Today an interior designer told me she wanted 20% of my price. Seems high, but if she can give me work at 120% of the hat I'd like to make I'd be happy. I don't want to price myself out of work though.
This is high end work. The interior designer drives a Ferrari....
Does she want 20% of the work she sells, not your total sales it sounds like a good deal. Most decorators want more than that.
If she wants 20% of your total sales, including your existing client, no she hasn't earned them.
So if I'm reading your post correctly….you give her a price which is your price + 20%. Therefore you still get your full price and give her the extra 20%? If so that sounds like a happy arrangement to me!
If she likes you/your work, the price getting a little too high shouldn't be much of an issue. Good designers charge ridiculous amounts of money for what they do and can sell your work. As the others have said they usually want a whole lot more than 20%!
y=your price, x = her selling price
you get 80% of x
or y/.8= x
So to figure her price you divide your price by .8
If your price is $100, her selling price is 100/.8 = $125 She gets $25 you get 100.
The sales arrangement should be: you sell & invoice to her, she sells & invoices to her customer. You don't have to pay the insurance % on her part of the sale, just yours. She has to collect the sales tax. Your sale to her is tax exempt as long as she operates as a business and has a tax # from the state. You keep her tax exemption certificate on file and get it renewed each year.
The only thing that gets to me is that she is already charge big her client for design services. The 20% she wants from us is on the down low for the recommendation to use us.
I don't really have a problem with it except her client is in a way getting ripped off because they are paying for design plus a very inflated price from me for the work so I can also pay the designer who is double dipping....
Andy, I don't disagree, but I look at it this way, if you hire a contractor, an electrician or even a plumber you pay for their services and then they usually charge an additional % on parts as well which is usually not spelled out on an invoice. As long as they're not trying to purposely deceive the client I don't have a problem with them adding on. That's just me, you have to do whatever helps you sleep at night. I rarely get the kind of clients that hire high priced interior designers….but if I did I'd be happy to add another 20%.
I get it and don't mind paying commissions. In a previous life I sold capital equipment and commissions were sometimes into 7 figures for reps. That's all good. What I have heartburn over is two things.
One is that the designer shouldn't set the commission, I should. When they set the commission it is more of a demand than a business agreement. 20% seems really high to me and I would agree that whit a hefty commission my end would go up as well. For example, if my price for the work is 10k, then "normal" commission is 10% (1k). They want 2k, so my price is going up to 12.5k. They get 2.5 k and I get 10k or something like that.
The real issue that doesn't sit well with me is it is a secret commission. If their client knows that they get the commission, that is all good. I don't like the idea of being strong armed into paying something secretly to anyone.
The real issue is ethics. And according to the ASID (american society of interior designers) code of ethics, secret commissions are explicitly not allowed:
"3.4 Members shall fully disclose to a client all compensation which the Member shall receive in connection with the project and shall not accept any form of undisclosed compensation from any person or firm with whom the member deals in connection with the project. "
"3.7 Members shall act with fiscal responsibility in the best interest of their clients and shall maintain sound business relationships with suppliers, industry and trades."
I don't know if this person is a member of ASID and I don't know anything about her contract with the client and I suppose I can assume she is disclosing that she gets 20% from her trades people making this all on the up and up. Maybe I'm being paranoid but it kinda looks like a duck and walks like a duck and in the end, I'm not really interested in laying down with dogs.
Andy - Welcome to the Next level. The designer's 20% is nothing. Figure it how you want so you get your money, but don't forget to add on for a nice bottle of wine (or a case) at Xmas, or a hand turned bowl thank you for that 200K job, or.....
You may think of it as double dipping, but then aren't you 'ripping off' your client if you mark up materials (after all, it is more than you paid for them....), or if you budget 100 hours for a job and then complete it in 80 hours? If so, then all Capitalism is stealing (cue Pat Gilbert....).
I work with designers several different ways. Several just want me to invoice them, they own the project, then they sell it to their client, often for 2 to 4 times what they paid. I got over it a long time ago. I would never get the work/know the client without the designer, so it is fine with me. We get nice work at our price, we make money, the designer makes money and is happy, and the client is delighted.
Yes, the client (not 'your' client) does pay a higher price, but think of the designer's percentage as a salesman's commission. The client is not getting ripped off, they pay what they pay because it is just a good morning in the stock market to write a check for 100k. It is a different world than what you are used to.
