Houzz Pro membership

Social media, Houzz, Database, Photos, Logo
Houzz, pronounced /howz/

In August last year, Erica and I signed Mihaly Slocombe up to the Houzz Pro membership programme. This placed our sponsored project photos into the organic search streams of local audiences, increasing the visibility of our business in and around Melbourne.

We were required to commit to the programme for twelve months, a huge financial leap for us considering our marketing budget had previously been $0. When our membership expired recently, we took the opportunity to ask ourselves whether it has been worth our while. Has it increased the number of leads coming into our studio? Have the leads been qualified? Have they resulted in any commissions? Ultimately, we needed to work out whether we should opt in for another twelve months.

The Houzz platform is one I’ve discussed before, though I’ve not explored the membership programme, nor analysed the benefits and challenges it has brought to Mihaly Slocombe. The following discusses our history with the platform, our reasons for joining the paid programme, and the results we’ve seen from our investment.

Let me start at the beginning.

Houzz, Mihaly Slocombe, Homepage, Profile, Houses, Residential design, Architecture, Photos

The beginning

I created a Houzz profile for Mihaly Slocombe in October 2013. It had been three years since we formed our studio and I was eager to increase our presence online. Even then, Houzz had a database of photos well into the millions. I had the feeling that we were hitching our wagon to the Amazon of residential architecture and figured it was better to be flying along with them than left behind in their dust.

At that stage, Houzz was based only in the US. It would be another year until the launch of a dedicated .com.au site, so the majority of our early traffic came from overseas – the US primarily, but plenty of European countries too.[1]

During this period, our profile developed some very strong organic traction. Amongst our two dozen or so project photos, it was the Basser House walk-in-wardrobe that attracted the most attention. To date, a whopping 18,000 people have added it to an ideabook (the Houzz equivalent of an Instagram like). It has also led to us winning the Houzz design award three years in a row.

The popularity of this and other photos earned us a constant presence. Like Google, the Houzz search algorithms reward popularity with more of the same. Despite the youth of our studio and small collection of photos, we were beginning to pop up everywhere.

Houzz; Melbourne; Launch; Party; Architects

Houzz in Australia

In August 2014, Houzz spread its wings and officially launched its Australian domain. I attended the Melbourne launch party, and watched during the presentations (with some pride) as the Houzz staff used our profile as a case study.

During the drinks and canapés that followed, I met an architect whom I knew was enjoying just us much organic traffic as we were. I was curious to discover how she was going with her profile, and whether she’d won any projects through it.

Up until this point, our popularity on Houzz had not converted into any paid work. I had dedicated countless hours to answering technical questions from Houzz users, and even fielded a modest number of project enquiries that went nowhere, but I was just spending a lot of time selling our services to people who weren’t really buying.

I assumed my new friend would have had a similar experience, but discovered instead that she’d won sizeable projects with proper budgets and clients interested in good design. I was amazed. What was she doing that we weren’t? And what was it about our profile that attracted people with unreasonable expectations about the architectural process? We discussed this divergence for most of the night, but I left without any real understanding of why her success was translating into fee-earning commissions and ours was not.

Houzz project, West Brunswick, Renovation, House

If at first you don’t succeed…

In May 2015, we received our first commission through Houzz. An Italian couple were returning to Melbourne after many years living abroad and wanted to renovate their family home in Brunswick West. It struck me when they got in contact that this was one of the marvels of Houzz: a couple flicking through pictures on their laptop in Rome could discover us on the other side of the planet, and then commission us for a project located just around the corner from our studio.

Still, it was tough going. By this point we had racked up a total of 14 enquiries through Houzz (including a couple of exciting calls from interstate), but only one commission. Not a good success rate. I realised then that the risk of the Houzz platform was that it replaced our relationship-based marketing approach with one more akin to internet shopping: high volume, low conversion.

So we were still spending a lot of time on our Houzz enquiries without much to show for it. In 2015, Houzz accounted for 43% of our enquiries, but only 14% of our commissions. It was the age-old business conundrum: we were spending the majority of our time on the minority of our clients. Something needed to change.

Houzz, Melbourne, Map

The programme

In August 2015, we received a call from Houzz. With the dedicated .com.au website now a year old, the Houzz Pro programme was being introduced to Australia. The call didn’t surprise me. I had wondered a number of times when Houzz would monetise its platform. With over 35 million unique visitors each month, professional users were getting access to an enormous audience for free.[2]

The deal was intriguing and came at just the right time for us. We were enjoying great organic traffic to our profile, but in contrast to my launch friend, the vast majority of it was international and of no real value to our business. Our photos were appearing on someone’s screen around 300,000 times every month, but only getting clicked around 90 times. A lot of people were seeing our work, but a tiny .03% were engaging with it.

The Houzz Pro programme proposed to change this model. It would guarantee our appearance on the first page of photo and profile searches for any user within the Melbourne CBD and immediately surrounding suburbs, and thus push us in front of many more local eyes.

