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How – and why – to set the right fees, a practice management webinar

A studio’s basic viability is compromised if fees are pitched wrong, but how can practices get it right? A RIBAJ webinar unravels some knotty issues

In our current economic climate – with volatile market conditions, inflation, high interest rates and tightened margins – fees, and how to pitch them right, have never been more important. Today, architects face a range of unprecedented and specific pressures, from competition, legislation and building regulations changes, rising insurance costs and staff overheads, supply chain problems and even aborted projects – all creating an environment of risk. Technological advancements, such as BIM, drive efficiencies but also prompt clients to expect lower fees.

And ‘fees are an emotive subject,’ observes webinar chair, RIBA publishing director Helen Castle. ‘Getting them right is about so much more than finance.’ Fees affect every area of a practice’s performance: overtime, staff morale and retention, client relationships, securing work, investing in growth and having the time to design better buildings... not to mention that undervaluing services sells the entire profession short. A studio’s basic viability is compromised if fees are pitched wrong. So how can practices get it right?

Perhaps it’s easier to answer this question by looking at how some businesses get it wrong – ‘business’ being the operative word. 'Until you run a business you don’t understand it in real terms,’ says architect Clare Nash, of Clare Nash Architecture, partly because, in her opinion, a lack of relevant modules in architecture courses hinders students at the outset. Indeed, in researching his book, the RIBA’s Good Practice Guide: Fees, Peter Farrall, architect and senior lecturer at University of Liverpool, was dismayed that ‘many firms are putting forward non-viable fees because they have a poor grasp of their own business model and costs’. The concern is mirrored by RIBA past president Jane Duncan, founder of Jane Duncan Architects + Interiors. ‘Business planning, or non-business planning, among architects has been a longstanding concern of mine,’ she says; after conducting two surveys, seven years apart, alarmingly little changed in terms of the number of studios with poor business plans. ‘As a director you have to do both – run a practice and a business,’ she says, and this is why conferences such as RIBA's Guerrilla Tactics exist – to help designers grasp the relevant concepts.

Setting out the working, including meetings, for a small project to enable a thorough calculation of fees. Source: RIBA Good Practice Guide: Fees
Setting out the working, including meetings, for a small project to enable a thorough calculation of fees. Source: RIBA Good Practice Guide: Fees

Now for some practical advice, which this RIBAJ Practice Management webinar roughly channels into four key areas: how to package fees to make them accessible to clients; addressing the relationship between fees and billable hours; reviewing fees in the context of the business plan; and the role of fees within the holistic business.

There are several ways of charging for work. A percentage fee; a lump-sum/fixed-fee; and a time charge/cost-reimbursement. While each of these methods has its place, a decision on which is most appropriate should depend on an assessment of resources, as well as an understanding of historic or published benchmark data, and the dynamics of the client relationship vis-a-vis the project requirements. Time charge, for instance, entails a cost ceiling, and will necessitate consistent communication with clients before these are breached.

‘Your appointment document is the datum against which your fee and your services and your outputs are measured but it needs to be seen in the context of the procurement route which is not always evident at the outset,’ Farrall explains. Given that each procurement route has different challenges, which dramatically affect fees, it is important to state certain assumptions at a very early stage. Farrall also advises framing the fee proposal in the context of the RIBA Plan of Work 2020, using this to outline candidly where expertise and time will be devoted. At an early juncture, Stage 2 can be ’a useful stopping off point to review the scope and the fee once the project is better defined’, he says. Feasibility studies are a good means of gaining client confidence while establishing the viability of projects before committing to a fee, he advises. And in relationships with contractors, clarifying the responsibility matrix is highly important, to establish roles and how to charge accordingly.

Nash’s practice, whose projects are primarily private residential, have devised their own tailored Plan of Work, using ‘lay-person terminology’ to offer clarity to clients. This sets out what the home-owner gains in each stage, she says, ‘because clients like to know what is coming and when’. Fees are generally fixed, with additional work charged hourly. Duncan’s approach is to eschew the percentage fee altogether: ‘It seemed fairer and we seemed to have the sort of clientele who were much happier to see that we were giving our time and explaining what the time was for.’

