Lindsey Borchard: Pricing as an Interior Designer

Anastasia 00:00:02 Hi, this is The Interior Collective, a podcast for the business of beautiful living presented by IDCO studio and I'm Anastasia Casey. The thing design school will never teach you is what to charge. Today's episode of the Interior Collective is all about pricing as an interior designer–from different ways to charge, the pros and cons of each, and the formula we've found most successful. We are not holding anything back. We talk a lot about pricing at Design Camp, which makes me particularly excited to welcome today's guest Lindsey Borchard of Lindsey Brooke Design, my Design Camp co-founder and forever business best friend. Lindsey is our oldest dearest client at IDCO Studio and we've walked hand in hand growing our businesses together over the last few years. One thing I've always admired most about Lindsey is her commitment to transparency in the industry. Lindsey truly leads her life, both personally and professionally from a place of honesty and integrity, constantly uplifting other designers and female business owners. Anastasia 00:00:56 Lindsey Borchard's work is ultimately inspired by her own life. She's a mom of two boys and she deeply understands the impact that a well designed home can have on your family. A born and bred Southern California girl, her work carries that same organic natural beauty and distinctly relaxed feel of the California landscape. Put simply, a Lindsey Borchard space is an invitation to live a more beautiful life every day. Welcome Lindsey! Thank you so much for squeezing us in. I know you have the busiest two weeks of your life right now, as we prepare for Design Camp. After we have recorded this and it actually goes live, we'll have already had Design Camp behind us and we'll be planning for our September event. Lindsey, thank you for joining. Lindsey 00:01:39 Of course. I mean you ask and I am there. Anastasia 00:01:41 <laugh> It was like, how do we make Lindsey a permanent fixture on the show? I'm like, I think Lindsey's gonna get a slot every season. Lindsey 00:01:48 I'm down. Anastasia 00:01:49 Thank you for being so candid and open at Camp. I'm really excited to be able to bring that conversation and that transparency through to the podcast, to our listeners. Pricing is a frustrating topic for a lot of people. Pricing is really hard. You can't Google it. If you don't have a great crew of design best friends, it can be hard to just ask someone what they charge. So we're really gonna break it down. I know you have worked through a lot of trial and error. Us at IDCO, we have a lot of information that we're really privileged to have from working with so many designers. So we kind of have this collective knowledge of what seems to work for people and what doesn't. Certainly there's no one size fits all, but let's break it down to the very beginning. A huge part of knowing your worth and how much to bill is based on your overhead expenses–how much it actually costs to run your business. What are some of the most forgotten overhead costs you think people are skipping? Lindsey 00:02:49 Yeah. I mean, I think that when you look at pricing as a whole, you have to start with your overhead because you can talk to as many people as you wanna talk to, but unless you have a good idea of what it costs you to run your business, you can't really figure out how you're gonna charge your clients. So there's a lot of overhead. I mean, we have a lot of overhead. Things like insurance, people might forget about. Things like, there's always losses that we take on projects, right? It could be that a light fixture was damaged and we didn't claim it in time and so now we're stuck with that light fixture. We always try to get those costs covered, but there's just always losses. Lindsey 00:03:37 And I know that that's hard to account for, but you have to have an average number or a number that you can put up and go, ‘okay, every month we're gonna account for this many losses’ with whatever project. I think that marketing needs–people think that, for instance, we use you for marketing, that's a flat fee. So we go, ‘okay, great. That's our flat fee’. But then we still have to pay for photographers and we still maybe will use a videographer. Maybe we're buying ads. I think that those are the things that get overlooked–especially photography. When you maybe don't know how many projects you're gonna shoot in the year, we always in the beginning of the year, look at our roster of projects and go, okay, we know this many projects for sure are finishing, maybe we'll add on one or two. Then we'll figure out how much overall. We've worked with Amy [Bartlam] now so much I know how many photos I'll usually be taking and whatnot, so I can plan a little bit better–but marketing needs for sure. Lindsey 00:04:39 Childcare is a big one. I know that some people will be like, oh, well that's a personal cost, but it is a business cost–I can't do my business unless my children are taken care of. And then just the little things like food, we provide lunch to our team once a week and if we're on installs. And so that has to get counted for in our overhead. Gas mileage–things like that. So it's, it's very easy to go, ‘okay. I have rent, I have my utilities, I have payroll’ but it's all the little things that I think you really have to sit down and list out. Anastasia 00:05:24 Yeah, definitely. And those things add up and they add up fast. Lindsey 00:05:27 Yes. Add up quickly. Anastasia 00:05:28 How often do you think you should evaluate your overhead costs and is annually enough to do that? Lindsey 00:05:36 No. I mean, it's great if you are doing it annually over nothing. We do it quarterly with our CPA. So we will go over our P&Ls every quarter and then I go over it monthly. So, I use Studio Designer for our invoicing, for our clients, for our products, everything. So their report system is amazing. I can run reports and compare where we're at and make sure that we're being profitable. I think it helps having those quarterly meetings with my CPA so I know at that point we're looking at, ‘okay, where do we wanna be?’ And she's helping me go, ‘Okay. If you want to, invest money in, let's say, expanding our retail or expanding the collection or whatever you have to make X, Y, and Z on this. And then you can do that’. I like to look at it monthly–sometimes it's more often. Sometimes it's weekly. I really try to be in that, and I think that's really important. I think money scares a lot of people and it's not an easy subject to talk about, to figure out. But the more and more that I've done it now, it's become easier. Anastasia 00:06:51 Yeah, definitely. Lindsey 00:06:53 So I think the more often, the better. Anastasia 00:06:55 I think that's such a good point, especially in this industry–since the pandemic and everybody's booming or many people are booming–businesses are just changing really fast right now. And like to say I was only going to look at those margins, or those overhead expenses, once a year? At least at IDCO, things change way faster than that. So to definitely be looking at that normally. We'll circle back around later to how often we should be increasing our pricing, but I wanna touch back ‘cause I know everybody listening is going to ask, would you be willing to share what that buffer for losses you set aside a month is whether it's a percentage or a general estimate of how much that we're gonna end up pining this. Lindsey 00:07:40 So we do it by project. It's hard because our projects can take like two years, you know? So we look at it like, ‘okay, here's how many project’s–and this is the stuff that I do in the beginning of the year–so every year at the beginning of the year I'm looking at what I think my expenses are gonna be for that year and then every month when I'm going back to it, I'm adjusting it where it needs to be adjusted, right? I kind of account for, depending on the project size, anywhere from $2,000 to $5,000, that's just based on our past losses. So I don't really know how to like help someone who maybe doesn't have that yet. Lindsey 00:08:31 Maybe do a flat percentage or a flat number? We kind of know what categories we might have losses in more, like lighting's a big one. Because what can happen is our receiver can open up the lighting and everything looks great. Then that lighting is sitting at the receiver for six months. Then when they go to install it, it's not working–there's something wrong with the electrical. More than not, sometimes that vendor will replace it. But it's been now so long that it doesn't, so we have to take some of those losses. Same thing with rugs. With our other receiving warehouse, they wouldn't roll out the rugs. They would just go, ‘okay, we have it’. Now our new receiving warehouse does. But we would roll out the rug at install and there would be a tear or a rip or some discoloration and we wouldn't be able to use that. So we look at those losses as within a project. So I guess you have to look at it and go, ‘okay, how much?’. Maybe let's just use furniture since it's easier–it's just a furnishing job, it's a whole house though. I would say at least a couple thousand, you know, and if you don't have those losses then great. But plan for them. Anastasia 00:09:39 Thank you for sharing that, Lindsey. I know you held off on getting a studio office space outside of your house for years. We had this convo a lot while you were just starting out and you were keeping that overhead really low. Then you got one, you got your keys and the next week COVID hit <laugh> and your team worked from home for almost a year before really being able to even utilize the space. How did the studio affect your pricing, even during that time you weren't using it? As you made that jump, how much did that get incorporated into your rates? Lindsey 00:10:14 Well, I had saved for that studio space for at least a year. I knew at some point that I was not gonna be able to grow much more in my own house. And for me, I like to take risks, but I also like to be careful and plan for those risks. I had money saved up, so when we bought the studio I knew I had a year's worth of rent. So when COVID hit, I wasn't as stressed because I knew I had that money. The timing was just right–we got the keys in December, I usually raise my rates at the beginning of the year. So I knew we had already raised our rates based off of how much that studio was gonna cost us. So all of our new projects going into that year was already covering the studio. Lindsey 00:11:07 Now what we didn't know… What we wanted the studio for partially, was to do these sip-and-shops and that we could not do for a year. I ended up still going into the studio and working from the studio by myself. So it's still paid for what we needed it to accomplish. It got us those bigger clients, and we had a space to meet with them in a very safe environment. So it kind of did what it was supposed to do in that way, but we were really wanting to have these monthly or quarterly slip-and-shops to really pay for the studio. We didn't really make money on the studio the first year but we didn't lose it if that Makes sense. Anastasia 00:11:45 Yeah, definitely. At IDCO we've had the privilege to access a lot of proprietary information from interior designer’s processes and while we never share any specific info from that, we definitely have compiled data as a whole on how the industry charges and it primarily breaks into two categories. There's flat fee, or there's an hourly rate. Can you explain some of the pros and cons to offering–let's start with flat fee services first? Lindsey 00:12:14 Okay. So, I feel like I've priced every which way. Flat fee–what's funny is that when you really think of every way to price, it comes down to hourly. If you are really pricing your flat fee correctly, like to where you wouldn't be losing money, you are basing it off of how many hours and your hourly rate. So the pro to flat fee is that it's all out on the table for everyone, right? The client can plan, you know how much you're gonna make on the project. A lot of pros that designers think is a pro, is that they don't have to track their hours, which they should always track their hours, even if they are doing flat fee. But I guess for designers, a pro could be that and you're gonna know if you're doing it correct. Lindsey 00:13:09 You're gonna know this is when I'm gonna make and bring in that dollar amount, right? I think it's really nice… I think it's just better for a client. I think honestly, if I'm being really candid, I think that the only pros for flat