Fee market

Working out how much to charge a client is one of the most sensitive areas of the design industry. Jane Lewis looks into some of the pitfalls and examines the merits of finding a consistent formula for job costing.

Gathering information for Design Week’s first fee survey was like prising open a safe. We may as well have asked for personal bank statements judging by the reaction of some consultancies. But the delve into the sensitive subject of who charges how much for what has thrown up some interesting results and approaches. It’s still a jungle out there, but designers are regaining the confidence to charge realistic rates for their services and fees are edging up.

“One of the most difficult areas of design is knowing how much to charge,” says Richard Watson, director of client advisory group GDR. “The reality is fees can be as cheap as you want because there’s always someone out there prepared to do it for nothing.”

Perhaps because of the diverse nature of design, the industry has suffered from a lack of guidance or inherent methodology for working out what to charge. Architects are used to basing fees on a percentage of the total cost of a project and advertising agencies have traditionally worked out fees on a commission basis. Faced with a void, most designers tend to work out charges based on time costs, ie how long they think it will take them to do a job, multiplied by an hourly or daily rate, but, as Watson suggests, this involves “an awful lot of guesswork”.

It also doesn’t always account for the increasing amount of strategic work consultancies undertake. According to design management consultant Shan Preddy, contrary to always

basing quotes on time costs, designers should aim to charge what they are worth. “It’s a great shame that designers tend to sell design on an hourly rather than a value basis. I would like to see more consultancies working it out from the effect they will have on a client’s business.”

Ian Cochrane, who runs strategic management consultancy Tice Group, agrees. “I pay my solicitor 100 per hour. Designers should be charging much more than that because they’re making a big difference to the competitiveness of a client’s business,” he says.

Yet most designers do not charge more than that. Average hourly rates for London consultancies range from between 60 for junior staff to 120 for creative directors and senior management, estimates Watson. And he suggests regional consultancies can work out at up to 25 per cent less than their London rivals.

Management consultant David Jebb, whose company has produced reports on design fees for the past six years, points out there are “substantial regional variations” in terms of fees. “People away from London generally have lower wage costs and overheads, but gross income is less per employee because they get a lower fee income,” he claims. Smaller consultancies, those with nine or less staff, also earn less per employee than groups with 50 or more people, and, by discipline, product designers charge less per hour. “But they work on longer assignments, so over a week or month they get as much fee income as anyone else,” adds Jebb.

He has noticed a growing divulgence between design groups offering strategic thinking and charging what they believe a job is worth, and those which charge on a time and materials basis. “There’s an awful myth that everybody is wonderful and that’s rubbish. The ones that don’t make much money don’t because their work is not worth much.”

Fees are also dictated by the type of project, the type of client and budget size. Although there is no uniform formula for calculating the value of design, there are unspoken rules for specific disciplines. Retailers commissioning own-brand packaging often operate a matrix of fixed costs, interiors projects are frequently based on a percentage of the total project cost and product designers often work on a royalty basis, though few would be foolish enough to do that without also charging some sort of design fee. But despite these unspoken rules, there is still a huge amount of variation. “At the bottom line, clients don’t understand how fees are worked out. Why is it some companies charge 10 000 and others 1000 for something which, on the face of it, looks like the same product? What clients are paying for are the skills,” says Ian McAllister, chief executive of the MCA Group, which sometimes charges clients on a “results basis” in addition to a design fee.

Although Cochrane believes consultancies charge “what they think they can get away with”, he says there is “a lot of naivety out there”. He claims many designers don’t take internal costs or changes to the brief into account when working out quotes. “I’m amazed at how many don’t put in provisions for changes to the brief. They’re scared to do it, but could end up losing on the job. It’s a discipline for clients not to keep changing their minds.”

Although clients may say they are not driven by price, in reality it would be rare to find one who wasn’t influenced by design costs. “Clients generally ask for fees and often it sways them a bit, but it shouldn’t be like that. Most designers are flexible about price so it shouldn’t be a determinant,” states Watson.

But clients don’t want to be kept in the dark and the ultimate sin, as obvious as it may sound, is presenting a bill at the end which is higher than the client expected. Not surprisingly, they don’t like paying for hidden charges. “I want to know what the costs are as we go along without it sounding like ‘if you do that it’ll cost you’, but making it clear that something might be an extra cost to what was quoted,” says Lyn Ashby, who works as a consultant at Boots Healthcare International. “They should break charges down as much as possible and not just say the final price is this,” agrees Maryam Bazargan, product manager at Gemstar Europe.

