Fee Trends Not Always What You Think

Posted: July 12th, 2010 | Author: James P. Cramer | Filed under: Best Practices, Economy, Leadership, Professional practice, Strategy | Tags: , , , , | 21 Comments »

“Recent interviews and fee negotiations have convinced me that it is a race to the bottom on fees,” a client just told me during a phone conversation. I know this is a very real feeling among many in the design professions. The truth is that it is increasingly common for professional practices to lower their fees to get scarce work. While it is a legitimate business model used to survive the economy, it is not fun. It is often not sustainable, either.

Regrettable quality problems often follow these hastily put together fee models. There are limits to how low fees can go and still serve clients’ needs responsibly. The good news is that there are tools and attitudes to adopt when you find yourself in this situation.

One of the DesignIntelligence benchmarks in real-time productivity, for example, measures best practice revenues per full-time staff. It is currently in the $172,000 range. But some firms are getting that number today. Others are still hovering around $100,000. The difference is in categorical commodity services provided by firms that range from high to low.

Those at the lower ends are feeling more squeezed and threatened. They know that it is difficult to deliver quality results to clients without resources. Moreover, it is common for firm partners to settle on low fees before negotiating tangible benefits to clients. There is measurable value in such overt services as schedule acceleration and reduced risk of project delay, optimal construction sequencing, and reduction in errors resulting in unbudgeted change costs.

The irony here is that fee trends are not always led by clients. Too often it is the practice leaders who panic and forget the value of their services, their brand, and their long-term measurable benefit.