fee are for the client and not for the designer. The cons <laugh> the cons are, this is just my opinion, so I'm not dogging on anyone who does flat fee, but the cons are like, you will lose money, you will lose money, you will lose money. In my opinion. From my experience. You have to set major, major boundaries on what is included in that flat fee. And you have to stick to it. You have to really, really have a good idea of how long it takes you to do something. And most of the time designers don't, and not because maybe they're not tracking their hours, but also because you have no idea how it is to work with that client, that client can say, they make fast decisions that they want X, Y, and Z, and you go, ‘okay, based on the five minutes that I have in their consultation, I'm gonna make this proposal’. But most of the time when people tell me they make quick decisions, they don't make quick decisions. Anastasia 00:14:23 Right. Lindsey 00:14:23 So I think there's more cons–but that's just my opinion. Anastasia 00:14:29 Definitely. I think that even when you set flat fee, you need to be tracking your hours because you are still likely paying someone else on your team an hourly rate. So to come up with a flat fee and say that we're gonna estimate it's this much. And if you do do flat fee, always build in a 20% cushion on top of that, cuz that will get used. But you have to remember unless you are a one person show, you are still paying someone else out at an hourly rate, even if they are a salaried employee, like they're still being used for that time. So you need to be considering that. So I did wanna touch on something–Lindsey and I talk about this a lot at Camp and I just stress it so, so, so much–as we start getting into hourly specifically. Lindsey will break down how she bills in different processes. Anastasia 00:15:20 She bills in three different phases, but the first phase being an hourly rate, the problem I see with hourly is that designers do not increase their rates frequently enough to compensate for the knowledge that they have obtained. When you take a step back and look at it, I charge hourly, but I'm now really good at my job. So this job is gonna take me less hours and therefore I'm gonna be paid less money because I am better at my job. And that is the fundamental problem that I have with hourly, because I don't think people find the courage or the confidence to increase their rates at a frequent enough pace to match the knowledge and the skills that you're obtaining even on just one past job. So, Lindsey, I know you've been burned by flat fee in the past <laugh> and because you never know how a client's gonna work, but you have a really interesting way of breaking down your process and your billing for what feels fair to a client and what makes sure that you are never losing money on a project that you can prevent. Can you talk us through your three billing phases and how they break down? Lindsey 00:16:33 Yes. To your point, Anastasia, I agree with that. If you're hourly, you're only gonna make money, regardless on hourly or flat fee, if you raise your rate. So even with flat fee, if you are still not raising your rate, you're still basing that flat fee on your hours and your hourly rate. Like, unless you're just making up numbers, which is bad–you really shouldn't be doing that–you're still basing it on an hourly rate. So even if you decide to do flat fee, I would say (and I agree with you) the major part about pricing is feeling confident enough to raise it, to charge what you're worth. I know we’’ll get into that later. But for us, when I started I started with flat feet because I just thought like, ‘oh, this is easier. I don't really know what I'm doing’. And I just like came up with numbers and of course I lost money on that, right? Lindsey 00:17:23 So then, based on what we were doing and the feedback that I was getting from clients early on, it made sense for me to split up every phase and to price it in a way that felt good for the client and myself. So when I was coming up with this kind of system, it was more so on what would be the best client experience for my client. Not so much of like, what's gonna be easier for me and my business, because I knew that my business at this point, it was still only me and Katie. So Katie was doing procurement and I was doing design. So even though I had an employee, I was still doing all the design work. I knew things were gonna change because I knew early on that I was gonna have employees and other designers. So, I break down our phases from design, procurement, and install. And so everything with design is an hourly rate. That is everything from sourcing product, doing drawings, doing elevations, searching for samples and going out in the field, site visits, team meetings, client meetings, anything that is part of the design is an hourly rate. Do you wanna break down like each phase really? Or do you want me to go… Anastasia 00:18:52 We'll start with that. Let's start with phase one, design. So that's everything during the phase. This is everything that a client thinks that an interior designer does is really this phase. Cuz they forget about all of phase two and phase three, or they don't know about it. So in phase one, how do you provide yourself enough cushion to cover the hours spent during this phase when you're preparing that initial proposal? I know that people get really nervous about the proposals and unless you've carefully logged your hours of past projects, you aren't necessarily coming up with a number based on data, you're making up a number. So talk to us about how you come up with this number. Lindsey 00:19:33 So we've come up with this number from, just like you said, from past experience–from how long it typically takes us to do revisions. And I will be honest, when I first started, I didn't even account for revisions. So when I was doing proposals, I wasn't thinking about revisions. And then as I started adding it–yeah, I did make up the number because I didn't have that data. Once you have enough projects under your belt and you can look back on those, and you are tracking your hours you can go, ‘okay, I spend around this amount of hours on revisions’ then you can add that into your proposal. For us, we do about one to two rounds of revisions per