Is It Time to Raise Your Rates?

In an ideal scenario, a vendor’s value proposition aligns with the client’s value perception. Take selecting a physician, for example. A patient is likely to associate higher value on doctors who price their work—service and experience considered—at a more expensive rate. So why does the same philosophy not transfer to interior design?

“It’s our thinking that’s the problem, more so than the customer,” insists interior designer and creative business coach Tobi Fairley. For most designers, Fairley points out, the thought of raising one’s commission or hourly rate can be clouded by the potential risk of losing clients. AD PRO quizzed four experienced designers to help navigate the promotion and best relay the announcement to clients.

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Crack Open the Books

Understanding your financial statement forward and backward is critical when determining an adjusted rate, says Fairley. “If you don’t know your profit on each service, your monthly overhead, and how much profit you want to make—it’s impossible to know what you need to be charging.”

Financial portfolio manager turned interior designer Courtney McLeod, of Right Meets Left Interior Design in New York, also suggests using this restructuring period to reconsider your firm’s ideal client profile. “If you’re trying to attract a luxury client but have a low rate, there’s a disconnect there,” says McLeod, whose firm conducts a profile review annually.

Due for a Raise? Here’s Your Sign

As with most jobs, a common way to account for one’s worth is based on experience, which Toronto-based designer Cynthia Ferguson defines as “a combination of years in the industry and projects completed.” While design rates may vary by region, remaining an active member of your design community can help keep you informed of industry pricing standards. “If you get a sense you’re way below, immediately increase your rates to match the lower end of market,” says McLeod. “If that means doubling your current rate, do it.”

Leveling up can be a good short-term solution, but designer Summer Thornton says surpassing competitor pricing could be a beneficial tool for filtering potential clients. “As we have raised our rate, we find that it helps separate the clients who are shopping several firms and are focused on fees from those who are especially interested in our firm’s perspective,” she says. Career milestones, such as having a project published or participating in a major designer showhouse, can also reason a promotion.

Basic economics says that if demand exceeds supply, the price is likely too low. In interior design, that equation can take shape in a designer’s closing rate. If 100% of projects pitched are getting accepted, that could be an indicator that your rate is too low, warns McLeod. For Thornton, whose firm receives more than 200 project requests per year and accepts on average five new clients annually, pricing adjustments have been crucial in helping realign the balance. “Pricing is one of several ways that helps us identify potential clients who are really passionate about our work and are willing to pay a fair but substantial price to have our firm give them an exceptional experience and design result,” she says.

Ready to Raise

There’s no one-size-fits-all answer to increasing design rates. “I find there isn’t so much a percentage that is appropriate, as there is an industry norm,” Ferguson says. For firms that charge by the hour, considering your rate in terms of how you want to live is key. “Figure out how many hours you want to bill and then multiple by your hourly rate and consider that as operating expenses,” McLeod says. For those using a commission-based model, Fairley suggests: “You need to be charging cost plus 30%—a 22% profit margin just isn’t enough.”