I was once at an open house for a completed house where we did a paneled library. The owner was on his 3rd or 4th and enjoying rocking back on his heels trying to get his buddies to guess how much he paid for his library. There was no designer in the financial end of this, so we billed him direct. The figure he eventually tossed out was well over twice what he paid us.
Like I say, welcome to the Next level. Accept it and enjoy it. Be aware there are levels beyond this one as well.
Mark ups are the norm for almost everything. The client isn't getting ripped off anymore than you are when you buy something @ retail. Their markup is "hidden!" But you know there is one. There has to be. Best way is to keep it as a simple wholesale/retail business. You sell it at your price, she marks it up as much as she can and resells it. If the client is willing to pay her price it is no different than the client buying a pair of designer jeans. Most things that decorators sell are marked up 100%! Perceived value has nothing to do with the true cost. Image counts!
In my experience, the designers don't want to buy and resell because they become liable for the product. I'm fine with that. And I have no problem paying commissions.
I'm just bothered by the designer not being ethical about their fiduciary responsibility to the client. I conduct myself to be a technical expert and provide a quality product at a fair price. I work with clients to find something that fits their budget. I'm not the least expensive but I don't disappoint.
Also, I don't want to be a part of dishonest business dealings.
I get that I don't have to spend resources on the sale of items from the designer however I don't let my sales people dictate what they charge me either.
However.... I do have the option of not worrying about any of this and selling my services for a premium.
I like to look at what the designer brings to the table.
Some designers just make the introduction, do very little work and may even price shop your ideas. - limit the relationship and add in a higher percentage to "wasted time"
Other designers have elevations, finish samples, and most importantly the clients trust. I've had 20k jobs turn into 80k jobs because the designer brings up another project in the house and I'm the job standing there with the tape measure.
Alternatively, I have a designer that does all the leg work, provides basic elevations and never asks for $ from me. Says "I bill the client for my time".
Designers can buy fabrics, upholstery, furniture at 50-55% off of list. In general are markup is competitive bid at some ratio of cost + markup to market price.
Paying a commission for sales is normal. At some point 20% on a 250k job is too much to ask the customer to pay or you could very well risk losing the work. I would rather have 250k job and pay 8% than not have
The math is
where 100000 is the selling price before her 20, the 100-20 the 20 is the amount you are taking off the top
The designer sets the terms, but you always have the right to negotiate or walk away if you don't like the terms. The designer is bound by the ASID guidelines, not you. If it bothers you on an ethical level, walk away.
Two practical concerns: 1) whether the "commissions" are actually kickbacks, which are illegal. I'll leave it up to you to research the definition of a kickback. 2) How you account for the commissions. If you pay cash, it will be invisible to the IRS (illegal!) and will also make you look more profitable than you are, which will increase your taxes.
Another not so obvious effect is that doing this regularly will eventually result in making you appear more expensive relative to your competitors as word gets around. 20% is a lot. I haven't paid above 10% myself.
We deal with the best designers in our market and many others. In 34 years we have never done a fake invoice to give a designer more profit. She drives a Ferarri because she is ripping off her clients. Our designers pay us and then usually mark up 35%. They pay the sales tax and life is simple. I have been asked to do that before and have always refused to do it. She likely has a standard markup on all items purchased for her clients and is just padding the 20% as added gravy. I bet you money that it is unethical from the ASID rules.
It has been said that the difference between a commission and a kickback is disclosure.
I have to agree with Glen on this, having had my own experiences with less than ethical designers.
What Glen describes is business as it should be. You sell your work to her, she pays you your price and gets whatever was agreed to from her client. You would warranty your work so that she is not liable for quality issues. She would collect the sales tax from the client and give you her state sales tax exempt ID number, so that you do not pay sales tax on her purchase from you when you file your sales tax statements with the state.
The very fact that she is asking you for this 20 percent kickback means that her client does not know about it; if they did, then it would just be a part of her agreed to mark-up/commission and she would bill the client. You would just be helping her make her Ferrari payments.
The ASID Professional Conduct Rules that you cite indicate just how unprofessional she is, whether she is an ASID member or not. You might ask yourself who did the work for her before you did, and why has that changed.
You could blow it all off, tell yourself that this is how its done, and buy into the kickback idea. But it clearly troubles you, so make a decision you can live with.