project, per phase. So let's say for example, space planning, then we go into construction design, let's say it's like a full, full project. Space planning usually gets one or two revisions. Then construction design gets one or two revisions. Then furniture gets one or two revisions. And I break down my proposal by those phases and then by rooms too. So it's a very detailed proposal, but one to two revisions can take one to two days worth of work. Anastasia 00:20:44 And to clarify, when you say one to two revisions, you mean round of revisions, like there might technically be three things that are changing in that revision, correct? You mean rounds? Yeah. Lindsey 00:20:56 Not just like one item. Anastasia 00:20:57 Got it. Lindsey 00:20:59 So when we do revisions and we're getting feedback for space planning, for example we'll give them options and they might say, we want kitchen option one and bathroom option two. And we wanna change a little bit of the laundry room and whatever. Typically it's about five items in the first round of a revision. And then if we do a second round it gets lower and lower. I look at that and go, okay, how long is that gonna take us? It usually takes us about a day or two worth of work, like hours in a day. So I always cushion for two days of revisions for each of those phases. And then the most important thing is to include that in your proposal. Lindsey 00:21:39 So, we need to write that, that you are not just like, ‘oh, this proposal includes revisions’. We need to write this proposal includes two rounds of revisions, equals two days of work, this many hours. So that if they are on revision three and four–which typically doesn't happen but sometimes it does–we can say your estimate didn't include this many revisions. So sometimes that helps them make those decisions quicker because they're like, okay, time is money and now I'm racking up the money. That's typically how we do it. I think it's really important to, again, understand on average how many revisions you're doing, and how many items are in those revisions, to include that in the proposal–and if you don't come up with that average number, then again give yourself a cushion for it. Anastasia 00:22:36 Here at IDCO, we have more than seven years experience working closely with award winning interior designers from around the world. We create elevated, intuitive business solutions that empower interior designers and resonate with their practical needs and aspirations. From fill-in-the-blank client email templates with dozens of 5 star reviews to ready to use client process documents used by hundreds of designers worldwide, we have a track record of making things easy and beautiful. As a listener of The Interior Collective, we’re proud to give you an exclusive discount code to use on our two best selling products: Client Email Templates and Client Process Bundles. Use code PODCAST20 to save 20% on either at www.idco.studio. I’ve linked it in today’s show notes for easy reference. Again that’s PODCAST20 at idco.studio. So in this phase, you're billing hourly, you've estimated hourly, you have your total number of hours you're thinking. You've said that this typically includes two rounds of revisions. If it gets beyond that, then you'll say, ‘Hey, you've exceeded what was in the estimate. Totally happy to make these revisions, but those will be added on which will exceed your total’. Does everyone on your team bill at the same hourly, at this rate? Is it always just like Lindsey Brook Design bills at X dollars per hour? Or do you have a tiered system amongst your designers? Lindsey 00:23:52 We do not have a tiered system. That is another decision that I made internally that is typically not done in the industry. I did that for a couple of reasons. One, it is very confusing for clients. When they see a bill and our design teams have at least two people, so it's a senior and a junior, sometimes they share a design assistant. So certain projects might have that design assistant. And then there's myself. Just one day of work can be like four different line items at four different prices. And I wanted to keep it really simple for the client. Money for the client is a very black and white thing–this is how much they have, and this is what they can spend. Lindsey 00:24:41 And they take that proposal. Even though it's a proposal and we say, ‘this is an estimate. It can change’, they're looking at it like it's not changing. We all know this <laugh> So that's why I have to spend so much time on proposals and really get it right. Because I know at the end of the day most of the clients are gonna hold you to that proposal, even though technically they can't. But they're planning for that number. They're looking at you as the professional to give you that accurate number. So when we decided to keep it a flat rate, I also decided to only charge one time, no matter how many people were working on that project. So, if the senior and the junior designer and myself have an internal design meeting, there's three of us working on that project for an hour. We're only charging our client one hourly rate, not that hourly rate three times. Lindsey 00:25:34 So it balances itself out because one, when our designers are working on the projects, they're typically not working on the projects at the same time unless we're all together doing an internal meeting or they're going to source something or they're looking through materials. And so we're actually making more money on that. But then when we are all together during those site visits or during internal meetings, the client is saving money. It works itself out, but we end up making more money that way. I also don't feel comfortable putting a value on my employees, that's just an internal thing. I don't wanna say, ‘my senior designer means more, they are gonna bring more money into the project’ when the junior designer is doing just as much detailed work and good work. And it just doesn't feel right for me. Anastasia 00:26:45 Mm-hmm <affirmative> Definitely. Can you share how, and when you collect the payments for this design phase? Lindsey 00:26:52 So we collect it once a month and it's on the 15th of every month. So that gives us time to make those invoices and look over things and make sure we're on track and then provide it to our clients. We bill them once a month on the 15th and we collect that, not from the retainer. So a lot of times people are having questions–designers are asking like, ‘oh, then you use a retainer for your design fees?’