What’s with percentage fees?

I’ve been thinking a lot about fees lately.
A couple of reasons (apart from needing money to pay for childcare):

  1. I have a great relationship with a number of clients who are paying me hourly. I find this method of payment lends itself to an open and collaborative process where on one side the client’s wants and needs are being prioritised and on the other side I am being paid for each hour I work…win/win
  2. I have a deteriorating relationship with a consultant – where I am on the other side – and feel taken advantage of by an exorbitant hourly rate…lose/lose

So is an hourly rate a better way to charge for architectural services than a percentage fee?

To clarify in case any non-architect reads this post, a percentage fee refers to a fee for architectural services that is tied to the construction cost (or estimated construction cost or client’s budget or some even vaguer idea).

Some of the recurring questions that arise with percentage fees on projects:

  1. How do you ensure adequate fees for small (ie low budget) projects?
  2. How do you ensure clients their budgets are not being ‘blown out’ for the sake of more fees (or appear this way)?
  3. How, if the budget does increase, do you tell your client ‘it’s not my fault and btw you need to pay me more’ without it looking like 2.
  4. How do you encourage more people to explore architectural ideas and potential (with an architect) without the need to commit to a full architectural service?

It is this last point where I believe there is so much work for architects.  We can actually provide a meaningful service that may not be about an end product (or a photo of an end product). The idea you have to commit to an architect (and an architectural project) after one meeting is like getting married after a one night stand…

Ummm I might stop with that analogy at this point, it doesn’t really translate to the whole hourly rate argument as well as I had hoped.

Hourly rates are good.

 

 

 

 

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3 thoughts on “What’s with percentage fees?

  1. Warwick Mihaly

    This is a subject we’ve been considering in our studio too. Most compelling is your observation that architects can offer a valuable service even if we’re not running an entire project. It might not be glamorous work, but maybe we all need to do more of it to help improve our reach and involvement with the built environment.

    Here’s our Catch 22 dilemma:

    On a small project, let’s say a $200,000 renovation, our percentage fee is currently in the order of $20,000 – $25,000 and we rarely even break even. I know on some of the smallest projects we earn under $30 an hour. But will switching to a proper hourly rate allow us to charge what the project needs i.e. $50,000? Spending that much on a $200,000 reno doesn’t seem like a good outcome for the client. The alternative, of doing much less but at least getting paid for it, doesn’t seem like a good outcome for us either: no opportunity for design exploration. Would we just be earning more now at the cost of better architecture later?

    Reply
    1. shelleymfreeman Post author

      Thanks for your comment Warwick.
      That was exactly the dilemma I was trying to address and it is of course not a new one. A key factor is the hourly rate you charge. What I can charge working from my dining room table with practically no overheads will always be less than a full blown practice with rent and staff and the like. So I think that is where this model can perhaps work more readily for me and similar practitioners. Putting caps on fees or estimating hours in small increments as you go along also make it more palatable (and efficiency increases significantly the more children you have).
      In the end I enjoy the process as much as the product so that is a good outcome for me – I don’t see not always having a built outcome at the end as ‘doing much less, nor does glamour need to get a look in when you honestly want to make a difference to the way people live.
      I wonder what they stats are on average project starts to built finishes regardless of fee structure for architectural practices??

      Reply
      1. Warwick Mihaly

        I’m not sure what your last question means. Do you mean the average fee, or the likelihood of completion?

        My brother is a barrister and charges his time by the hour (often capped). He’s just starting out, but as he progresses through his career, I’m sure his rates will become astronomical.

        What’s interesting about the legal profession is that they have carved out financial protection for themselves. No one is forced to hire a lawyer when going to court but we all do. Hell, we even pay through the nose for a QC / SC on the expectation that they’re the best and more likely to win.

        Lawyers have made themselves guardians of the law. I’m pretty sure they’re not filled with existential self doubt about their future prosperity. If we could work out a way to make architects guardians of the built environment, I reckon this discussion wouldn’t even be happening!

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