Our hope was that more local connections would be the ingredient we were missing, the thing that would convert all my effort engaging with the Houzz community into paying projects. We still thought long and hard about it though – as I said, it was a big commitment for us. In the end, we figured a year of membership fees wouldn’t kill us, and our business needed to take a risk to continue to grow. We set a KPI for ourselves: an acceptable payoff would be one substantial commission, or two smaller ones.

We were the first architecture studio in Melbourne to sign on.

Houzz; Houzz Pro; Advertising

Our decision to join

Residential clients are notoriously difficult to connect with, particularly for younger practices without the reputation and bag of awards enjoyed by established studios. If our portfolio were centred around restaurant fitouts, we could probably work out ways to connect with restaurateurs. But houses are hard. Our clients are everyone and no one.

Houzz provides this connection. Better yet, the Houzz Pro programme provides a local connection, one that is based on images of our design work. In late 2015, our organic traffic was already excellent, but unproductive. The programme promised to top up our organic international audience with a far more engaged Melbourne one.

We also felt that Houzz was a safer bet than Google or Facebook advertising. Houzz users are a subset of the general population, a pool of people already interested in residential architecture. In marketing terms, this meant the leads we hoped to get through Houzz would be more likely qualified.

Finally, we sensed that Houzz is an unstoppable train rolling out across the planet. The Internet is hardly growing less connected to our daily lives: Houzz is a part of this trend, a huge marketplace we’d be foolish to ignore.

Bangkok; Chatuchak; night market; market; colour; night

What happened next?

In August 2015, we paid for our first month of membership to the Houzz Pro programme. The good news was that we didn’t have to wait long for leads to come knocking: we received 3 enquiries that month. The bad news was that none of them turned into a project. And neither did the next 10. It wasn’t until March 2016, and our 14th Houzz enquiry since joining the programme, that a lead converted.

Five more leads rolled in without result, but in July our 20th enquiry came good too. Exactly as we’d hoped, both projects are sizeable, with proper budgets and clients interested in good design. We’re working on sketch design for them as I write.

When our membership came up for renewal in August, we did so without hesitation. We had expected the slow start, had even been warned about it by our Houzz account manager, but it seemed now that we had gathered a bit of momentum.

Project; Lead; Enquiry: Client; Houzz

Project; Lead; Enquiry: Client; Houzz

Some data please

Since our renewal three month ago, the enquiries have continued to arrive. Two more have converted into commissions in just the last couple of weeks.

Examining the 14 months of our Houzz Pro membership, I calculate that 50% of all enquiries, and 20% of all new projects, have come through Houzz. These figures are both improvements on our pre-membership results, particularly the gross number of enquiries. Pre-membership, we received one enquiry through Houzz every 55 days. Post-membership, we’ve received one every 12 days.[3]

The main downer is that Houzz leads continue to convert less often than our other marketing activities. 20% of projects from 50% of enquiries is much better than it was previously, but still not great.

I think there are two reasons for this: first is the varied nature of the leads we receive – many have unrealistic budgets and come from people curiously not that interested in good design. We’ve realised that we can’t do much to stop these enquiries, but have at least worked out how to politely decline poorly matched commissions. Second, there’s the issue of trust, or more pointedly, the lack of trust. While a potential client recommended by a mutual friend tends to inherently trust our expertise and creativity, someone contacting us via Houzz can’t tell us apart from a bar of soap. The Internet makes it too easy to get in contact, and thus too easy to never return a phone call. Building trust with a stranger takes time, something we don’t typically have when we’re trying to win a project.

That said, the projects we’re now winning through Houzz are very exciting. Exactly as we had hoped, they’re for clients interested in design, with decent scopes and realistic budgets. Qualitatively, the projects have the same spread as those that arrive through other means: they vary in size and budget, in geography, client and design ambition. For me, they prove that Houzz offers a viable model for lead procurement.

Has the number of leads coming into our studio increased? Yes
Have the leads been qualified? Yes (well, at least more often than before)
Have they resulted in any commissions? Yes.

So, we had to wait patiently in the beginning for our membership to reap a reward, and both then and now must spend a lot of time fielding tyre-kickers. But I am in no doubt that the Houzz Pro membership has helped our business grow. For the success we’re seeing thus far, it’s worth it.


Footnotes:

  1. I know this because occasionally we receive a comment like this: “Die fensterläden sind ein echoer hingucker!”
  2. Houzz Facts; Houzz; 2015
  3. It’s important to note that this success isn’t just due to upgrading to the Houzz Pro programme. We put constant work into our profile, uploading new projects, managing photo metadata, answering user questions, contributing to discussions etc. The programme puts us in front of more eyes, but we’ve made sure what they see is worthwhile

Image sources:

  1. Houzz logo; copyright Houzz
  2. Mihaly Slocombe Houzz profile; copyright Houzz and Mihaly Slocombe
  3. Houzz Melbourne launch at Meizai; August 2014; copyright Sushii Photo
  4. View from street of Mihaly Slocombe’s first real commission sourced through Houzz; author’s own image
  5. Houzz Pro programme, Melbourne CBD coverage; copyright Houzz
  6. Houzz Pro programme; copyright Houzz
  7. Chatuchak night market in Bangkok; sourced from Shop JJ; author unknown
  8. Project leads through Houzz; author’s own image
  9. Projects through Houzz; author’s own image

Happy 6th birthday

Happy birthday; Panfilocastaldi; 6; Six

Today Panfilocastaldi turns 6, meaning I have survived another full year of blogging. As I have on each prior anniversary, I’m going to take this opportunity to reflect on the scope and focus of my writing. Why do I write? What do I write? Who is it for?

