch. Boring? No. For the mere price of a plate of chicken lo mein or pesto vegetarian pizza, your accountant would love to coach you on the basics . . . and the basics are all you need. Words like overhead, assets, liabilities, credits, debits, and depreciation are all important for your knowledge bank. You may understand what they mean generally, but learn to apply their meaning directly to your business.

Use the list provided on page 7 as a guide ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Acknowledgments
• Chapter 1 Why Me?
• Chapter 2 How to Determine Your Hourly Rate
• Chapter 3 Compare and Contrast
• Chapter 4 The Client’s Budget
• Chapter 5 More on Value Rating
• Chapter 6 Fatal Errors
• Chapter 7 Pricing Options
• Chapter 8 The Details on Estimates
• Chapter 9 Proposals
• Chapter 10 Troubleshooting Estimates and Proposals
• Chapter 11 Successfully Establishing and Managing Budgets
• Chapter 12 Negotiating
• Chapter 13 Positioning Your Firm
• Appendix: Business Forms
• Selected Bibliography
• About the Author
• Index
• Book