. No, we collect this on top of that retainer. Anastasia 00:27:23 Got it, because in your process that design retainer is held throughout the entire project and then that gets applied to accessories at install. And then if there's anything left over, that would technically be refunded back to the client, but there typically isn't. Lindsey 00:27:38 Yeah, it goes towards the outstanding balances of shipping, maybe installs, accessories, things like that. Anastasia 00:27:44 Yeah. Got it. What happens or how do you handle, if you're approaching the estimated amount of design hours you had proposed to a client and you know you're gonna exceed that estimate. Can you walk us through how you make it feel approachable and helpful, like you're on your client's team, while still standing firm and saying I need to be paid for these hours. Lindsey 00:28:08 Yes. So the first thing always is during the consultation… I mean, I'm constantly having conversations around money with our clients. I think that it's really important to set that tone in the very beginning. So during the consultation, even the phone consultation, we're asking them about their budgets and then in the in person we’re asking them about their budgets again. And we kind of get it outta the way and just say like, ‘Hey, we have a lot of conversations about money and we don't wanna make it awkward but we wanna make sure that we stay on track. I value your budget–I wanna spend your money like it's my own money’. And we wanna get to know where they like to spend their money, where they don't like to spend their money. And that is all conversations about money. Lindsey 00:28:50 So our operation manager does all of our client billing and invoicing. And so once she has that invoice, she compares our past invoices. So let's say maybe they've had two additional months of design fees. She's gonna look at those past invoices and see where we are at total for them. And then she's gonna compare them to the proposal. And then she'll kind of let me know, like, ‘Hey, project X, Y, and Z is getting close to their lower amount on the proposal’. ‘Cause in the proposal we give a range, a high to a low range of hours. And so we start having conversations with our client once we're halfway to the lower end of the proposal, once we hit that lower end, then once we get halfway through that, and then once we get to the higher end and then when we reach the higher end we let our clients know, ‘Hey, this is where we're at. This is how much, you know, more time that we need, this is how much more we have to do’. Lindsey 00:29:47 So we really outlined it and at this point they've had now three or four warnings that they've gotten to this space. So it's not like all of a sudden we're like, ‘Hey, you're at the high end now’. So having those constant conversations are just gonna help your overall client experience. I go back to what would I want–I would never want to get slammed with a bill and think that I'm somewhere else. Even though I know that I could be spending $30,000 on design, I don't wanna be like three fourths of the way in, and then be at that $30,000 and go like, ‘whoa, what happened? We still have all this to do’. Lindsey 00:30:30 So it's something we're constantly still working on. And it's something that we constantly have to remind ourselves to do. But now that I’ve handed it off to Katie, who does our operations, it's much more manageable because she can track that and then let me know. Before, my hands were in so many things that I would forget sometimes and I think that it's very easy to go to the day to day thing. We're doing so many things, and we have families, and we have this, and we have friends, and we have employees that we have to take care of. It is easy for us to forget that our clients might know what we're doing, but they don't know where we stand with bills and one month could be really low and then the next month could be most of their design hours and they're thinking that their next bill's gonna be somewhere along that first bill. Lindsey 00:31:14 And so I think just having those conversations, educating, I always talk–we both talk so much about educating your client from the beginning at Design Camp. And it is very important about all aspects, and having those conversations. And I know it's hard. Money is a very hard thing to talk about. And I was not good at it in the beginning, but just like anything, the more and more you do it, the easier that it's gonna be. And then the clients are really gonna respect that you're valuing their budget just as much as they're valuing their own budget. Anastasia 00:31:51 I think you touched on something that can really help, especially a newer designer or designer who's just getting going with growing their team. You have Katie do it, you have your operations manager handle the invoicing. When IDCO moved over to having our studio director handle invoicing there's a personal attachment level that's removed because those people were not the creatives on the project who can literally just look at, ‘okay, these hours were logged’--it's very black and white to them and so we're gonna send this off. And for me, it removed the ability to sit there and question like, ‘oh, should I actually charge them for that thing that took me a little longer than I really thought it should have’. And so having an external party besides you or your actual designer being the person to do the invoices, I feel makes that step of money management a lot easier. It's a lot easier for them to collect those funds. Lindsey 00:32:49 Yes, I agree with that. I think that early on it's very emotional when you have your own business, right? Everything is super emotional and you can't help it. And as women, we can't help it. I hate to stereotype that, but it's just in our blood to care and to want to make everyone happy sometimes and to want to feel like you're giving them the best. One of my mentors is a male and I had a very early conversation with him early on in my business about how it is charging clients and this and that. And he was just like, I never think of