Design fee and competing

      Should you charge for designs and estimates? It depends on your business focus and your competitive environment. June 12, 2005

Question
I've read about having a design fee, and I tend to agree with charging for the time taken to design a kitchen.

My problem is that nearly all of my local competitors don't charge a design fee. I've actually gotten bids from a few of them and they send out several detailed pages of plans with dimensions and detailed costs. How can I compete with that if I charge a design fee?

If I'm a prospective costumer, I would not pay $100-200 for someone to draw my kitchen when there are 3 guys down the road that will do it for nothing. Does anyone have any ideas?

Forum Responses
(Business and Management Forum)
From contributor P:
If you can't match the quality of your competitor's bid package, you won't get much business - unless you are able to seriously undercut them on price. These days, a very complete and professional bid presentation is the norm - computers and software are cheap enough that every shop which intends to stay in business has to make the investment and learn to use them. If you are unwilling or unable to do this, then your business prospects are limited.



From contributor A:
Try bidding from the competitors design. In the text of your quote offer deducts or adds to build it your way.

Most consumers aren't going to be able to pick up on the subtle differences between 3 designs, so when you price to the competitors standard and then add for improvements they can compare prices and then choose the enhancements.



From contributor L:
I build custom kitchens and also sell box cabinets, and I have run into the same problem. I have found around here that those that are not charging a design fee are offering box cabinets with pretty run of the mill software designs. When selling box cabinets, I include the design fee in my commission. When selling custom, I charge a separate design fee. Drawings are not released until the design fee is paid. Therefore no one can bid off your work unless at least you have been paid.


From contributor P:
1. Your competitors don't charge a design fee. 2. Your competitors provide a professional, computer generated bid package.

In general, one should look to at least match what competitors are doing in order to stay in the competition. So I am recommending that you don't charge a design fee, that you do provide a very professional looking and impressive package, and that you figure the cost of doing this into your overhead. Or continue with whatever you are doing and pass the cost savings on, which will make you more competitive.

I would suggest looking into software for drawings, because it saves so much time. I used to do hand drawings, but when the client wanted a change I had to start all over. The computer makes editing easy and is a huge time saver. It is still possible to print a CAD drawing onto nice paper and color it by hand if you wish, and it can does make for a nice presentation.



From contributor A:
Since I have stopped giving away my drawings, I have been able to weed out the tire kickers and increase my sales significantly. I have found that people who know custom work from boxes and want to pay for it have no problem paying a design fee.


From contributor M:
We also build custom and sell semi custom. For the customer we give a very descriptive proposal with no drawings. Detailed micro vellum drawings are drawn and given out only after a deposit is received. For semi custom, we do 20/20 drawings along with a proposal, but the drawings are not released until a deposit has been given - this is for new customers.


From contributor Y:
My take on the issue is that there are three types of projects we're asked to bid on.

One is when a customer walks in with no plans, and he/she is not sure how to start the process. This is most likely a remodel.

Two is when a customer or contractor walks in with a basic set of blueprints that includes only a floor plan view of the cabinets.

Three is when we receive a full set of blueprints, with the cabinets fully designed, and often times accompanied by a spec sheet calling out construction style, materials, choice of hardware, finishes, etc.

Situation three obviously doesn't apply to this. When faced with situation two I offer two choices. I can give a budget estimate based on the approximate lineal footage and design level they're interested in, which takes about 10 minutes. Or, I give them my design speech.

When faced with situation one, I give my standard design speech.
Mr. or Mrs.Customer, at some point, before I or anybody else can give you an accurate price, you need to have a design. This can be done for free at a Home Center, or you can pay a designer, architect, or cabinetmaker to do the design for you. The amount of this service varies, but generally you get what you pay for. We charge $120 an hour for this service. If you hire us to perform this service for you, the design is yours to keep, Regardless of who you hire to build your cabinets, the design process is a necessary first step.



From contributor B:
It seems to me that there definitely needs to be a distinction between charging a design fee, and charging for an estimate.

I do not charge for estimates, but I do go through a pretty thorough pre-qualifying exercise with each and every client (no point in estimating a job for someone who needs cabinets sooner than I can manufacture them) before providing them with an estimate. I also make them come to the showroom with blueprints or sketches to get the estimate. Yes, I lose a few jobs from time to time because of this policy, but the vast majority of the jobs I lose because of this policy would either never have materialized for me and my company, or would be bad jobs.

As far as a design fee is concerned, I charge everyone a design fee. It is part of the cost of doing business, and we must charge for it. The question becomes, do you collect that fee up front, or at the end. Collecting upon completion means you run the risk of the client choosing not to use you, and the design work becomes lost time (free labor provided many time to your competitors). If I am designing a project for a regular (repeat) customer, then I do not collect the design fee up front.

If I am working for a new builder, or an individual, then I collect the design fee before I begin the design process. If they choose to purchase their cabinetry somewhere else, I have been paid for my design, and am still a happy guy. If they purchase the cabinetry from me, the design cost is applied to the cabinetry cost. This process does have a way of weeding out the tire kickers.

For new builders (not necessarily new in business, just new to me), they have the opportunity to supply me with credit references for terms, but still must purchase three or four jobs from me before I stop collecting the design fee up front. For everyone, my estimate clearly illustrates the process, which is I do the design after I receive the signed estimate with a check for the design fee, along with the appliance specifications.



From contributor T:
To the original questioner: Going back to the initial question, have you knowingly lost business because you would charge for a design, or is this merely a perception on your part that you would? It seems to me that if the design service is of value, then it would be worth the extra money and you could justify it to your clients. If you would do for extra money what your competition does for free, then what you do has to be seen by your potential clients as being of more value than what they do.

Sometimes potential clients will not compare pricing, and they may just want you to do the job because of reputation, good references, good sales pitch, etc. If you can present yourself as a cut above your competitors, this may not be an issue at all. Have you knowingly lost work because of this situation?



From the original questioner:
To contributor T: I have not lost work due to asking for a design fee, simply because I have never gave my customers reason to believe that they were going to have to pay for one. This whole question was a thought for the future and to get input on what would happen with my competitors (who are much larger and more widely known than me). My local reputation for my work is very good. If I widen out into larger markets, that is when I will be leery of charging the fee and competitors not. I appreciate all of the input.



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