As I review the content I’ve published this year, what strikes me most is the stark contrast between my first year of writing and my most recent:

2011

  • My early articles spanned a wide range of topics, covering 17 different categories from food to theatre and many things in between.
  • I wrote prolifically, publishing an article on average every 3 days.
  • Though frequent, my articles were short. My very first piece, on the 2009 Mies van der Rohe Award, needed just 365 words.

2016

  • My articles this year focus almost exclusively on architecture practice, with all but one so categorised.
  • I write sporadically now, publishing an article on average every 21 days.
  • Though infrequent, my articles are long. My most recent piece, on the incremental tasks fee method, needed 1,119 words and was in fact the last in a series of 5 articles of similar length all exploring the architectural fee.
2011; 2016; Blogging; Infographic; Data; Word count
Word count comparison

Why the contrast? Well, I suspect that the changing nature of my writing is the result of the changing nature of my life.

When I started Panfilocastaldi, I was living in Milan (in a street called Via Panfilo Castaldi for those of you who didn’t know) and travelling a lot. Even when I returned to Melbourne soon after, I was still doing and seeing a lot of different things. Indeed, the inspiration for this blog came from a desire to continue living the traveller’s lifestyle: it encouraged me to seek things to write about, so I attended festivals and lectures and exhibitions, then wrote about them, then sought more things.

Today, I live in Melbourne, run a thriving architecture studio with my wife, and spend the majority of my spare time being a dad to my two young children. My daily experiences have narrowed considerably, and thus so has my writing. To be fair to myself (and parenthood in general), I do still get out and do things, I just can’t seem to find the space in my life to write about them.

2011; 2016; Blogging; Infographic; Data; Categories
Categories comparison – refer to sidebar menu for expansions

I often reflect on the carefree and exuberant time I spent in Milan. I even yearn for it on occasion. There was an oasis-like quality to my time there that reminds me of Ann Patchett’s sublime Bel Canto. It was a vivid experience insulated from the tough job of growing up and working out how to contribute to the world.

But returning home and having kids have done a wonderful thing to my perspective. My early writing was personal and mostly self-indulgent. I wrote broadly but shallowly, and primarily to amuse myself. Did anyone really need to know what I thought of kitchen utensils or nuclear fallout in Japan? In contrast, now that my time is so much more limited, my writing has become narrow but deep, and I like to think useful.

I still write for myself, as a sort of catharsis that helps me process the challenges of growing our architecture business. But I also write for all the other young architects going through the same challenges I am, and the many wonderful people thinking about engaging them to build something.

My earliest article on architecture practice (in early 2012) was fittingly about reinventing the wheel, and appeared amidst other articles on urbanism, product design and photography. Gradually, these other subjects have fallen away, and the intersection of architectural culture, practice and business has emerged as my (almost) sole focus.

This slow transition has helped me find my voice, one underpinned by the expertise I’ve gathered from founding, growing and improving Mihaly Slocombe for the past six years. Architecture practice has become my focus because it’s what I know and care about. It has also helped me understand two important things about the world:

Sharing is better than hoarding

There aren’t many architects in Australia, and of course far fewer architecture practices. In contrast, there is an ever-growing cackle of rival occupations eating away at our authority, territory and opportunities for creativity. Individually we sink, together we swim. This is why I share the things I share, some of which are quite private insights about our business. Whatever wisdom I’ve earned I feel the need to contribute to the profession.

Data is everything

Data about time spent on things, resources divided between things, money earned from things. I’m certainly not the first person to realise that knowledge of the underlying truths of our architecture practice helps us make the right decisions about its future. I may be the first to collect data about these truths so passionately. For me, data is just another way of saying the science of business.

2016; Blogging; Posts; Graphic design; Logos

Where does all this position Panfilocastaldi within the bigger picture? At the cutting edge I hope.

Architects love to talk about design. We share ideas via print and online media, within awards programmes and in exhibitions, during workshops and conferences. We gobble up every photo, diagram and sketch like a fat kid does a bucket of fried chicken.

But we don’t love talking about business. At university, I learned about the history and theory of architecture, about construction, detailing and sustainability, about design principles, communication and execution. I did not however learn about business. I remain incredulous that all that I know about client acquisition, marketing strategies, future planning, workflow management and income generation I’ve learned on the job by trial and error.

No wonder the profession is in crisis.

So anyway, this is my voice. I talk about these things because by and large very few others are. I have set about in my own small way to inject questions of money and productivity and marketing into our broader discussion. It’s my hope that this injection steers the conversation somewhat towards pastures more open-minded about the political economy of design.