McAllister believes the Design Business Association should have more teeth when it comes to fees and issues such as free-pitching. “We need some kind of uniformity, we should be creating a charter. If something’s free you don’t value it,” he claims. Watson would also like to see a more consistent way of costing jobs and suggests some sort of form produced by the DBA would help both designers and clients without spelling out what the price should be.

The DBA runs professional practice courses which cover how to charge and also conducts an annual survey of charge-out rates, but this is only available to DBA members. It could not lay down definitive fee levels as this would be seen as a restrictive practice, as the Royal Institute of British Architects discovered in the past. The RIBA does, however, still publish guidelines and ball-park figures for different types of projects.

Advertising agencies have traditionally been paid on a commission basis according to media spend, where 15 per cent is handed back to agencies. But Nick Phillips, director-general of the Institute of Practitioners in Advertising, says there is a move towards charging fees. “There’s a bit of a hotch potch with some agencies on commission, some on fees, and, indeed, some on strange hybrids which are part both. From a financial point of view a reasonable objective is to make a 20 per cent margin.”

Whatever the mystique behind design fees, the aim should be the same – to make a decent margin. Cochrane is staggered that there are some consultancies which make money on the mark-up of bought-in costs and not on fees. “They are not selling their time, which is why free-pitching is so prevalent. The biggest problem is they don’t value their time, and if they don’t value it, they don’t spend it the right way.”

Jebb, who believes fee levels have increased over the past year, says at the very least factors such as time and material costs, what the budget is or the client is prepared to pay, and margins made on past jobs should be taken into account when calculating fees.

Designers shy of revealing their fees should prepare themselves for a major initiative planned by the Chartered Society of Designers with the Design Council, DBA and Business Links to launch a database of design expertise which will be available on the Internet. “We will be asking consultancies to give their fee rates,” says CSD development director Jane Clarke. “It’s more than just a directory of visuals and addresses, it will be a whole database. The point of it is to give as much information as possible to allow design buyers to make a choice.” No doubt price will play a crucial role.

PACKAGING

Packaging is one of the more lucrative areas of design, certainly for branded products. Clients often require a more strategic approach and some have generous budgets to spend. However there is a divide between branded and own-brand. The supermarkets often operate a price matrix which dictates fee levels for specific projects, and there are tales of designers adding a nought to concepts for a branded range as opposed to an own-label one.

Leeds-based Elmwood has built up a strong reputation for packaging. Interestingly, chairman Jonathan Sands claims the consultancy doesn’t come much cheaper than its London rivals because staff costs are on a par, or even higher than London rates, even though Elmwood enjoys reasonable property costs.

The consultancy operates a client manifesto on charges explaining the breakdown and process of costs, and provides clients with a feedback form. “It’s all part of our commitment to making sure clients get fairly treated,” comments Sands.

Fees are mostly worked out on a time basis and range between around 40-120 per hour, with projects fitting into a 60-70 per hour category. On average the consultancy charges 500 per day or 2500 per week. Elmwood is paid on a retainer basis for strategic work for some of its clients, with fees ranging from around 2000-15 000 per month.

“We don’t discriminate between clients and don’t whack up charges. We have a policy that when we have quoted for a project we do not charge extras. If we go over the quote then it’s our fault. It means a fixed price at the end and it’s really good for client loyalty.

“Also we don’t buy and sell print unless the client really wants us to. It saves the client money as we just charge a management fee, and we don’t have a big print bill tying up our cash flow,” claims Sands.

Fees for two types of unnamed packaging projects are calculated by Elmwood as follows:

Project 1 – Relaunch of a main range of products and new product development launches

74 925 – Relaunch of main range including design application, artwork, photography and art direction

Costs to be split across three invoices and charged upon completion of each stage:

16 650 design

29 970 photography and art direction

28 305 artwork

20 250 – Npd launches, including design development, photography and artwork

Split into three stages:

4500 design

8100 photography

7650 artwork

Project 2 – designs for 120 own-brand product lines

Stage one: 28 000 Provision of two concepts for each of the five key product areas including structural packaging ideas

Stage two 35 000 – Development of preferred route across range

10 000 photography/art direction

25 000 illustration/photography, estimate only though it’s anticipated illustration or photography will be required for most of the products

18 000 production traces: traces for each of the 120 product lines.