I'm having a hard time understanding why it is an issue what she drives, Ferrari. Interior decorating is all about image. How many clients would she get driving a Vega? Ferrari, screams "success" at least for some people, Ford maybe not so much. David's post is right on. But like others have said, if you can't negotiate terms you are OK with, walk away.
I don't try to tell people I sell to how to run their business. I sell a lot of stuff to people that "imply" to their customers that they have a manufacturing company that makes it. They have very nice web sites & a computer in their den... Am I doing something wrong by selling to them?
I also make complete store and office interiors for other manufacturers, that they sell under their name, immoral? They all mark them up, how much? I don't care, none of my business. The difference in a markup and a kickback is mostly the implied way the price has been arrived @.
I used to sell to furniture stores. The sales agreement was that if they bought over a certain amount in a given time frame they would get an additional "discount." Car dealers also get something similar. Pretty close to a "kickback!" True, not everyone knows about such things, should they care?
Larry-I have designers that drive Bentleys. No issue with me on what they drive. i do have an issue when they ask me to add a percentage to my bid. It is asking me to be involved in their fraud scheme by having a price based not on my work but on the designer's desire for more profit from the client.
The Ferrari gets mentioned only because Andy, the original poster, seems to be impressed by the designer driving one. An expensive car presents an image of success, and for an industry based on image, I would think that any designer who can swing the lease would drive an expensive car.
I think that Andy is uncomfortable with the notion of the kickback being requested. As I said earlier, it is about disclosure. In the furniture retailer and automobile dealership examples you cited, plateau driven discounts are generally mentioned in the sales contract. Everybody knows what is being paid to whom.
True, if you sell to someone at a fixed price and they mark it up, they can mark it up as much as they want, and they can present it however they want, but that should not alter your price or how you present your product. Would you alter invoices to accommodate additional “power play” discounts because your client wants to charge more money for your product?
No one is telling their customers how to run their businesses. But there is something about this kickback that just seems a little shady, and perhaps the original poster just does not want to be complicit in the grifting of the designer’s client.
Why doesn’t the designer just charge her client more, rather than demand a kickback? It’s because the client doesn’t know about the extra level of designer greed at play here.
Again, one can “nod,nod,wink,wink”, say that this is how the big boys do it, say that one has moved into an arena where everyone lies about the monies involved, suck it up and move on.
Or one can recognize the kickback for what it really is, choose not to participate, and move on.
1. We bill the design firm 100% for our work, tax exempt. They own it and can sell it for what they want. We almost never have warranty issues, but agree to cover it with this type of arrangement.
2. We bill the owner for our work, 100%, with tax, and they send a check. This arrangement usually means the designer is billing separately for their services. How much they charge is none of my business.
3. We bill the owner, with tax, and we include a line item for "Designer Services" for a predetermined agreed upon amount, usually 10% to 15% of the selling price of the work described in the invoice in the lines above this line item. The owner sees this charge and there is nothing untoward about it.
I have asked here and other places for definitions that distinguish between kickback, finder's fees, commissions, tossback, 'retirement fund', etc, and have never gotten a meaningful response. I do like to have everything up on the table and do not participate in any of the back scratching that seems to be prevalent in some areas of the field.
Hell, I have a hard enough time doing the work, much less keep track of who's back is itching, and how much I'm supposed to scratch it.
I will not add a % to my price for them. What they charge their client isn't any of my business. It also isn't any of their client's business what the designer paid me.
As for the statement that "I think that Andy is uncomfortable with the notion of the kickback being requested. As I said earlier, it is about disclosure. In the furniture retailer and automobile dealership examples you cited, plateau driven discounts are generally mentioned in the sales contract. Everybody knows what is being paid to whom."
Do you really think people know that they are helping the seller get a bigger discount by buying that chair? There are lot more shady things going on in retail sales than that. What about the "Perks" awarded for selling a specific line or brand? The sales person gets a free trip for making the most sales of it in their territory. The same thing is practiced by stock brokers. Their recommendations are tainted if not outright fraudulent because of those rewards.
I feel left out! No, wait, I'm part of it. I offer free instructional sessions for designers and architects. Show & tell, emphasizing our methods. Hoping they will specify things that we happen to have worked through the processes that some of our competition may not have. I'm giving away something of value to gain a competitive edge. Not as much value as a trip to Disney World but still sort of the same idea.
No, I won't put a % on to my price, to be given to the designer but how far apart am I really in offering free educational training with a twist of trying to get our abilities included in the next design?
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