Your proposal hits the right spot, you share great chemistry with the client, your expertise is exactly what will benefit the project. Yet, when it comes to fee negotiation, you find yourself either settling for a number lower than your expectation or simply not getting hired. Most Architecture practices in their formative years share the same story. How to go about fee negotiations is one of the many things they don't teach you in an Architecture school. You either learn it the hard way or unwittingly concede every time to the low rates clients are willing to pay for your services.
I spent several hours and a fair amount of money attending sales and marketing workshops when I started my practice. Fee negotiation is the make or break point in the whole process and there are too many people giving various opinions and advice on how to go about it. Let me save you some time by listing down only the useful learnings from these sessions that have actually had a positive impact on my negotiation skills.
Table of Contents
Rember these four things at all times
1. Know your worth
If you are the only architect in your town, you don’t have to read further. For the rest of us, the market is full of tough competition. What makes the client hire you and no one else from the pool of equally competent architects is a fair understanding of the value you could add to the project. So before getting into any negotiation, first make sure you are aware why your expertise and skills are the best for the project, and then make it a point to communicate the same to the client.
For example, in case of a residential project, your project management skills would be a value add for the client who's in a hurry to move into the new house. Or in case of a specialised job like school design, your past experience in designing multiple schools may increase your value for that particular project. Irrespective of the project, there may be specific services you provide your clients as an add-on to facilitate the project. For instance, if your office is well equipped with BIM technology, that's a value add for your practice. If your expertise lies in sustainability and green buildings, your value as a service provider is higher than most of your competitors. What makes you stand out from the rest is what the client will eventually be paying for.
2. Define a bottom line
Clients will be clients. They will always be keen on paying you the lowest price for your services. So, to begin with, your services must have a lowest price. Please note that we're talking about the lowest price for your services and not the lowest price in the market. If you haven't already, work out your annual projected expenses and prepare a financial plan for your practice. Start by making a list of recurring, one-time, variable and fixed expenses to be able to set your financial targets.
For more tips on financial planning for your Architecture practice, refer to this article. Once your annual/ quarterly targets are set, work backwards to get a better judgement of the minimum number of projects you are capable of taking up each month and how much minimum fee you need to charge per project to sustain your business. This is the bottom line or the break-even point for your project fees and you shouldn’t settle for any amount lower than this. In case you come across a project that promises to do more for the visibility of your Architecture practice than it would do for your accounts, or a project that may be a precursor to a series of more valuable projects, you could consider charging fees below your bottom line.
3. Drop the number first
There are various opinions on this subject. The workshops I attended left me confused because we don’t seem to have a consensus on who should drop a number first. If you go first, there's this fear that the client may instantly dismiss it if it's too high for him/her. If the client says it first, it's really difficult to get them to even consider a higher amount.
After doing a little research, I finally found the best answer to this on a video I recently came across on YouTube by The Futur in which Chris Do talks about the concept of Anchoring. He recommends you dropping your number first, because 'whoever drops it first is winning.' By dropping it first, that number works as an anchor that sticks in the client's head. Once the number is anchored, it is difficult for the client to get rid of that number from his mind and it acts as a point of reference for the negotiation. If they happen to
drop the number before you, Chris Do suggests you just ignore the anchor and don't let that affect your anchor number. Stick to your guns.
4. Answer the 'What is in it for me' question
An architect's job doesn't start and stop at providing design services. You have the capacity to see the project in the larger scheme of things such as context, planning, materials, timelines, environmental impact and most importantly, costs. In every project, there's always something the users or the clients are bound to gain. If not immediately, over the years they can see the benefits of decisions that are taken today.
Recently, a developer approached our office for a residential project where 20 apartments were to be planned. The project brief was straightforward and the developer had already done his calculations in terms of return on investment, which he was quite happy with. However, when we suggested that by giving up 4 apartments, he could add 1 floor of commercial space that would earn him at least 1.5 times the value of these 4 apartments, he was dumbfounded. He was unaware of the newly sanctioned policy amendment that would allow a mixed-use building in that area. This was the first project I worked on where there was no fee negotiation. It's your job to make the client aware of such short/ long term gains (in the form of rental income, energy savings, adaptability, etc.) that a good design would facilitate.
Architecture design fees are only a small part of the project cost and the clients are well aware of that. In any deal, see if your proposition answers the one key question in the client’s mind - ‘what is in it for me?’.
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