All time; Blogging; Infographic; Data; Tags
All time use of business-related tags

I was chuffed recently to make it onto a list of important Australian architecture blogs, but a bit disappointed that the author used adjectives like pragmatic and everyday to describe my content. Yes, the articles I write are about the everyday, but I believe they are the things that facilitate the momentous. The crisis of the architecture profession is fuelled I think by a resistance to business. But design and business aren’t mutually exclusive, indeed they are tidally locked. Each can’t and shouldn’t exist without the other. Good business facilitates good design, and vice versa.

The origins of this blog may have been frivolous, indistinguishable from the hundreds of millions of other blogs floating around the internet, but I’m pleased they’ve led somewhere productive. This voice that I’ve found and am continuing to find has become a new source of inspiration, one that has evolved well beyond the original purpose of Panfilocastaldi.

So what next?

For me and my time-limited life, one of the attractive qualities of blogging is how incremental it is. The idea of sitting down to write a 200,000 word book scares the shit out of me, but taken together, that’s about how many words I’ve written across my 310 Panfilocastaldi articles over these past six years. One article at a time isn’t so scary.

Despite this, I think I would like to write a book. Something that gathers together the various threads I’ve explored on this blog into a cohesive, narrative-driven resource for the architecture profession. I have a few ideas about the what and the how, but I’ll keep them under wraps for now for fear of putting a mozz on myself.

A question for you though, dear readers: would you buy and then read a book I’ve written? Would it be useful to you in your daily lives? What do you think it should be about?

I think I’ll leave it there. Thank you for your support this year. Who knows what 2017 will bring, and whether I’ll ever find the pathway to putting together an entire book. For now, Panfilocastaldi continues to be a labour of love, self-sustaining because it’s enjoyable for its own sake. If you promise to keep reading, I’ll promise to keep typing.

Yours sincerely,
Warwick Mihaly.


Image sources:

  1. Happy 6th birthday, author’s own image.
  2. 2016 vs 2011 word count comparison, author’s own image.
  3. 2016 vs 2011 categories comparison, author’s own image.
  4. Article montage, author’s own image.
  5. All time tags, author’s own image.

Explaining incremental tasks

There are three traditional methods by which an architect can charge fees to her client: the percentage fee, lump sum fee, and hourly rates. Inspired by the lean startup strategy, there’s a fourth method that’s emerging amongst younger practices: incremental tasks.

This is the last in a series of five articles that will assess the benefits and disadvantages of the four fee methods. It will analyse each from the points of view of both the architect and the client, and ask how well they tie an architect’s income to the value of her labour.

An archive of the series can be accessed here.

Architecture; Architecture fee types; Fees; Money; Gold

Incremental tasks

Overview

The architectural fee is split into a series of discrete tasks, each charged as a miniature lump sum fee. The intention of this method is to break a project down into very small components, with a single deliverable for each.

The tasks might include things like building a physical model of the design, or preparing a town planning report, or writing a construction specification. Typically, the tasks will require a unique combination of time and expertise to complete, so are likely to be charged at different rates. Across an entire project, there would easily be as many as 50 tasks that require anything from a couple of hours to a couple of dozen.

Transparency

At the beginning of the project, the architect presents her client with the list of tasks required of full architectural services. Each task is accompanied by its own price tag. Some might be essential e.g. a sketch design floor plan, others might be optional e.g. a physical model. Like ticking the boxes on a room service breakfast menu, the client is then empowered to select which tasks she wants her architect to perform.

There is an inherent transparency to this process, as it demystifies an otherwise long and complex architectural process. However, the elegance of the room service menu works because there are only a dozen items and a handful of choices to make. An architectural services menu will have many more of both, which carries the risk of bamboozling the client with too many choices. It’s important therefore for the architect to provide clear explanations of each task, and the implications of not ticking certain boxes.

Fairness

The essential benefit of the incremental tasks method is that the architect gets paid for every task she completes and only the tasks she completes. If the client decides partway into the process that she does in fact want a model to show her family, then she already knows how much extra it will cost her and is probably comfortable in paying the asking price.

On the surface, it seems that this is the perfect way to calculate an architect’s fee.

Dig a little deeper, and it becomes clear that like the lump sum fee, incremental tasks aren’t easily able to adapt to changes in design scope. If the brief at the outset of a project is for a modest 150sqm house, but this expands to 200sqm during the sketch design phase, the time required of subsequent tasks is likely to be higher than first anticipated. This introduces the hassle, likely compromises and possible conflict associated with fee renegotiation.

Not having used this method across a full project before, I’d welcome any reader feedback on this issue. Fixing it would make this method substantially more appealing.

Design

The incremental tasks method is one championed by architectural consultancy firm, Blue Turtle Consulting. I attended a seminar of theirs four years ago, an experience I blogged about here. Their argument is that a client presented with fee options is one more likely to value the services she is provided, and more willing to pay for extra services when required.