Indeed, at the basic level, ‘what you are selling is a piece of time’ says Damiaan van Zanen, head of partnerships at Total Synergy. Understanding the maths behind what makes a business profitable, or merely breaking even, is pretty fundamental. Farrell outlined in his presentation a series of analogue calculations, which can be used to determine staff hourly charge-out rates to arrive at a desired profit margin. This was elaborated further by van Zanen, whose role is to help practices make sense of their data with technology to deliver more profitable projects. Total Synergy helps users understand costs, set the right rates, build fees, assess performance and iterate for future projects. Such software can be used to connect staff salaries, overheads, billable hours and profit targets, with key metrics aligned to the Plan of Work if desired, resulting in accurate calculations. Van Zanen typically works alongside architects and engineers, and the latter are ‘more analytic and scientific in approach’ to their fees, he observes. Adopting a similarly objective attitude can help architects manage fees with confidence.

Of course, ‘there’s no point in having all the data unless you do something with it,’ says Duncan, who advocates for a regular (in her case, monthly) review of how the business is performing. For Nimi Attanayake, director of NimTim Architects, monitoring business performance, understanding base costs and break-even points, led the practice to make several key decisions about the affordability of entering competitions, although she acknowledges that it is in the lucky position to be able to only take on invited competitions. The practice was also recently awarded two contracts within the London Mayor’s Framework where practices must bid to be on the framework before bidding against other practices within it. The risk that the practice took here was only made possible by understanding the financial impact of taking the hit. Knowing what you are going into, she argues, is key to success or failure. ‘You may make the decision to take the hit but not see the return until 5-10 year’s time... unless you have gone in with your eyes open, able to withstand it as a business, it will fail.’ Sometimes a practice simply has to turn work down – always difficult when a design challenge seems creatively appealing.

Another important stance that Attanayake takes is to be transparent with her staff about salaries, to involve them in invoicing, and to hold regular meetings to help staff improve efficiencies. Involving employees in the business has the benefit of sharing responsibilities and creating a culture of learning and openness.

Understanding your business is critical to setting fees.
Understanding your business is critical to setting fees. Credit: Shuttershock

Duncan takes a similar viewpoint, with a no-overtime policy in her practice; this not only helps maintain work-life-balance, which in turn helps diversity, but ensures that people understand the time taken on jobs. She also advocates teaching younger members of staff and students about the business management side, as well as seeking out a mentor who can help give advice in this thorny area.

Nash’s business model is likewise geared around a wholesome work-life balance to ensure staff wellbeing, and she observes that female architects in particular, are increasingly opening up about the pressures faced at work, ‘being more honest about what is going on behind the scenes’. Rather than being cagey towards competitors, she recommends networking with other businesses to promote more transparency around fees, including learning from other non-architecture but local businesses. Van Zanen notes that Total Synergy’s online community of software users has evolved over time as practitioners use it to solve business problems together, further suggesting a move towards co-operation. As for Attanayake, she too notes that the collaboration groups which her practice set up in their early days are still sharing information with each other with beneficial outcomes for the business: ‘It is historic that architects are siloed and protective,’ she says. ‘Businesses need to be nimble for longevity.’ Finally, as a Part 3 examiner, privy to plenty of ‘gory details’ of practice management, Farrall too believes there is an improvement in recent years in terms of openness and resourcefulness from practices, which in turn helps maintain professional standards and consistency where fees are concerned.

To end on a positive note, as Farrell sums up: ‘Understand why you are in business and value your skills.’

 


This RIBAJ event was produced in association with Total Synergy

 

Take-home messages

  • Architecture has a culture of low fees compared to many other professions. Have the confidence to talk money with client to be part of a culture change.
  • Be clear on your business model and the type of work you want to be involved in; don't let a lack of understanding of your own financial position be the reason you are taking on or turning down projects. 
  • Remember, fees are often inversely proportional to the amount of overtime demanded of staff. Think carefully about this correlation and the strains it places on those around you. It's your responsibility not to undervalue your own work.

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