How to charge

Estimate how long a project will take, work out time and materials costs and allow for client changes and a decent margin – the Institute of Practitioners in Advertising recommends a margin of 20 per cent

Consider the added value for the client’s business. Find out what the client’s budget is and consider what the client is prepared to pay

Look at past projects and how fees were charged

Spell it out. Clients want to know what they are paying for along the way

If fees are being calculated as a percentage of the cost of a project, ensure design input doesn’t exceed fee levels

If royalties are to be paid, check how they will be worked out

Don’t undersell or underestimate

Know what proportion of turnover is actually fees, and what proportion of fees is attributable to which client

Make sure you agree with the client what expenses will be charged separately. Often travel, accommodation and couriers can be charged on top.

New media

Fees for the newest area of design, hardly surprisingly, vary the most. Quotes fluctuate between ridiculously underpriced and outrageously overpriced. Clients are wising up that they need to invest substantial amounts to achieve the right result. Peter Matthews, managing director of Nucleus which is working on Sainsbury’s on-line supermarket and First Direct’s 24 hour PC bank, claims: “The wide spread of fees one sees at the moment reflects this sector’s fragmented and immature status, with ‘one man and an alsatian’ teams competing with professional consultancies. The stories of the cheap, knocked-out web site becoming an embarrassment for its owners, however, is driving many clients to demand higher standards.”

Here a top design consultancy which has successfully branched into new media but prefers to remain unnamed, offers a breakdown of charges for a “typical” project involving the design and build of a leading-edge corporate website with a powerful search engine, some use of Java and integration with some corporate intranet/legacy systems. Initial content of about 100 pages, scalable to 500 in the future.

Stage 1: 4-6000 Project planning, site structure and navigation

Stage 2: 8-10 000 Finalising content, assessing and defining technical specifications and architecture

Stage 3: 12-14 000 Design concepts for interface look and feel

Stage 4: 8-10 000 Refine and prototype cutdown version on development server

Stage 5: 5-7000 Further design refinements, final technical specifications

Stage 6: 12-16 000 Detailed design, program and build application

Stage 7: 5-8000 In-depth testing on development server across all user platforms, refine, amend as necessary and optimise site performance, register URL and key word searches with search engines

Stage 8: 5-8000 Stability testing on production server using secure URL, sign off, document code and technical specifications

Stage 9: Go live

Total budget roughly 59-79 000, but clients should allow a monthly budget of between 5-10 per cent of the development fee for on-going maintenance.

Quotes for a project of this kind are likely to vary widely, possibly between as little as 10000 or as much as 100 000 depending on the type of agency.

“Many small teams simply knock out badly designed, poorly conceived html sites for very low cost. For clients it looks like a lottery, but the more informed ones now understand the differences – many have already been burned,” comments a new media design expert.

Daily rates depend on the level of skills being bought. Technical management consultancy skills can be as high as 1500-2000 per day. Senior consultants work out at 900-1000 per day, and basic technical consultants at 500-800. New media designers usually work out at 400-600 per day, with senior designers higher at 600-800 and creative directors at 800-1000. Basic html programmers costs around 300-500 a day, while proven Java experts would be almost twice as expensive.

Corporate identity

Charges for a corporate identity project are usually dictated by the type of project – a logo for a restaurant will not cost as much as a new identity for an international company. This is an area of design where consultancies come under attack from the media for earning vast sums for drawing a squiggle – such as the controversy over the BT “piper’ identity – and is a prime example of design being misunderstood.

But designers are not totally blameless for this reputation. GDR director Richard Watson recalls three different quotes he saw for an identity project. “The range was gobsmacking from 80 000 at the bottom end to 320m at the top. They were all major consultancies and there shouldn’t be that much variance.”

Pile Probert Kelly director Felicity Kelly says: “We are frequently asked for a corporate identity when what is actually wanted is a logo and letterhead.” Typical fees for such projects would start at 5000, where all that is required is a new logotype and stationery.

For a “full blown” corporate identity system, which might involve everything from name generation through to “definition or personality and culture and the application of the created look on to uniforms, buildings and product”, fees would be far higher, as illustrated below. “Depending on the size and status of the company, their type of business and trading requirements, local or global coverage, audiences and importance of image, you would expect fees to match the project and go up to 150 000-plus,” she explains.