I don’t have a problem with this position at all, indeed I applaud it. However, there are many parts of architectural services that aren’t negotiable. Offering any of these up as options for a client to not tick risks the architect either delivering a subpar service or surrendering control over the results of her own design process. It seems simple enough to remove a fittings and fixtures schedule from the architect’s responsibilities, but what if the she can’t stand the fittings selected by her client?

Combined with the limitations of the method in adapting to changes in scope, I don’t believe it is well suited to high quality design outcomes.

Ease

By breaking a project that takes many hundreds of hours over many months down into small chunks, it becomes much easier for the architect to calculate how much time is required for each. She still needs to be careful not to shoot too high or too low with her assumptions, as this will either lose her the commission, or win her the commission but cost her dearly. However, the risk of the former is reduced at least as the client is able to deselect as many increments as she likes to bring the fee in line with her expectations.

Suits

Given the greater responsibility placed on the client in determining the services her architect is to perform, incremental tasks best suit projects where the client has worked with her architect before. This might be a developer who works regularly with a single architect to deliver many small (or large) speculative projects, or even a private client with experience in the industry.

Service or product

The incremental tasks method is strongly tied to the service offered by the architect, though this is mitigated by the calculations she is required to perform at the outset to determine how much each task will cost. A fittings and fixtures schedule for a $5m mansion will be substantially larger than one for a $500,000 renovation, thus will be charged at different rates.

Advantages

  • It’s fair. The architect is paid for the tasks she performs, no more and no less. This established a clear relationship between the work done by the architect and her fee.
  • It’s empowering (for both client and architect). The client is able to choose which tasks her architect will perform and which she won’t. Likewise, the architect has a mechanism in place to request more money when required: “Yes, I can design that extra piece of joinery for you, that will cost you an extra increment of $2,000. Are you okay with this?”

Disadvantages

  • It’s fragile. Like the lump sum fee, changes in scope that affect already agreed-upon future tasks are hard to renegotiate.
  • It’s inflexible. With the tasks required of the architect set in stone from the outset of the project, she is disincentivised to decide on a whim to change her process or build that model after all. Doing so would undermine the very basis of her fee structure.
  • It’s risky (for the design). With ample opportunity for the client to save a few dollars here and there, the architect risks not having a say in something that might actually end up having a strong influence on the quality of the design outcome.

 


Image source:

  1. Incremental tasks, author’s own image.

Explaining hourly rates

There are three traditional methods by which an architect can charge fees to her client: the percentage fee, lump sum fee, and hourly rates. Inspired by the lean startup strategy, there’s a fourth method that’s emerging amongst younger practices: incremental tasks.

This is the 4th in a series of five articles that will assess the benefits and disadvantages of the four fee methods. It will analyse each from the points of view of both the architect and the client, and ask how well they tie an architect’s income to the value of her labour.

An archive of the series can be accessed here.

Architecture; Architecture fee types; Fees; Money; Gold

Hourly rates

Overview
The architectural fee is based on hourly charge-out rates. In its purest form this method is entirely open-ended, much like a cost-plus building contract. The client pays the architect for however many hours she works.

Alternatively, the fee may be capped for each stage. I have to confess that this variation has never made sense to me: the client receives the dual benefits of a fixed fee cap plus the possible upside of reduced fees, while the architect enjoys neither the certainty of a fixed fee, nor the risk-free security of hourly rates.

In another variation, the architect charges her fees in the form of a monthly retainer. She receives a fixed sum for each month irrespective of how few or many hours she works, but is guaranteed this sum for as long as the project continues.

Transparency
The hourly rates method is simple to explain, though its very nature makes it difficult to quantify a total fee. Capping the hours is one way to introduce an upper limit to the fee, and therefore provide greater certainty for the client.

Like the lump sum fee, it is essential that a clear scope of works be defined. In this case however, the onus is on the architect to provide ongoing reassurance to the client that the hours spent are all necessary. Regular updates via timesheet summaries are the best way to keep the client informed. Where there are client-requested changes in scope, these are easily accommodated by simply adding the extra hours to the total.

Fairness
Undertaking a project using the uncapped hourly rates method seems like it would be any architect’s dream come true: licence to use as many hours as she needs on a project, and be paid for each and every one of them.

Having had some experience with cost-plus building contracts before, I know however that this dream is not as shiny as it first seems. Every hour is likely to be scrutinised, counted and even questioned. This can imbue a project with a subtle undercurrent of distrust between architect and client. The latter is hardly going to suggest that more hours be spent on a task after all. By leaving the fee unfixed, it inserts itself as a topic of possible controversy for the duration of the project. Instead of discussing design, the architect and client find themselves arguing about process: how long a task will take, even why it needs to be done at all.

Design
In contrast to the pressure to use fewer hours, I wonder whether a blank cheque wouldn’t introduce a simultaneous element of laziness in the architect’s habits? With no theoretical limit to her fee, the architect is less likely to work efficiently, and less likely to produce good design. This will hurt the architect’s business in the long run: becoming dependent on an unlimited fee for one project can ruin the other, regular ones.

