Pricing Strategy for Interior Designers
Most interior designers are tight-lipped about how much they earn and how they charge their clients. Your design fee and overall pricing are a topic of contention amongst your peers. Unlike most other markets, an interior designer’s pricing strategy is not subject to any regulatory body applying a floor or a ceiling price. It, therefore, allows volatility across the board in the way interior designers charge.
When you are a professional, there are two ways you can make money – you can either charge cheap and do a lot of work, or you can do limited work but charge as per your worth. Even though you can have your reasons behind choosing either of these, and we are not criticizing you for either, there is a need to have a stable and transparent pricing strategy. It will not only help you communicate it better, but it will also eliminate any sense of ambiguity when you work with any of your interior design clients.
For example, if you think from a potential client’s perspective, they won’t mind shelling some extra dollars if you are good at what you do, but if they find your pricing or fee schedule confusing, there is a high chance they will be reluctant in working with you and allowing you to showcase your talent.
So if you, too, like so many others in this profession, are struggling to get your pricing right, you should check the free learning modules on Foyr Community. The Foyr Community courses on pricing your services curated by experienced design entrepreneurs Lesley Myrick and Michelle Lynne can help you recalibrate your pricing strategy. The courses address the issue of pricing interior design services for businesses both at Start-up and Growth stages.
Proceed with this guide once you’re done watching the lesson videos. It will further help you understand the various aspects of pricing and provide you with some tips that we think you may find helpful.
Read also – How Much Do Interior Designers Make?
Fee Schedule Meaning
A fee schedule is a list of fees you entail your interior design clients. It encompasses all the costing elements you pass on to your clients while working with them. In most cases, it directly depends on the level of intricacy and the experience you have in the interior designing landscape. Irrespective of what affects your fee schedule, it is imperative to understand that it will help you make or break your business.
Be it a few dollars to thousands of dollars, clients are looking to get the most of their money, and you should be diligent in choosing an appropriate fee schedule structure for your interior designing commercial projects.
Read also – Interior Design Fees
5 Most Common Pricing Strategies Used By Interior Decorators:
Having a clear and well-established pricing strategy entails a host of benefits. But how do you want to charge your clients? Do you think a per-hour interior design fee suits your work, or are you a lazy person finding it more suitable to charge per project?
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There are ‘n’ number of ways you can charge for your services. But it is requisite to ensure that the model you choose sounds right for the client too and they are willing to accept the same. So here are the best pricing strategies for interior design businesses
1. By the hour
Having an hourly fee is one of the most common fee structures followed by interior designers. However, it is vital to keep track of every minute you spend on a project when you choose to have a per-hour rate. So while selecting an appropriate fee, it is requisite to have a rundown of the cost elements involved and how many hours you invest and charge accordingly.
It can be a daunting task to ascertain an hourly billing, but here is a simple formula to calculate it
- Add up your monthly/expected project costs and divide them by the number of hours you work for it. For example, you expect to spend around 40 hours on a project. If you include all the expenses, such as lease, advertising, supplies, and salaries, you think that it will come up to USD 2,000. So you divide USD 2,000 by 40 and reach a break-even figure of USD 50 per hour.
- Now we do business to make money. So we need to ascertain an appropriate profit margin, say 40%. Add it to the break-even cost.
- So your hourly rate will stand at USD (50 + 40% of 50), i.e. USD 70 per hour.
- Do not forget to add the time you spend discussing the project with the client, such as initial consultation, shopping, and periodic calls.
But we suggest newbies stay away from charging hourly. If a project is intricate, only an experienced interior design professional would be able to ascertain an approximate time required to complete it. In such cases, a beginner can end up placing a wrong bet and losing significant money.
2. Flat Fee
Choosing a flat fee is one of the best pricing strategies for newbies but works well for seasoned campaigners too. Also known as design fee or fixed rate, it is the rate you quote for your interior designing service without breaking down the cost elements or the hours you will spend on a project.
It helps eliminate ambiguity and ensures a stress-free experience for both parties. With the client knowing how much they will have to pay for the project upfront, they can gauge the feasibility factor from their end. In addition, there would be no worries of overcharging or undercharging.
As for the interior design professional, make sure you are adding buffers (or contingency) to the overall cost to ensure you can manage any unwanted issues cropping up without losing money.
The cost-plus pricing strategy is one of the most clutter-free ways of charging money for interior designing services. Here, an interior designer informs their client of the fee they charge, say 30%. So the client is liable to pay all the costs the project entails plus the additional markup to you.
4. Square footage
In a square footage contract, the interior designer charges money based on the total square foot area involved in the project. Here, you are required to anticipate the total costs allocated to a project, add a markup and an additional contingency reserve. Then, divide the final amount with the total square foot involved in the task. Square footage is mostly found in high-end commercial project contracts.
The percentage fee structure enables an interior designer to get recurring revenues in projects expected to take a long time to complete. Here you calculate the project’s total budget and choose a percentage upfront (up to 30%, usually) for every period. It would require you to develop a budget and then develop a feasible percentage structure to ensure regular inflows.