Stage 1: Analysis/ audit

Planning meeting; information, research, review; executive interviews; visual audit; analysis and objective; summary and recommendations

6-8000

Stage 2: Initial concepts

Design exploration; design presentation; research (optional)

12-15 000

Stage 3: Design refinement

Design refinement; working meeting

15-18 000

Stage 4: Implementation

Planning; final proofs; production

Fee varies depending on project

Stage 5: Programme introduction

Planning, introductory media, presentation materials

3-5000 estimated fee

Stage 6: Design guidelines manual

Planning; production

18-20 000 estimated fee

20 000 estimated production costs

Total: 79-91 000

NB materials and expenses are estimated at around 10 000 to be charged on an agreed basis and submitted on a monthly basis with regular discussion and updates.

Product

Leading product design consultancy Priestman Goode has provided an indication of charges for both the design and development stages of a “small electrical product”, such as a camera or portable CD player, for a client based in the Far East. The product would be manufactured in China and is a development of an existing item which would reach the marketplace in 1999. Priestman Goode would expect to be working on the project for just over a year.

Development of the product would take place in London from concept through to production using 3D modelling computer software Pro-Engineer on Silicon Graphics work stations. “No one project is the same as the next. It is dependent on the client’s needs and in-house resource and the required depth of our knowledge,” comments Paul Priestman. The consultancy is one of the few which takes product design through to production.

Information and concept design phase

Briefing and presentation meetings in Far East/video conference. Set up project data transfer system. Information reports, trends and futures scene-setting materials. Present concept designs as computer images, schematic models

20-60 000

Design development phase

Ergonomic studies. Interface design and demonstration program. Colour and component changes to design for target markets. Product graphic design. Development of external surfaces of the design as a 3D computer model using Pro-Engineer software. Photo realistic images of design. Data transfer to client of virtual product. Model produced from computer data by stereo lithography technique. Visual design freeze

40-80 000

Some product consultancies might only complete the first two phases of a project. Priestman Goode often sees products through to production.

Detailed design phase

Development of full 3D Pro-Engineer computer model of all external surfaces. components and internal details. Production data checked against stereo lithography models. Up to 50 cast models produced for product testing and samples for exhibitions and product launch. Transfer of production data to China. Meetings with factory and tool-makers in China

60-100 000-plus

Production implementation phase

Day to day dealings with factory and visits to China. Modifications to design. Colour and texture specification and control. Software check for user interface. Checking first production samples. Debug, signing off pre-production products

10-30 000

“Depending on the project circumstances and what one is able to bring to a project, a royalty payment on products sold does not necessarily mean a reduced fee or no fee for the design and development of the product. We see this as very much the way forward, as it can be highly rewarding relief from the fee/commission treadmill,” adds Priestman.

Interiors

Interiors projects often overlap with graphics and architecture, particularly for retail and leisure schemes. At John Herbert Partnership project director Steve Collis points out fees for interiors are usually worked out via two routes: as a percentage of the building cost or “research analysis” based on time costs.

Percentage fees are mostly worked out according to guidelines laid down by the Royal Institute of British Architects and depend on the value of a project. Fees may be charged at up to 20 per cent of the project value for schemes up to 100 000, but dip at around 7 per cent for multi-million pound projects.

Taking a project worth 100m, Collis estimates the consultancy would charge around 10 per cent, or 100 000, for the following three stages.

Stage one: Design concepts, including artists impressions, materials samples, plans and elevations. For this stage 20-30 per cent of the final fee would be charged.

Stage two: Concepts developed into working drawings for tenders and construction. Up to 75 per cent of the fee would be charged for both stages one and two.

Stage three: Project management. The stage most designers lose money on, according to Collis, usually works out at 25 per cent of the project cost.

Although working fees out on a percentage basis is the traditional way of costing a job, an increasing number are calculated on “resource analysis”, particularly those which require more strategic input, says Collis, which tend to be retail schemes. Costs are usually worked out on a daily rate for design time, which varies between 350-800 per day.

“The other thing we do, like most, is to sit down and look at the value of the project. It’s not like you’re paying for a product – you’re hopefully paying for a moment of genius. It’s an emotive issue and difficult to put a value on,” Collis concludes.

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