it like that. You know? And so for me, it was a way to look and go like, I have to take emotion out of it. Lindsey 00:33:34 If you wanna make money, you have to think as a business entity and not as a personal person. And I know that this industry and what we're doing is very personal. We're in their home. We're creating a home for their family to live in, and to thrive in, and to make memories in. And that's a very personal journey, but the money aspect of it has to not be personal. It has to not be emotional. And I think you're correct, when you hand that off to someone who doesn't have that emotional tie-in as much as you do to a client, who's not in that client's home every day and knows their kids and knows things about their home–it's much easier for them to see it as black and white. Anastasia 00:34:15 Okay. Lindsey, that covers the initial billing phase. Talk to us about what phase two at Lindsey Brooke Design looks like: Ordering & Procurement. Lindsey 00:34:24 Okay, so ordering and procurement. Our procurement phase is really ordering all the product, following up on all that product, being in communication with our receiving warehouse to make sure that those products come in correctly, and dealing with any damages claims, getting repairs, things like that. And then also prepping for install–so making sure our FF&E schedules are up to date and to give those lists to the receiving warehouse for install and prepping the team for install. It's pretty much everything from when a client approves a design to right before install, all of that kind of middle ground stuff. We charge a flat percentage based off of their product invoice. So that's why it's really important for us–we are full service design firm–it's really important for us to purchase and manage and control that aspect of the project. Lindsey 00:35:22 And it's also how we are making money off of the project. So we get out of hourly–our procurement manager does not charge an hourly rate for her to do her job for the client. It is 10% based off the product invoice. So if they have a hundred thousand dollars worth of furniture, we are adding $10,000 to that proposal for procurement. One thing that you have to remember is that you have to charge tax when you are ordering product for people. So if you charge an hourly rate and you're ordering, you have to charge tax on that hourly portion. When you are doing flat rate, you have to break it down and you have to charge the tax on that hourly portion. It's the law. So you have to charge tax. Lindsey 00:36:23 So for us, it was a much easier way. I mean, really we started doing it because our invoices for procurement were like pages long <laugh>. And our client was like, oh my God. It was so overwhelming, like so overwhelming. And it's much easier now when they go, okay, I approve this one hundred thousand dollars proposal. They already know in their head, ‘okay. At the end of this, I have to put on $10,000 for that procurement fee’, rather than not knowing how many hours it's gonna take. And we all know right now it's taking forever to get things. The follow up that we have to do now is much more than the follow up we had to do two years ago. Anastasia 00:37:02 Did you adjust that percentage at all since COVID has started–since the work has in many times quadrupled, following up with things being delivered and whatnot. Lindsey 00:37:17 Yeah. Ironically, we were at 8% and when we did… Right before we got the studio I had to evaluate all of my costs for the studio. And right before COVID, luckily we said, ‘okay, we're actually losing money on 8% or we're cutting it really close’. So we decided to do 10%. And we've been at 10%. We are figuring out we do have to raise it again. So we're figuring out the best way. Because the follow up and the damages have become a major part of the procurement manager's jobs over the last two years. There has been so many more damages, so much more follow up, so many more back orders. Where our procurement managers were spending maybe 20% of her time doing that before, it's now like 70%-80%. Lindsey 00:38:11 To the point where we were thinking of bringing on an extra person and Katie, who was our operation manager, was helping our procurement manager follow up. That's how much manpower we needed. So now we are looking at, ‘okay, this isn't going away’. COVID might be kind of slipping in and out, but this is not going away–it's still a problem. So yes, we either have to raise that percentage or we're thinking of maybe not raising the percentage, but we do give a discount off of our furniture, and we're thinking of lowering that discount. So we're comparing what that would be and what that would be for the client and what that would be for us. So right now, it is gonna get raised. But maybe not necessarily in that percentage, if that makes sense. We're trying to figure out where to bring in that extra revenue to cover the cost. But it might not be from raising that percentage. It might come from other places. Anastasia 00:39:12 Got it. So, okay. With a hundred thousand dollars furnishing budget, all that's been ordered, you are then charging $10,000 on top of that for this phase, if we're just sticking with strict numbers. I don't know what your sales tax is, but let's say it's 8.75%. So then they're getting a bill for $10,875 because you're paying the tax on that. And that is because they're considering a product, even though that's a service–that part's confusing to me. Lindsey 00:39:39 Yeah, it's not a service, it's an act of selling something. So just like if they were coming into a store you have to charge tax on the product, which you do. If I'm being honest, I don't really know the ins and outs of this, I just know that my CPA said you have to tax it. It's not just a straightforward service. It's a product attached to a service. Anastasia 00:40:05 Got it. Okay. Well, thank you. Hot tip. Do you know Lindsey, is that nationwide or California specific? Did your CPA mention? Lindsey 00:40:11 I think it's nationwide. Anastasia 00:40:13 Okay. Definitely check with your CPA 8but I think it sounds like it's a nationwide thing. So lastly, does that flat rate percentage include or exclude shipping and receiving? Lindsey 00:40:27 No. So this is something that we always really have to break down to our