Pricing Strategy Considerations: Hourly Rates
As an interior designer who owns and operates a design firm, pricing your services is a crucial aspect of your business strategy. While hourly rates have long been a standard in the industry, it's worth considering whether this traditional pricing model truly serves your firm's best interests. In this blog post, we'll explore why hourly rates are often used, why an hourly rate may not be the best pricing strategy for interior design firms and alternative approaches to consider.
Depending on your specific business targets, objectives and client base hourly rates provide a measure of transparency & clarity to both the designer and the client. Clients can see exactly how much time is spent on their project and what they are paying for.
Hourly rates are often seen as a fair way to charge for work, especially when project scopes can change over time. If a client adds or removes elements from the project, the designer can adjust their billing accordingly.
Reconsidering hourly pricing structures
While hourly pricing has a handful of advantages, it's important to note that it may not be suitable for all types of interior design projects. When weighing an hourly rate consider the draw backs of an hourly model.
Hourly Rates Can Limit Your Earnings
One of the most significant drawbacks of hourly rates is that they cap your earning potential. Each designer has a finite number of hours available for work. Billable hours are capped by that capacity, typically based on working hours per day and days per week. Your income is directly tied to the number of hours you work, which can be a significant constraint. This limitation restricts the maximum revenue a designer can generate solely through hourly billing.
25-30 hours a week @ 52 weeks a year = 1300-1560 billable hours
32-35 hours a week @ 52 weeks a year = 1664-1820 billable hours
40 hours a week @ 52 weeks a year = 2080 billable hours
Limited Scalability
Hourly rates can limit the scalability of your interior design firm. To grow your business, you may need to hire additional team members, increase salaries & wages, increase marketing & advertising spending, pursue specialized training & mentorship. However, hourly billing can create administrative challenges and hinder your ability to expand. Alternative pricing models can offer greater flexibility and scalability as your firm grows.
Focus on Value
A pricing strategy that values and compensates designers for their intellectual property, factors in the desired workload and isn’t dependent on the owner physically working, will lead to a sustainably profitable firm.
Ultimately, your clients are not paying for your time; they're paying for the value you bring to their projects. An hourly rate does not adequately reflect the value of your intellectual property, expertise, creativity, and unique solutions you provide as an interior designer. By shifting your pricing strategy to one that emphasizes the value you deliver, you can charge fees that better align with the impact you have on your clients' spaces.
Alternative Pricing Strategies to Consider
If you're ready to move away from hourly rates, consider these two alternative pricing strategies that can benefit your interior design firm:
Flat Fee or Fixed Price: Offering a fixed price for a project provides clients with cost certainty while ensuring you meet revenue, cost allocation and profit targets.
Monthly Retainers: Retainers provide a steady source of income for designers, helping to maintain financial stability even during periods when new projects may not be immediately available. This consistent cash flow can be crucial for covering operating expenses.
While hourly rates have been a common pricing strategy in the interior design industry, they may not be the best fit for every design firm. Clients seek transparency, value, and efficiency, and alternative pricing models can better address these needs. By shifting your pricing strategy to one that aligns with your firm's goals and values, you can create a more satisfying and profitable design business.