Ease
One of the key benefits of the hourly rates method is not needing to quantify the length of time required of a project at its outset. There is likewise no need to account for possible changes in scope, as these will just be added to the tally. The challenge is really distilled down to picking the right hourly rates, though using the general rule of thumb of 1 : 1 : 1 for wages : overheads : profit is a safe approach.

Suits
The hourly rates method is best suited for small design projects, where there is a low risk of a substantial time blowout, or for fragments of larger design projects, where the work required of the architect is for some reason unquantifiable. An example of the latter is the town planning process, whose unpredictable nature makes it perfect for hourly rates.

Service of product
The hourly rates fee has no relationship at all to the size, cost or complexity of the building being designed. While a highly detailed $1m house and a large though rudimentary $1m carpark might earn the same fee using the percentage method, the hours required would be markedly different for each.

Advantages

  • It’s risk free (for the architect). Charging by the hour means no unpaid work ever, and hence entirely risk free labour.
  • It’s easy. There’s no need for the architect to budget her time in advance. She simply does her work, then charges for it.

Disadvantages

  • It’s risky (for the client). Unless some form of hourly cap is established, the client carries all the risk for time and cost blowouts. Except for small or hard-to-quantify projects, I would argue this also makes it very unlikely a client will agree to this fee method in the first place.
  • It’s controversial. Leaving the fees open-ended makes them more likely to be a subject of ongoing discussion between client and architect, and hence possible argument.

This article has been published in conjunction with ArchiTeam.


Image source:

  1. Hourly rates, author’s own image.

Explaining the lump sum fee

There are three traditional methods by which an architect can charge fees to her client: the percentage fee, lump sum fee, and hourly rates. Inspired by the lean startup strategy, there’s a fourth method that’s emerging amongst younger practices: incremental tasks.

This is the 3rd in a series of five articles that will assess the benefits and disadvantages of the four fee methods. It will analyse each from the points of view of both the architect and the client, and ask how well they tie an architect’s income to the value of her labour.

An archive of the series can be accessed here.

Architecture; Architecture fee types; Fees; Money; Gold

Lump sum fee

Overview
The architectural fee is offered to the client as a fixed sum of money that covers the architect’s full services. It typically allows for minor variations to the project scope, for example less than +/- 10%, however any major variations trigger a renegotiation.

The methods used by the architect behind the scenes to calculate the lump sum fee are varied, from counting the number of hours or drawings required, to speculating on what the market will pay. As these assessments are often difficult to make accurately, it is common to use the percentage method as the basis for the fixed fee calculation.

Transparency
Like the percentage fee, the lump sum provides one all-encompassing number for the architect’s services. However, this number is a dollar figure rather than a percentage: it tells the client exactly how much her architect will cost from beginning to end. From the outset, this provides the client with great transparency.

An important caveat however is the requirement for a well-defined project scope. The lump sum fee is fixed only so long as the scope also remains fixed. Since it is the client’s responsibility to determine this, it is essential she does so thoroughly. The question of transparency therefore shifts from how much the architect will charge, to what she’ll actually be doing. Grey areas are best avoided: since there’s no wiggle room in the fee, the architect needs to explain very clearly to her client what that fee buys her.

Fairness
On projects where the scope of services remains unchanged, the lump sum method is perfectly fair. However, the nature of architectural projects is inherently uncertain. They’re likely to change in big ways and small, across every stage of their development. This is where the fixed lump sum becomes less attractive.

While it’s true that the lump sum fee can be renegotiated if needs be, this is easier said than done. I see two reasons why: first, it requires goodwill from both architect and client – if either feel’s she’s not receiving a fair deal there’s no hope for a successful negotiation. Even where the architect has a good relationship with her client, asking for more money can be a prickly topic. And second, negotiation implies compromise. As my barrister brother once told me, the very definition of negotiation means reaching a deal where neither party walks away happy. I experienced this on one of the few projects where my client insisted I provide a fixed lump sum fee. During detail design, the project scope ballooned by around 30%, but the subsequent renegotiation only saw me receive an extra 10% in fees.

So at both the macro and micro scales, the lump sum fee proves fragile. It works so long as the scope remains unchanged, but falls apart very quickly otherwise.

Design
Like the percentage fee, the lump sum method is an holistic financial model. This allows the architect to choose where she wants to spend more time and where less. The key consideration is whether the project as a whole is profitable.

Unlike the percentage fee, the lump sum offers very little wiggle room. With pressure to steer clear from a fee renegotiation, the architect is disincentivised to arrive at a design solution that requires extra work. It does not support the inherent exploration required of good design, and is likely to lead to expedient (i.e. poor) design outcomes.

Ease
Picking the right fixed fee to charge a client is difficult. The architect is caught between opposing forces: on the one hand, she wants to win the job, and thus make her fee as tight as possible; but on the other, she also wants to plan for the inevitable changes in scope, and thus make her fee as generous as possible. Somehow, she has to magically pick the perfect middle ground.

As someone fundamentally allergic to gambling, this is not a bet I’m comfortable in making.

