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BY FRANK A. STASIOWSKI, FAIA
Why Are Design Professionals Afraid to Make Money?
 For many years, I have consulted with design professionals who believe that making a good profit from their work borders on unethical. This point was driven home to me a few months ago, when I spoke with a manager at a New Orleans–based architectural firm that earned a place in the 2007 PSMJ Circle of Excellence. The PSMJ Circle of Excellence is determined through a weighted ranking of 13 critical financial-performance benchmarks that indicate a firm is well managed and led in a responsible and sustainable manner.
This firm leader seemed uncomfortable with being recognized for her firm's achievement. She told me that her firm was well positioned to take on work after Hurricane Katrina, and much of their financial success could be attributed to the disaster. I asked, "Were all these new projects wired to your firm by brand-new clients because you were the only firm around who could do the work?" She told me this was not the case—the work had come from past clients and from some new clients who had heard good things about the firm.
The firm did not earn a spot in the PSMJ Circle of Excellence because of Hurricane Katrina—it was because of their superior client service and great reputation. So why did this firm leader feel funny about being successful?
As an architect and a consultant, I belong to several professional-services associations, and I can tell you that professionals in other service industries (doctors, lawyers, accountants, plumbers, etc.) are not afraid to make money. In fact, superstars in these industries actually charge higher fees when they get busy. If you are a superstar designer, don't be afraid to get paid like one.
Breaking the Cycle
Once you have made the momentous decision to make money without guilt, you need to break through the mindset that has likely predisposed you to earning less profit on the work you do for clients. Here are three places to start:
1. Buy low, sell high. Design professionals often do the opposite—buy high, sell low. You need to figure out how to reuse your ideas to save time and make money.
2. Never sell time, sell value. People who sell time aren't rich. Doctors, lawyers and other "superstar" service professionals appear to be wealthy because they can charge $200 per hour or more. However, they are still locked into selling their time, and they can only sell so much of it. When you sell value, you can make an unlimited amount of money.
3. Find a low-margin, wide-distribution product. Typically, engineers invent solutions to problems and then give them away, while most successful people take one idea at a time and sell it to everyone. Architects and engineers should reuse their ideas. For example, Parsons Corporation, a West Coast engineering firm, invented a product while working on a waste-management study to analyze what was coming out of a client's smokestack. While analyzing the smoke, firm engineers discovered a way to filter the carbon dioxide before it was released from the smokestack. Parsons patented the idea and is selling it worldwide.
Value Pricing Is the Key to Profitability
Price is determined partly by the value the client perceives in the service to be delivered and partly by your cost and profit considerations. According to Ramsey Fayad, member of the Royal Australian Institute of Architects, the following is a definition of true value pricing:
"The concept of value pricing is relatively simple. Value resides in the eye of the beholder, and when, in the eyes of the beholder, it is delivered, a premium may be charged. In essence, value pricing demands only a better understanding of client needs, constraints, and competitive threats."
Why, then, is value pricing not broadly accepted by most design professionals? Probably because it demands shifts in attitudes, perspectives and effort, all of which challenge the natural inertia of wanting to continue doing what has always been done. In the professional design arena, it is typically perceived to be safer to follow clearly defined existing procedures than to adopt new and untried ones for fear of offending clients.
The Value Premium
Any proposal that makes the project easier, safer, faster and cheaper to achieve client objectives should include a value premium. From the client's point of view, the extent of the value premium in question will depend on:
1. The clarity with which you define your proposed contribution,
2. How well your proposal appears to reflect your understanding of current client needs,
3. How well your proposal convincingly contributes to the nominated objectives in the judgment of the client, and
4. The relative importance to the client of the nominated objective(s).
Client Hot Points
All of your clients have one or more project "hot points"—key criteria they want met, first and foremost. These may include project completion speed, energy savings, construction budget limits or other features that the design professional can control. These are the elements that should include a value premium.
For example, if your client is concerned about facility energy usage, you can specify a level of usage (performance) for the project and make part of your fee contingent on achieving this level. If the final project fails to meet client goals, they owe you nothing for this part of the fee. I've seen performance incentives work with a wide range of variables, including:
- Time of project completion
- Total construction cost
- Number of change orders
- Energy usage
- Environmental and zoning variance approvals
- Facility operating costs
Of course, you'll want to be sure that you have excellent prospects for addressing these client hot points before you attempt to attach a value premium to them. But if you are able to provide superstar service, then you ought to be paid for it.
Frank A. Stasiowski, FAIA, is president of PSMJ Resources, Inc. in Newton, MA. PSMJ Resources Inc. offers PSMJ's Guide to Value-Based Pricing for A/E Firms. For more information, go to www.psmj.com/publication/?id=77.
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