In my 20 years in business and as a member of NARI and Remodeler’s Advantage, I’ve seen two things a lot of design/build firms do that indicate they don’t understand the value of design. First, they don’t charge for it, or if they do, they don’t charge enough. Second, they don’t have a consistent and quality design process.
To borrow a phrase from Linda Case, the assumption that you can’t make money in design is “head trash.” A lot of design/build firms, many of which started business as contractors, bidding on work by architects, view design as a loss leader — essentially providing design to earn the construction contract. Many do not even track the hours they spend on design, so they don’t know what they’re losing. It is possible to earn a profit from design services. We have found that to be profitable in design, you should charge about eight to 12 percent of the anticipated construction cost.
Design is a sales and marketing tool. You’re establishing a relationship with the client during the design process, and if they have a good experience, then they are more likely to want to continue that relationship in the construction phase. It is also a key component of the project. When we’re designing, we’re building the structure virtually. The drawings are a roadmap that will be used, not just as a communication tool with the customer, but by everyone in your organization to build what the salesperson/designer sells. The project manager uses it to order the window and lumber packages. The lead carpenter knows exactly what to build starting at framing and going through trim work and finishes.
Without the information you develop during the design process, a project can go terribly wrong — before the first nail is hammered. If you don’t charge for design or have a process in place, you don’t just lose the profit from design; you can likely trace shrinkage, cost and schedule overruns, do-overs, and many other problems to that poor design process.
Good design starts with a design letter to the customer that includes a budget range and cost for design. Once the customer agrees, our designer sets up a schedule, and budget of hours per phase for the design process. This design budget process is open to everyone on the design team. The letter creates urgency and a path through design. We lead the customer through three design phases.
Phase 1. Schematic Phase. During this phase, we field measure for existing conditions, create as-built drawings, and explore one or two schematic drawings. We have an in-house permit specialist that designers work with to research regulations for zoning, permitting and historic neighborhood restrictions. This ensures we only show clients designs that meet those regulations. We also come up with a detailed list of what the client wants in each of the rooms. On bigger and more complex jobs this program letter can be an important document. We ask the clients to participate fully during this phase. It helps us focus on the clients’ needs rather than just presenting our solutions and is a record of scope creep later. Once the clients agree on a schematic floor plan and elevation, we complete an interim estimate.
Phase 2. Design Development. During this phase, we take the plans to the next level and create interior elevations, renderings, exterior elevations, electrical and reflected ceiling plan. We select materials, create a cabinet layout for kitchens, as well as any necessary tile layouts. For larger projects, we host a trade day so our subcontractors can provide us more accurate pricing and information about systems.
Phase 3. Construction Drawings. We create working drawings, including engineering, and provide final pricing for the project.
It’s best to collect payment at the beginning of each of these design phases. We collect two-fifths of the design fee at Phase 1, two-fifths at Phase 2 and one-fifth at Phase 3. We relate the design fee to the number of hours required by the designer. During each phase, we provide a count of the hours spent in design. If the client increases the scope slightly, we usually don’t charge more. For significant changes to the scope of work, however, we write a design change order.
This design process leads clients to the construction contract. Our goal is to have sold the job into construction before we finalize the construction documents.