Setting The Design Fee

by Austen Miller on September 5, 2010

Bargain, or Negotiated Nightmare?

I am not sure if its experience, or as you get older you get a little bit more cash in your pocket, but I no longer look for the cheapest deal. I don’t like the moment you discover why it was the price it was.

The same is true of anything you buy and that includes design. The difficulty with design and development costs is that most people don’t know how much they should be paying.

What we all tend to do in these situations is get a number of quotes in and see.

We learn to be suspicious of the cheapest, so we consider that one as a measure and the most expensive as having probably put too much on top. Crudely, we form a judgement from the range of bottom lines in the quote as to where the appropriate value should be. If we negotiate for the design firm we liked the most, to be nearest the value that we deem as fair, then we are done.

Or are we?

Competition should always make design firms consider their costs and margins, and this is no bad thing, but when negotiation is only about the bottom line, the pressure of winning business can end up putting pressure on your project.

If a design firm wants to win the business they may choose to drop their prices just to win, and let’s not pretend negotiation doesn’t play to the fact that we all like to win.

If they think that you are guided by price, then they may hope for the most optimistic schedule in order they can subscribe to the demands.

But design is a process and it’s not always without problems. Even if they put caveats in the proposal, the bottom line is clients don’t like costs moving. They find it difficult to recognise when it is added value to the project, or just the designer wanting more money because he didn’t get it right first time.

Be warned, design fees are largely time based, so in order to make up for the missing funds something has to shift. And it’s not always apparent by the quality of service a client is getting.

There are 3 remedies to this very common reason for failed relationships and problematic development schedules.

1. Choose a design firm based on whether you can work with them. Then work with them to find a programme and costs that suit your project.  If you haven’t done it already, find the value that you are prepared to put on having them on board. The most robust approach to putting a value on it is to look at the net profit that the product is going to get you. This is very likely going to mean projecting the sales figures and setting the targets for all the costs. But in the end you will have a good idea what level of design is appropriate.

2. Engage the design firm on a financial reward deal. This can take many forms; the most common of these being royalty deals. The designer takes a percentage of net sales value for undertaking unpaid work.

3. The last, is probably the one that is the most commercially savvy for both parties. Instead of paying for every bit of work as it is done, the design company is motivated to deliver the product as a manufactured item at an agreeable price. This, one of the most contemporary business models, has proved to be a very efficient partnership for a number of very successful companies. It is a comprehensive package that currently very few design firms are able to offer but is very much regarded as the future for new product developments.

 

About the author – Austen Miller is Senior Partner of 3form Design

{ 5 comments… read them below or add one }

Konradt hugo-langerman September 5, 2011 at 7:18 pm

Thank you very much, this is very helpfull.

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Tom Reynolds September 6, 2011 at 8:24 am

There are some very interesting points made in this article, clients will always ask for the cost of a project before they proceed with a particular company which leaves the designers generating forecasts for the time and amount of work the project will require to complete – which in turn is created into a proposal of work/quote.

To establish a project cost that is both cost effcetive for the designers and the client is a worthy business skill, a client never wants to feel that they are being ripped off and the designers need to pay their overheads (and eat).

Obviosuly the larger consultancies have the portfolio/reputation to charge a price of their demand (but still not without a consultation of the clients budget). With smaller consultancies it is often a fine balancing act of finding a ‘median’ point between the consultants and the clients idea of how much the project should cost.

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Austen Miller September 6, 2011 at 2:19 pm

IP is a huge issue and it needs to be discussed early in the negotiations to make sure everyone understands. Austen will publish another article on this shortly.

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Mike Loh September 7, 2011 at 1:21 am

Fast, Cheap or Good: Choose 2. Get real folks

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material handling equipments October 14, 2011 at 10:33 am

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