There are many firms providing their design services, and it’s difficult to choose a designer that fits a customer’s needs. The main reason why this happens is that there is no standardization in pricing. Designers charge differently based on their experience, skill set and reputation. This means that it is difficult to compare prices across designers.
In order to address this problem, an interior design platform such as RenoNerds helps customers to get all the interior designers and contractors they need at one go, and customers would expect everyone to give proposals in a few days. The client then gets to compare the prices and pick the best one for his budget.
However, the same scenario happens every time. Just do the maths, 10 proposals equal a 10% chance of acquiring the contract. Nine firms will go back empty handed and the winning firm will price the job out of proportion to compensate for the losses incurred in previous projects.
The best way to avoid this situation is to have your own team. This means you can manage your own project from start to finish. You don’t need to rely on other people or companies to make decisions or deliver results. If you want to be successful, you must be able to control the entire process.
What happens when an ID firm relies on pitching and proposals alone to get clients?
Let us do a simple cost estimation for a 3000 square feet turnkey project proposal. So, we are looking at a total bill of $1,926 per day.
A 3-man team would normally work 12 hours per day, 6 days a week, with 2 weeks off in between assignments. That works out to $2,846 per month. We will add another $300 for rent, which brings our monthly expenses up to $3,146.
A typical floor plan will be around 10 pages long, including the front elevation, side elevations, rear elevation, roof plan, section drawings, electrical diagrams, plumbing plans, mechanical drawings and structural calculations. These will require at least two designers, a quality assurance engineer, and a director to oversee the proposal. A senior designer will charge an average of $234 per day and a junior designer/3d renderer will charge an average of about $152 per day. Software costs will run you about $55 per day.
A basic operational cost rental, utilities and supplies costs $180.00 per room per day. A total cost per room per day is $621.00. If you multiply this by four days, you get $2,484. You then need to add on the cost of support services such as Quality Services (QS), Accounts, Sales and also other intangibles like Transport and relevant company overheads. The question is who will pay the extra cost of the proposal if your project is lost? Will the business be sustainable in the longer term? This is only an example of what could happen if the project is lost. Most proposals are more than three thousand square feet and will require probably triple this amount of space.
What is typical budget for a small boutique ID firm of less than ten employees?
In my previous company, I worked with a team of designers and developers who were paid an hourly wage. We had a monthly burn-rate of about $30k, meaning we were spending at least $1500 per day. To supplement our income, we had to sell products that generated a minimum of $100k a month (or 30% profit) to break even and $120–$150k a month to be profitable. If our sales grew at a rate of 1.5–2 million dollars a year, then we could expect to reach profitability within three to five years.
In today’s market, a small boutique ID firm needs to spend at least $40,000-$50,000 per month just to keep up with its competitors. As costs continue to rise, many smaller firms struggle to pay their staff. To survive, companies need to hire freelancers instead of full time employees.
How will the business benefit financially?
I think the pitch & proposal model is great when you’re just starting out. But once you’ve got clients, it’s time to move away from it. If your pitch isn’t working, then you need to figure out why. You may need to adjust your approach, or you might need to change your product. Or maybe you need to get rid of your product altogether.
The key thing here is that you should never rely on pitching and proposals alone. It’s not enough to have a good idea. You need to prove that you can execute on it. And that means getting people to buy into it.
If you want to know how much money you’ll earn, you’ll need to calculate your margins, which is essentially the difference between the price you charge and the cost of producing your product. For example, let’s say you charge $10,000 for a one-bedroom apartment. That means you’ll need to sell $10,000 worth of apartments to cover your expenses. Let’s say you sell 100 apartments. Then your margin would be $1,000 ($10,000 – $10,000).
Quantity or Quality?
Many residential ID companies tend to go overboard when it comes to advertising. They often offer free designs and proposals just to get leads. This practice may not be appropriate, because it might encourage spec work. Spec work means that a client hires a design company to provide a proposal instead of hiring a professional architect. Sometimes, spec work is done by inexperienced architects who lack expertise.
When it comes to pricing, some ID companies use lowballing tactics to attract new customers. Lowballing refers to offering lower prices than the competition. However, lowballing doesn’t always mean a good deal. In fact, it can lead to poor service and unprofessionalism. Clients nowadays expect every designer in Singapore to give them free designs and proposals.
How do we get there?: Path to Profitability
In a perfect world, clients will choose the right designer for them. Once chosen, they will be able to pay an annual subscription to access our library of designs, which will keep them up to date with the latest trends and styles. We will continue to grow this library as we expand globally.
Alternatively, a strict accreditation system could be put in place to ensure that the designers hired are properly trained and that the quality of their work is at par with other designers in the same field. If all designers were accredited, there would be less competition and more stability in the market.
Singapore is an example of what can happen when you put your trust in the right people and organizations to get the job done. When the government decided to change its approach to real estate, the results were amazing. More than 1,000 agents were accredited and thousands more were licensed. This allowed them to operate legally and responsibly. As a result, there is less competition, fewer scams, and fewer complaints about bad service.
The rate at which we are seeing change in our industry is unprecedented. Our clients are changing, and we need to adapt to those changes if we want to continue to succeed. A lot of our current clients aren’t millennials, so we need to figure out ways to reach them. If we don’t, we’ll lose them to other firms.
The new millennium is calling for a change in thinking. Millennials will not settle for free designs and proposals. Instead, they demand a credible, professional approach through high quality design services, an effective social presence, and digital media to showcase their capabilities.