Suits
The lump sum method is best suited to projects where changes of scope are less likely. This might be because good design is not desired (e.g. a factory), or because the project typology is extremely well defined or regulated (e.g. a school). It is particularly well suited to developer clients, who traditionally aren’t interested in thorough design exploration, and are less willing to shoulder the risk of an unfixed architectural fee.

Service or product
The lump sum fee straddles the middle ground between service and product. On the one hand, it’s derived from the project scope, but on the other it’s immune to the project cost uncertainty that comes from market-exposed construction pricing.

In summary:

Advantage

  • It’s safe (for the client). The lump sum fee provides the client with a fixed, quantifiable cost from the beginning of the project. As long as she keeps the project scope unvaried, she knows exactly how much she needs to pay her architect.

Disadvantages

  • It’s risky (for the architect). It requires the architect to cover herself for possible design variations, while simultaneously targeting her fee to win the project. Winning the project might simply mean she gambled too low, exposing her to considerable unpaid work.
  • It’s expedient. The fixed nature of the lump sum fee discourages the exploration and iteration that results in good design. Getting to a solution on the first pass is more important than getting to the right solution.
  • It’s fragile. As the source of scope changes is often hard to identify, charging extra fees for extra work can be fraught with tension. Even when a change clearly originates from the client, this doesn’t necessarily mean the client will be happy to pay extra. It works fine until suddenly it doesn’t.

Image source:

  1. Lump sum fee, author’s own image.

Explaining the percentage fee

There are three traditional methods by which an architect can charge fees to her client: the percentage fee, lump sum fee, and hourly rates. Inspired by the lean startup strategy, there’s a fourth method that’s emerging amongst younger practices: incremental tasks.

This is the 2nd in a series of five articles that will assess the benefits and disadvantages of the four fee methods. It will analyse each from the points of view of both the architect and the client, and ask how well they tie an architect’s income to the value of her labour.

An archive of the series can be accessed here.

Architecture; Architecture fee types; Fees; Money; Gold

Percentage fee

Overview
The architectural fee is calculated as a percentage of the cost of construction works. A large project generally requires more work than a small project, hence attracts a larger fee. It benefits from an economy of scale however, so the percentage itself is smaller than for a small project.

To illustrate:

  • A $1m project might attract a 10% fee, which equates to $100,000
  • A $1.5m project might attract an 8% fee, which equates to $120,000[1]

A further defining characteristic of the percentage fee method is that it automatically adjusts during a project if the construction budget changes. If the budget goes up, so does the fee, and vice versa.

Transparency
The percentage fee needs some explanation at the beginning of the client / architect relationship, however it’s simplicity makes this a relatively easy task. By keeping the client updated with fee summaries at each invoice, it is also possible to maintain transparency throughout the project. This is especially helpful whenever there’s a change in project scope: the percentage fee automatically updates to reflect the new budget, so should be communicated to the client.

From the client’s perspective, the main disadvantage of the percentage fee is its inherently unfixed nature. At the start of the project, there’s no real way of knowing for sure what the architect’s fee will total by the end.

Fairness
With its inbuilt ability to adjust to changes in scope, the percentage fee is at the macro scale a fair representation of the amount of work required of the architect. This helps the client too: as it’s ultimately up to her to determine the scope of the construction works, she is empowered with some control over the architect’s fee.

At a micro scale, the percentage method makes it hard for the architect to protect her fee base. In other words, small changes to the work required of her are often done without charging the client. It seems petty to ask for an extra hour of fees in the context of a couple of years of design services, but over the course of a project these small favours can add up.

As discussed in the opening article of this series, the most significant shortcoming of the percentage method is its susceptibility to fluctuations in the construction market. It exposes the architect’s fee to the unpredictable outcome of the tender process. This can mean she suddenly loses a portion of her fee, though more often than not it will be the client who must pay extra.

Design
Like the architectural design process itself, the percentage fee is an holistic financial model. It covers the architect’s services with a single, all-encompassing fee, thus giving the architect room to manage the process as she sees fit. If she wants to spend more time picking light fittings and less time building sketch design models, she’s free to do so. Any given part might be more or less profitable than another, but this is not as important as regarding the fee as a whole.

Ease
Without the Australian Institute of Architect‘s fee scales, it can be difficult working out how to pick the right percentage. This is particularly relevant for younger architects. Indeed, I can vividly remember a Process at Loop session a couple of years ago that descended into a mob-like protest when recent graduates vented their frustration at the profession-wide lack of guidance.

That said, I believe the percentage fee provides a younger architect with an easy, one-stop solution to determining her fee. She can use it get her practice underway, and work out the details of the actual tasks involved later. The percentage fee becomes easier to manage with experience.

Suits
The percentage fee method is best suited to traditional architectural projects with a decent construction budget, say $300,000 or higher. It is particularly appropriate for projects whose scope is poorly defined at the outset, but whose architect and client are interested in a good design outcome. This might be a renovation to a house or a restaurant fitout, where the design process is an evolving dialogue from start to finish.

Service or product
The percentage fee is fundamentally tied to the product i.e. the building. This means the architect represents herself as the facilitator or guardian of that building: she succeeds or fails based on its outcome.

