Landis: How to Profit on Design in the Design-Build Process
authors Christopher K. Landis | April 14, 2021
“If you think good design is expensive, you should look at the cost of bad design,”
— Dr. Ralf Speth, CEO of Jaguar Cars
When my brother and I started our company in 1990, we were doing handyman work and installations for a big-box chain. Clients began asking us to do layouts for kitchen and bath projects. Then clients began asking us to create permit drawings.
Back then I was hand-drawing plans and physically taking them to the permit office. As we grew, we hired architecture students from local universities. Over time, we invested in computers and design software and hired a full-time designer in the mid ’90s.
The move into design was organic, but it was maybe slightly accelerated because I am an architect. Many contractors view design services as an enticement to get clients to sign into construction. We felt that placing an importance on design provided for the planning to make a project successful.
We also felt that placing an importance on design would bring in clients who valued design and professional services while telling our designers that they are a valuable part of our company.
We have a two-step sales process with separate design and construction proposals. Our design department consists of a nine-person team with architects, designers, interior designers and finish specialists, as well as a project coordinator. This department’s goal is to generate a 10 percent net profit and create a seamless hand-off from the designer to the project manager.
Our design proposal fees started out at 3 to 4 percent of construction costs; but as our project sizes grew and became more complicated with additions, engineering, zoning, and historic districts, we increased to a 10 percent design fee.
How Do You Sell Design?
Define your company’s unique selling proposition. What do you offer that other companies do not? Which types of design do your clients want? Look at your competitors and industry standards in your area. Based on our experience, we offer several types of design services that we think serve our clients’ needs.
- Feasibility study: If clients aren’t sure how to accomplish their goals, we can create a few schematic scenarios and a preliminary estimate. Time spent during feasibility is credited against the full design contract.
- Full design: This is our most common proposal and works best if the client has a solid scope of work. For example, a two-story addition with a family room and kitchen on the main floor and a master suite on the upper floor.
- Master plan: When the client has a large scope and wants to complete the project in phases.
- Pre-construction services: When the client has plans from an outside architect but needs permitting and construction. The end goal of this is to produce a construction proposal.
- Real-estate investment analysis: Consultation for those purchasing a house.
For a full design proposal, we ask for a 50 percent retainer at signing, 25 percent at schematic approval and 25 percent at the delivery of construction documents. Our estimator does a price check at each phase of design. Our designers include the phase of the project on their timesheets, so we can analyze how long each phase takes.
When design contracts are part of a larger design-build process, design continues to be a part of the building phase. The designer is available for cabinet- and electrical-layout reviews and to answer questions as the job progresses. This service is built into every construction estimate with a number of hours per week. The money from these hours is then credited to the design department.
Any employee-hours spent attending a trade day at a project is charged to design. We set and track design revenue goals with reports that show gross and net profit by salesperson and designer.
Design Revenue Extras
Another way to enhance design profitability is to negotiate a discount on appliances and then sell them at list price. Since the selling and specifying is done in design, the revenue generated is credited to design. This is the same business model that interior designers use for all the furnishings they purchase on behalf of the homeowner.
An added benefit of the design-build model is when you have exceeded the allotted hours on a design contract, and you don’t want to issue a design change order, you have the option of including the cost into the construction contract.
We always recommend a design change order if the client asks for a significant change in the scope of work. Transparency is the best policy. But there are times when additional hours may impede the sale into construction.
Our company marketing includes promoting our in-house design and selections expertise as a competitive differentiator. The design department has a hand in all the outward facing promotion of our company and informs everything from the marketing materials to website design, business cards, letterhead and job signs.
I believe every company can create a profitable design department. Just as electrical and plumbing are 8 to 10 percent of any project’s overall construction budget, you would never think of giving that away for free.
If you do not charge for design or do not charge enough, you are telegraphing to the world—and your employees—that design is somehow not important. As the old adage goes, “If you fail to plan, then you plan to fail.” QR
Christopher K. Landis, AIA, owns Landis Construction in Washington, D.C. He brings 30 years of remodeling design, construction and management experience to this series of columns for the magazine. You can reach him at email@example.com.