The No. 1 Mistake Architects Make With Design Fees
Design fee consultant Ian Motley explains how architects can increase architectural fees and profit margins with a simple change to their pricing strategy.
For decades architects have struggled with a common dilemma: “How can we communicate the VALUE inherent in the design services that we provide and receive an adequate fee for architectural services?”
Proposing the right fee and communicating value is a problem faced by many industries, not just the design industry.
For example, back in the early 2000s, one of the largest insurance companies in the United States (Allstate) decided it was time to address this issue head-on by conducting a customer ‘value’ survey. I would like to review the results of their survey and demonstrate how it can help architects write more successful fee proposals.
Customer Value Survey
One of the objectives of the Allstate survey was to learn more about their customer’s values so that they could increase their value proposition, attract more customers, and run a more profitable business.
The results of their survey were quite intriguing!
You see, while they were able to confirm that the initial price of insurance plays a pivotal role in their customers purchasing behaviour, they were also able to confirm that price was not their only consideration when purchasing auto insurance.
Price is Not the Only Consideration
Many Allstate customers reported other concerns, including the potential for costs to increase (should they tarnish their driving record with an accident or claim) and the potential for cost savings (should they maintain a clear record with zero claims).
So, in 2005 Allstate set about amending their pricing strategy to address the different values expressed by their customers.
How to Demonstrate Value in Auto Insurance
This led to the development of not one, but four different insurance plan options, and four different price points, for their customer’s consideration.
Option 1: Accident Forgiveness Plan
First, there was Allstate’s original insurance policy they call the Accident Forgiveness Plan because it offers all customers the opportunity to maintain their current insurance premium if they’re able to achieve five years accident-free.
Option 2: Value Plan
Then there’s the Value Plan option. This was a new option aimed at the budget-conscious customer because it includes a 5% lower premium, but no Accident Forgiveness coverage.
Option 3: Gold Plan
Next is the Gold Plan option. This policy offers immediate Accident Forgiveness (for those customers who don’t want to wait five years) in return for a 5% increase on the Standard Plans fees.
Option 4: Platinum Plan
And finally, there’s the Platinum Plan option. This option includes the Accident Forgiveness policy for multiple claims, plus a safe-driver bonus credit, for each accident-free six-month period. The Platinum Plan option can be purchased for a mere 15% above the cost of the Standard Plan option.
According to the statistics published in the September–October 2018 edition of the Harvard Business Review, Allstate had sold 3.9 million auto insurance policies by 2008, and was reportedly selling 100,000 new policies each month.
By 2017, nearly one in every four customers (23%) had chosen to purchase a higher-priced insurance policy by selecting either the Gold or Platinum insurance plan option.
That’s not all – at the other end of the spectrum, Allstate also reported that 1 in every 10 customers was signing up to their Value Plan. These are customers who are highly price-sensitive and may have gone elsewhere for auto insurance coverage had the Value Plan not been made available.
Successful Pricing Strategy
By any measure, Allstate’s pricing strategy changes have been a huge success.
One of Allstate’s senior vice presidents, Floyd Yager, was quoted as saying: “There were a lot of sceptical people in the company… but we demonstrated that car insurance doesn’t have to be about being the lowest-price game.”
Architectural Fees and Multi-fee Pricing Strategy
Too few architects implement a multi-fee pricing strategy, like the one described in the case study above.
A multi-fee pricing strategy not only allows architects to serve a broader range of clients (from price-sensitive to exclusivity driven) but it enables architects to educate their clients on the different types of design services available (and the benefits associated with a higher-priced service).
Architectural Fees Don’t Have to be Low
So, when writing your next fee proposal, remember: design services don’t have to be about being the lowest-price service provider. Give clients a range of design service options, at different price points, and you’ll be amazed at how many clients choose to purchase a higher quality design service from you.
Ian Motley of Blue Turtle Consulting is a design fee consultant, speaker and author specialising in design fees, conversion rates and scope creep. Blue Turtle offers a range of Fee Proposal Workshops and other resources.
Photo by Andreas Breitling, Pixabay.