clients because it is confusing. We're actually putting together a whole, ‘what to expect’ on this phase. We have one, but we're detailing it even more because that procurement fee, you have to think of it as our time. It's just to cover our time. So it's a flat percentage of what it's gonna take to do that ordering, to do the follow up, to claim with the damages, to prep for install. It is not gonna include any shipping costs. It doesn't include any receiving warehouse fees. That is all separate. It's a separate company. It's nothing to do with us. It's really just for our time for that phase. Anastasia 00:41:11 Okay, great. So that wraps up phase two. And now we're into the third phase. Everything's been received, you're ready for install and phase three is installation. Talk us through how you bill for that. Lindsey 00:41:23 So we do flat day rates for installation, and that's usually for the whole team. So it's not per person, it's for however many people that we bring for installation and it's for eight hours. So typically we're not doing installs for more than eight hours. If we are, they're paying additional hourly rate past that eight hours. But that flat fee covers eight hours. We have incorporated half day installs because we are doing multiple installs now, right? Because certain things, we're not gonna hold up a project for a couple of pieces that now are back ordered a million years. So we'll do a main install, and then we'll do a half day install when those other pieces come in. So half day install is up to four hours, anything over four hours–I don't care if it's four and a half hours–it gets charged a full day rate. Lindsey 00:41:23 And then we also charge our prepping for install, like accessory, like packing and all that kind of stuff. So it was just much easier for us to manage and go, ‘Okay. Based off of…’ because before I was doing hourly rate for install, some projects would have like eight people involved. Some projects would only have four people involved. And so on those bigger jobs where I was bringing in more people to help, I was losing money on installs after I factored in the costs. Anastasia 00:42:17 <laugh> because you were never charging hourly rate by person. You were always charging one hourly rate. Lindsey 00:42:57 Right. So, because of the way I charge, I had to start thinking of the way it's gonna relate to every phase and to make sure that I'm making money in every phase. So, that's why we decided to do the flat rate because it cushions that so that I can bring on more people for certain jobs and, that we need the extra help. So when we restructured it into a flat rate, I looked at it and went, okay, what's the minimum amount of people that we have on an install. It's usually myself, the senior designer, a junior designer, a procurement manager and possibly an assistant. So those are a Anastasia 00:43:36 And a Handyman, right? Lindsey 00:43:37 But this does not include a handyman. Anastasia 00:43:39 Okay. Lindsey 00:43:39 This is only for our time. Again, when we are doing our proposals and the way that we charge, it's only for our time. So anything additional, that handyman, will be a separate charge because it's a separate company. Totally separate thing. So when I was looking at this flat fee, I was looking at, okay, how many people and what is my cost for this? And then I was marking that up to have cushions so that if I needed to bring in someone else or two other people or whatever, I have that cushion. I didn't base it off of our hourly, if that makes sense. So I didn't go, ‘Okay. It takes eight hours and we make X amount of hourly. And that's how much our installs are gonna be’. It's based off of our costs and then our markup of those costs. Anastasia 00:44:24 Got it. What do you feel are things that you have added to your process as a designer that can help a client feel like they are getting more than what they paid for? Lindsey 00:44:40 I think it's a level of service. So for us, and I stress this so much at Design Camp–like I always tell our clients, I want you to have a beautiful home. The end result, and the main goal is for you to have a beautiful home. We all know this’. But for me as the owner of Lindsey Brooke Design, my main focus is for your client experience to be out of this world. That might mean that it's less stressful during construction. It might mean that we are gonna be more organized. It might mean that we are gonna hold your hand through this. Whatever our client needs, we provide. I will say that having professional, beautifully branded documents, having those next level (thanks to IDCO) documents, that Investment Guide, the Welcome Guide, everything looking the same and polished–that helps, a lot. That makes people feel like, ‘wow, look at what I'm getting’ and we show in our proposal, examples of what a mood board would look like, what our elevations look like, part of that design presentation. Lindsey 00:45:53 We got all of that through IDCO and it's really beautiful and it's really next level. And we wanna show them.., We're giving them really big proposals, we specialize in full scale, full service jobs, right? So that's our niche. And so the proposals are rather large. And I want to show them from the beginning, look at all of this beautiful documentation you get, so that's one. Our processes are on our cloud, we are constantly changing them, we're constantly maneuvering them to make it better for the client and better for us, but ultimately better for the client–so that's another thing. And our organization is next level. I mean, I can't tell you how many times that a contractor will tell us, I've never worked with a designer that’s as organized as our designers are. And having those documents help us be organized. Lindsey 00:46:52 I think also just trying to stay ahead of everyone on the project. We wanna try to stay ahead of the contractors, we wanna try to stay ahead of things coming in damaged. Being able to problem solve for our clients and not just ‘here's the problem’, but being two steps ahead with that–giving those weekly emails that tell them what we're doing every week and pinpointing any problems that we have, right away help with our client experience. So it helps going okay, I'm yes, paying a high level of service, but I'm getting a high level of