In summary:

Advantages

  • It’s elegant. The percentage fee provides the client with a simple, all-encompassing number, there’s no need to keep track of the hundreds of tasks covered by the fee. This advantage applies also to a young architect without years of experience behind her. She is able to use the percentage fee method as a one-stop solution for determining her fee.
  • It’s flexible. It automatically adjusts as a project budget (and therefore scope) changes. This can be done without exposing the client / architect relationship to the tension of renegotiation.

Disadvantages

  • It can be unpredictable. The percentage fee method puts an architect at the whim of market forces well outside her control. If a builder on the tender list happens to be desperate for work and deliberately undercooks his tender just to keep his staff busy, then the architect’s fee is likewise diminished.
  • It’s conflicted. To be more precise, it provides room for an unscrupulous architect to extract unethical profits.[2] The percentage fee might incentivise the wrong architect to inflate the cost of the building so her fee is likewise inflated.
  • It’s too elegant. By presenting the fee as a straight-forward, all-encompassing number, it’s very difficult to vary it by small amounts. A little bit of extra work here and there tends to be done despite not having been budgeted for. In short, the architect ends up doing lots of work for free.

Footnotes:

  1. Disclaimer: these percentage rates are not recommendations, only examples.
  2. It goes against my values as both a professional and a human being to ever consider doing this, however as it’s a possibility that was recently raised by a potential client, I’ve included it for the sake of completeness.

Image source:

  1. Percentage fee, author’s own image.

Explaining the architectural fee

Architecture; Architecture fee types; Fees; Money; Gold

According to the standard client and architect agreement published by the Australian Institute of Architects, there are three traditional methods by which an architect can charge fees to her client:

  • Percentage fee
  • Lump sum fee
  • Hourly rates[1]

There’s a fourth method that’s emerging amongst younger practices, inspired by the lean startup strategy and the practice of web-based design platforms like Elto:

  • Incremental tasks

The percentage fee is the most common method used by architects, however it’s rare in other professions. Potential clients are often unfamiliar with it, and almost guaranteed to ask for an explanation of its logic. Some also question its implied conflict of interest, where the architect is incentivised to inflate the client’s budget to in turn inflate her own fee.

Despite these hurdles, the percentage fee is my preferred method and the one we generally use at Mihaly Slocombe. This preference can be traced back to our university studies, where various architecture practice lecturers recommended its fairness and transparency. They dismissed the conflict of interest issue, pointing out that most service providers face the same challenge, be they dentists or lawyers or mechanics. Many years ago, the Australian Institute of Architects also published a percentage fee scale, further cementing it as the architect’s fee method of choice.[2]

When we started our practice, the percentage fee was in essence the default method, and it has continued that way since. My interest in exploring this subject now stems from an issue that I believe is only just entering mainstream discourse. An architect is a service provider, not a builder, yet her profitability is tied to the buildings she instructs others to make. Shouldn’t her fees be instead tied to the work she does?

The percentage fee is predicated on the idea of a direct correlation between the cost of a building and the amount of work it requires to design and document. But the very nature of the construction market assigns inconsistent costs to buildings. Factors well outside the architect’s control – things like a builder’s need for work, or how thoroughly he understands her documents – can influence how much it costs to build. These factors don’t affect the amount of work required of the architect, but they do affect her profitability. The quantity surveyor I use across all of our projects, Geoffrey Moyle, has reflected on more than one occasion that this arrangement is madness.

The issue runs even deeper however. As I discussed in my review of the recent Australian Institute of Architects national conference, the future of the architecture profession is unclear. Thomas Fisher suggested in his keynote address that the scope of an architect’s services is becoming increasingly untethered from the built environment. Is the administrative structure that surrounds and facilitates the percentage fee method not then hindering architects to exploit this transition? Is there a better way to link an architect’s remuneration to the broader value of her services?

I’m intrigued therefore to assess the benefits and disadvantages of the four fee methods. Notwithstanding my general use of percentage fees, I’m not convinced of its universal suitability. Certainly, I don’t believe there’s a single correct solution for all architects. Some methods will suit particular architects / clients / projects better than others.

Continuing on Monday next week, this series of five articles will aim to provide clarity on each fee method. I will analyse them from the points of view of both the architect and the client, and ask how well they tie an architect’s income to the value of her labour.

An archive of the series can be accessed here.

This article has been published in conjunction with ArchiTeam.


Footnotes:

  1. A copy of the client and architect agreement can be downloaded here. Membership with the Australian Institute of Architects is required to access this page.
  2. The Competition and Consumer Act 2010 prohibits mandatory fee scales. Source: The legal status of fee scales; Acumen; Australian Institute of Architects; last edited January 2012. There has long been talk of the fee scale re-entering general circulation, though there’s been no definitive action as far as I’m aware. The original is still persona-non-gratis, but I may know a guy who knows a guy who might have a copy. Send me an email and I can possibly put you in contact, for historic interest only of course.

Image source:

  1. Architectural fee types, author’s own image.