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In the kitchen and bath design and remodeling business, there are several levels on which we compete, but the one where we can really separate ourselves from our competitors is in the area of design excellence. Many people in our business have spent a good deal of time and money developing this competence and building a reputation in their market areas for it.
Those companies that have established themselves as design leaders in their markets have created a business asset that is extremely valuable to them. It is therefore important that they recognize this and protect and take advantage of it. This recognition is the first step in protecting this advantage, and it’s important that your designer/salespeople understand and “buy into” this as a valuable service.
The method that has evolved in our business to prevent giving away our design services is to use a design retainer agreement with clients. In this month’s column, we will look at the design retainer as the vehicle for being paid for these services.
Introducing the Retainer
It is important that potential clients be acquainted with the fact that they are going to be charged for your design services early on in the relationship. For that reason, you should go over your entire process with clients at the first visit, including how they will be charged for the work. There should be a written design retainer agreement and the client should be provided with a copy of this agreement.
If your firm has a Website, you can use your site to describe this process to potential clients. Including a copy of your design retainer agreement on your Website will also allow future potential clients to review this even before they visit your showroom.
The first item that should be covered in your design retainer is the point in the process at which the client becomes obligated to pay your firm for the services being provided. It is likely that a limited amount of design work, in the form of site inspections and feasibility studies, will be provided before a retainer agreement is actually signed.
Introducing a copy of the design retainer agreement to the client before this “free” work is performed will help clarify the benchmark point for signing the agreement and making the retainer payment. The retainer agreement should spell out what this feasibility phase includes.
At this point in the process, you must decide with your client whether the project should go forward. If so, the client is asked to begin paying for the actual design phase.
There are a couple of approaches to charging for this design phase. The first is to set an hourly rate for the work and spell this out in this portion of the retainer agreement. Your client will probably want to know approximately how much the design will ultimately cost, so you may want to include a provision for the maximum that the design will cost. Keep in mind that this is a tricky area, and needs to be thought through carefully so as not to lock yourself into unlimited design options and revisions at a fixed price. Many customers can be very demanding and require constant revisions, which will cost your company in time and aggravation.
The other approach is to simply have a flat fee for the design retainer, usually representing a percentage of the ballpark estimate cost of the project. To a certain extent, the local marketplace will dictate the amount of this, but it should probably run somewhere from 2-5% of the project cost.
Depending on the size of the project and resulting retainer amount, you may want to break the amount of the retainer into more than one payment to make it easier for the client, with appropriate benchmarks for subsequent payments.
The retainer agreement should detail what design services will be performed, such as design alternatives and the production of sketches to depict the designs. The design phase will probably call for production of detail design drawings, which may also include detail drawings and specifications from which the actual work could be performed. The agreement will normally call for production of a contract estimate for performance of the actual work.
Another difficult issue that must be dealt with is the ownership of the designs, drawings and specifications. For most of us, the purpose of performing the design work is to have it lead to the actual execution of the project. The language you use to cover the ownership issue can tilt this issue in your favor. Your retainer agreement may state that the client will receive a copy of the drawings and specifications when a contract of the construction of the project is signed.
Unless you want to perform design-only work, the actual permit drawings should not be produced as part of the design phase, but developed after a contract is signed.
Another issue that should be covered in the retainer agreement is the limitation of your potential liability should someone other than your firm actually perform the work using any, or all, of the work you have done for the client. Since you will not have control of the job site or knowledge of any hidden situations with the building structure, executing the project by relying on your drawings and designs could result in a structural failure and/or injury. Your agreement should clearly state that the client agrees to release you from any liability from use of your designs.
There are many advantages to the design retainer. Performing design work only when you receive a retainer payment from a client allows your design staff to focus its efforts on those potential clients that are serious enough about their projects to actually invest some money into moving forward with design work. This allows you to avoid spending hours working on projects to satisfy an individual’s curiosity.
A major benefit of the design retainer is that it documents what is to be done and what, and how, the client is to pay for this work. This agreement can also define ownership of the work and how it can be used in the future. Finally, it is an easier first step toward a contractual relationship with your client to actually perform the work being designed, which most of us consider our ultimate goal.
Read past columns on Business Management by Bruce Kelleran, and send us your comments about this story and others by logging onto Kitchen & Bath Design News’ Website at www.kitchenbathdesign.com.