How do Architects Structure Their Fees?

When you call a lawyer and ask for their professional advice and they talk to you for half an hour, you expect to get a bill for half of their hourly rate in the mail, right? While architects may differ in how they calculate their estimates and structure their billings, the basic fact is that they are providing their time and expertise as a professional service for a fee. You are not really paying for the design drawings or the construction documents; although those are the instruments of the professional service. You are really paying for the expertise it took to create the drawings.

In architectural firms, the biggest expense by far is payroll and benefits–the money it takes to hire and retain creative and technical talent. The hourly rate for the architect and the technical staff is made up of the following elements: The direct personnel expense for the employee, multiplied by a factor for overhead and benefits costs, plus a narrow profit margin, usually around 5%.

To compare architectural fees, three things are necessary: the scope of work, the number of square feet to be constructed, and the average construction cost per square foot for the project site. It is important to know what is included in the scope of work so that you are comparing apples to apples. The majority of architectural firms charge work at an hourly rate. Some firms charge a negotiated fixed fee, but there are some services that are not included in the fee and will be charged as an additional service. Some firms charge a percentage of the construction cost, and a few charge a standard fee per square foot. No matter how the contracted services are billed, the underlying calculation is based on how many hours the project will take.

Don’t be surprised that architects tend to think in terms of hours, not just “per square foot” costs. An architect will consider how predictable the project is. Time for design and permitting, for example, is less predictable than the time necessary for preparation of construction documents. Some jurisdictions are very difficult to work in and obtain permits. Some projects have unique challenges or site conditions that may take an unusual amount of time to resolve through design revisions. If the project will require a high level of custom details, or is fast-tracked, the amount of effort required will be greater.

When we give you a proposal with estimated fees, we are betting that we know in advance how long it will take to a) research the property, b) create the design, c) consider details and materials, d) create the construction documents, e) get approvals and permits, f) collaborate with engineers, and g) obtain responsible bids from contractors. That is just an overview of the detailed analysis of the services to be provided, which is called the “scope of work”. Experienced architects are reasonably accurate in making these predictions based on their own calculations and the hours used for similar projects that they have completed. When we give you a proposal we must feel confident in our estimate. A few unanticipated hours on a project can easily throw us over budget, creating a situation where we are working very hard without actually making any profit. So we put a lot of thought and effort into our estimates.

Some architectural firms do not accept credit cards for payment. Credit cards are easy to process, save time and improve cash flow. But the fact is that the credit card processing fees of 2 to 3% cut directly into that 5% profit margin. Firms that accept credit cards have to consider the fees as part of their overhead, which raises their rates. To keep our rates competitive, our firm has resisted the trend toward accepting credit cards. We realize that customers like their credit card rewards programs. But consider that the various airline miles or rewards programs give a 1% return or less per dollar spent. If you paid 3% more for the service, that gives you a 2% net loss. That difference can run into hundreds of dollars on a typical architectural project. When polled, our clients have overwhelmingly expressed a preference for the lower price instead of using a credit card. (We do provide an online payment option, so clients can choose to pay more conveniently and go paperless.)

Some firms are uncomfortable discussing their fee structure, but we believe that architectural services are often undervalued and could benefit from being more transparent. Here’s an interesting blog that gives a lot more detail on these issues:

When hiring an architect, don’t feel embarrassed to ask for information about how they arrived at their estimate and the scope of work that is included. The more comfortable you feel with what you are being charged, the more productive your relationship will be with your architect. That increases the chances of a successful outcome for your project.

Lorianna Kastrop
Vice President
The Kastrop Group, Inc. Architects

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