Read also – Guide To Building A Strong Interior Design Brand
10 Tips To Choosing The Best Pricing Strategy For Interior Design Businesses:
It is imperative to understand that having a set pricing module is key to not only retain clients but also ensure that you won’t lose money as a professional. But for you to choose the proper structure, you will have to garner an understanding of a lot of factors surrounding the interior designing business.
So here are 10 tips we expect would help you in choosing the right pricing strategy for your interior design business
1. Understand your customers
The first step to pricing for interior designers is to ascertain how you are providing value to your customers from their perspective. If they do not perceive your service valuable, choosing a flat fee or a cost-plus strategy would bode well for your business. In addition, understand the kind of customers you want to cater to with your services.
For example, if you are catering to premium customers, you can choose to charge high, and they would be willing to give you a premium if they like your work.
2. Understand your goals
Every business should have goals, short, medium, and long-term. A pricing strategy should be in alignment with the kind of goals you have for your business. For example, if your aim is to serve more customers and garner maximum customers, you are better off charging a low price for your services.
3. Conduct thorough research
If you are uncertain about which pricing strategy is the best, you can conduct market research. Start by visiting your target locations and understand the pricing followed by your competitors operating in those areas. Then understand the kind of value they are able to provide.
In addition, you can conduct some minuscule surveys to understand the rates your target customers are willing to pay for the kind of service you are looking to provide. It would give you insights into their thought process and enable you to establish a pricing strategy that would work for both parties.
4. Understand who you are competing against
Pricing is often determined by your competition. For example, Apple operates in the premium sector and commands a premium that most of its peers cannot. Similarly, there are several others that focus on the budget sector and provide their services at minimal profits.
While you need to be flexible with your pricing, the key is to understand the competition and then judge if there is a need to undercut them or if your TG would happily pay a premium.
5. Determine your USP
Mr. X operates in the European market but excels at Asian interior know-how most of his competition has no idea of. In such a case, he has a niche market because of his USP. Similarly, every business has its share of USPs, and they are key factors while determining a feasible pricing strategy.
If you look around, there will always be competition, but they won’t do things the way you can. It would ensure your clientele gleefully pay you the price you demand.
6. Market penetration strategy
If you are in a densely competed market, it is requisite for you to have a market share first and then demand the pricing you feel you deserve. In such scenarios, it would be feasible to start at lower prices, i.e., at cost or close. Once you think you have been able to garner a fair share, you can gradually start increasing your profit margins.
Read also – Marketing Strategies for Interior Designers
7. Understand customer lifetime value
While it is critical to make money in the short run, it is imperative for an interior designer to think long term and gauge the potential customer lifetime value. If you believe that the customer has the potential to be your long-term partner, you can entail them special trade discounts to ensure they stay with your interior design firm.
Read also – How To Start An E-Design Business?
Image Credit: pexels.com
8. Good, better, best pricing
When you are entering a new market, following the good, better, best pricing would bode well for your penetration endeavors. Also known as tiered pricing or price bracketing, it allows customers to choose between different packages according to their needs.
For example, you can introduce a basic package for USD 50 per hour, a standard package for USD 75 per hour, and a premium package for USD 120 per hour. Make sure there is a perceptible difference between them, but give customers some value according to the money they are willing to spend.
9. Psychological pricing
Customers are more likely to buy something priced a few cents lower than a whole number in many cases. It works for all businesses, and there is no reason for it not to work in the interior designing landscape. For example, if you plan to charge USD 50 per hour, you can instead charge USD 49.99 hourly. There are more chances of the latter being more attractive and will help you garner more clients.
Read also – Best Interior Design Communities
10. Follow value-based pricing
Value-based pricing is one of the easiest ways to find new customers in any business. If you decide your pricing based on how your customers perceive it, you are more likely to find a handful of regular customers. It also allows you to re-engage your markups timely to ensure long-term success and a pricing model considered feasible for your potential customers.
Remember, you are running a business. You need profits but not at the cost of losing your customers.
Pricing for interior designers is like a two-edged sword. It can help you make or break your business. For example, when interior designer starts their small business, they often have the urge to offer trade discounts to woo their customers. But it is imperative to understand that if you are cutting down your hourly fee or flat rate, it can affect your revenues significantly.
Another side of the picture is if you deem your skills too high and end up charging a lot more than feasible, there is a high chance of you finding it difficult to find customers.
So it is imperative for you to figure out a pricing model that customers would be happy with and that enables you to scale in the long run. You should also try and find out how other interior designers at your stage are deciding their prices.
A membership in Foyr Community, the ultimate network for professional interior designers, can help you get in touch with others in the business. Foyr Community members can interact, ask questions, seek expert advice, collaborate, and even search for interior design jobs. Foyr also hosts live Q&A sessions and webinars with industry experts regularly.
The free Foyr Community courses curated by professional interior designers can help you become a better designer and run your business efficiently. The learning videos cover a wide range of topics related to the interior design industry – from getting your early clients to fixing your pricing strategy.
Sign up for your free Foyr Community membership today.