Business Management

BY BRUCE LYNCH

The Value of Value-Added:
Non-Design Services That Earn You Higher Profits

With competition for new work so fierce these days, design firms that provide non-design services (e.g., permitting help, programming, project financing advice, etc.) put themselves head and shoulders above the rest. Which value-added services should your firm provide and how do you provide them? Here are a few strategies.


Stay Ahead of the Curve
The most successful firms understand the Product/Price Life Cycle. These design firms are prepared to invent new products and services at the point where the old ones become less profitable, so they always have something new and valuable to offer to their clients. There are essentially four phases to this process:

• In Phase One, you’re investing in developing a new service. You’re spending money and not getting any income from it.
• In Phase Two, your service is new and unique and you can charge accordingly. This is where you’d like to stay. Unfortunately, you can’t. You can probably maintain this significant competitive advantage for only about 18 months.
• In Phase Three, competitors jump on your bandwagon and figure out how to provide the same service at lower cost. You have to start lowering your prices to compete. Your exciting new idea is becoming a commodity. By now, you should be working on a new Phase One.
• You don’t want to be in Phase Four.
  There are several ways you can stay at the top of the cycle by taking advantage of changing trends and the changing needs of clients.
  

Innovate.
Being the first one to try a new idea is a risk, but it can also be very profitable.

Find a niche within a growth area.
When it stops being a growth area, look for a new niche.

Add services as the demand arises for them, and run them as separate profit centers.
These could include getting regulatory approvals, market or financial analysis, compliance with regulatory reforms, helping clients deal with environmental issues.

Specialize.
The simplest way to stay at the top of the cycle is to specialize, instead of trying to do everything for everybody. The most profitable firms specialize by both project and client type. The second-most profitable specialize in one client group and do diverse projects for this group. The least profitable diversify in both client and project types. Profits are lower because overhead increases disproportionately to the increase in revenue and these firms must rely heavily on pricing and location for selling features – the opposite of value pricing. When you’re widely diversified, you need so many skill sets for different markets that it’s difficult to do anything really well. When you specialize, you thoroughly understand the industry and recognize when it’s time to offer something new.

Sell Your Consulting Services
The design industry is moving from a focus on design services to a focus on consulting. As drafting and even basic design become low-cost commodities, clients are looking for something more, the extra value that comes from creative thinking by knowledgeable people dedicated to helping them achieve their business objectives.

A landscape architectural firm in Marin County, California offers clients a water-management consulting package. They analyze the client’s water consumption, systems and maintenance procedures, then generate recommendations as to how the client could make modifications to save money.

Consider construction management. Individuals who do that are making money from a service that architects and engineers have been giving away for years, and they make more money than design professionals.

Suppose your specialty is shopping malls. Probably the most valuable work you do is in the early stages — procuring zoning, for example. So why not procure zoning all the time? Leave the later, commodity stages, like drafting, to someone else. Don’t be the best at what you do — be the only firm that does what you do.

Redefine your services in terms of client needs instead of professional practice. Clients need a whole array of design-related services even if they might not need design: financial analysis, market analysis, site investigation, regulatory approvals, lending negotiations, presentation materials and systems management, to name just a few.

Try removing the traditional “architect” or “engineer” from your business card. Instead, call yourself “facilities management consultant,” or “program management consultant,” or “children’s needs specialist,” “hospital care specialist.” Those terms probably describe more accurately the depth and breadth of your experience, and clients like to know they’re working with a specialist. You’ll be perceived as providing a value-added service, and you’ll be able to charge a high fee.

Unique Specialties and Offers
Provide a service, set of skills or business arrangement that’s unique to your market niche.
Jonathan Barnes Architects of Columbus, Ohio, has become a principal player in Columbus since the downtown residential boom occurred a few years ago. The differentiator for them, besides the quality of their design, is their special expertise in interpreting local building codes as they relate to older, historic buildings. Their expertise is highly valued by clients of their downtown loft projects.

No project type exemplifies the struggle of fee competition better than the local K-12 school. School boards struggle constantly with low budgets that translate into low design fees for most school designers. However, that’s not the case with Fanning Howey Associates of Celina, Ohio. They do extensive research into the impact of facilities on learning, and have very particular ideas about how to optimize education in the K-12 environment. All school boards don’t agree with their opinions. But those who do are willing to pay the higher fees necessary to get them to do the project.

This issue is not going away. The sooner you differentiate your firm with value-add, non-design services to more quickly you will be recognized as a leader with whom every client wants to work.

Where To Go For Help
PSMJ’s book How to Get the Best Clients at the Highest Fees gives you the guidance you need to become a trusted authority on your individual clients and their industries. For more information, go to www.psmj.com.

Bruce Lynch is vice president of publishing at PSMJ Resources, Inc. in Newton, MA, www.psmj.com.