service. And every time we wanna raise our rates or charge differently, we also have to ask ourself, what are we adding to their client experience to justify those rates. Anastasia 00:47:40 Right. Okay. I know everyone listening is thinking, are there ever circumstances where you discount your rates? Lindsey 00:47:50 No. In the beginning I would say yes–when I had emotions tied to everything. And I don't wanna sound like I'm such a cold person. I'm a very emotional person and I love my clients and I will, I don't wanna say discount. Sometimes we will not charge for certain things–it's very minimal–when it is not the client's fault and when it is our fault. So I do take accountability for things that we do wrong. And that is the only time that I will say that. For an example, let's say our junior designer put a piece of furniture in the plan for something, and we caught it early on and it wasn't gonna work out. Like maybe the client taped it out and was like, we need something bigger and whatever it is, and I'll go back to the junior. Lindsey 00:48:50 And if let's say she had the wrong measurements. She wrote down the wrong measurements. And she was like, ‘oh, I based it off of these measurements that were wrong. And that's my fault’. I'm not gonna charge the client to re-source a rug that was based off of our mistake. So that's the only time I'm ever gonna give them a freebie. If I give someone a proposal and they come back and say, well, this is too much. I'm never gonna say, okay, well I'll give you 10% off or, ‘okay, well, I'll make my hourly $25 less whatever’--I'm not gonna do that. We will remove services. So it's a very fine dance I will say, because you don't wanna discount, you don't wanna give too much away because that allows someone to start taking advantage of you. It's always happened that way, but I also wanna take accountability for things that we make mistakes on, which happens. We're all human. Anastasia 00:49:44 How often do you increase your rates, Lindsey? Lindsey 00:49:51 We typically do it one to two times a year. In the beginning, it was definitely two times a year. It was more like once in the beginning of the year. And then once towards like the end of summer-ish. Now it's becoming a little bit less just because we are kind of getting to that cap of how much we can charge in our area. We can't just continue to be like, ‘okay, now we're $900 an hour’--I wish, but we're getting to that cap. So we'll probably raise our rates one time this year. But the way that we structure our business and the way that we make more revenue is in other ways. So it's not necessarily just for us raising our rate. Lindsey 00:50:46 And again, like I said, there's only gonna be so many more times that I can raise my rate until I price myself out of our area. So I think it's really important to be competitive and to know what other people are charging in your area. But I also think that you shouldn't be charging a lower rate just because you're in your first year of business. You might have way more experience, or a better eye, or better processes, better organization, a better understanding of the service that you're providing to your clients versus someone who's in business 10 years and doesn't have any of that, but is charging $200 more or whatever, just because they can say they've been in business for 10 years. I don't agree with that. So I think again too, you have to look at your overall costs–that really plays a part into what you wanna start charging. And I think it's valuing yourself and putting work on it. And I didn't have that in the beginning. And I know a lot of people don't, it's really hard. It's a lot of internal work you have to do on your yourself to say, I am worth this much, even though I've only been in business a year, and if you don't like it, then you can find another designer. Anastasia 00:52:05 What are your practices when you have a returning client and since you worked on their project, your rates have increased. How do you navigate that? Lindsey 00:52:14 So we always, when we finish a project, we always tell our client, they have six months to be grandfathered in to their old pricing. Anastasia 00:52:21 Oh, okay. Lindsey 00:52:22 Because we are not raising our rates every six months, they usually will fall into that time period of their old rate. So we say you get six months from the time your project finishes to add anything else. If you want to add in the backyard that we didn't do before or whatever. After that six months, they go to the new rate if there is a new rate. That way they feel like, again, we're valuing them as past clients. And, you know, we're allowing them to capture new services if they want to do new services and not feel like they're just like money to us. Anastasia 00:53:02 Yeah, absolutely. Okay. Lindsey, I wanna be respectful of your time. I know you have so much going on right now. What would you like to say to newer designers or designers who are ready to scale and bring more people onto their team as they're thinking about pricing? Lindsey 00:53:24 So when you are thinking about bringing on new people you can't bring on new people and not change the way that you are charging your clients. You're just not gonna make money. You have to think of expanding your team as making money for you. All of my designers make money for the company, but at the same time, they're not gonna make money for the company if they're staying at your hourly rate that you've been at when you are a solo designer. So you have to really look at that and go, ‘okay, for this year…’. Again, it's going back to the beginning of the year, we looked at this year and went, okay, we're gonna probably be hiring two to three people. So what does that mean to what we're bringing in now? Sometimes, it's not gonna be like, ‘okay, well, we're hiring three people. Now we have to raise our rate $300’, but we're gonna raise our rate a little bit. We're gonna decrease the discount a little bit. We're gonna try first some higher level stocking dealer, maybe, rather than a wholesale dealer with our products. Maybe it's creating a new line that you can make more money on–whatever it is. But if you're expanding with your team and with your overall cost, you have to know how you're gonna expand in your revenue as well. Anastasia 00:54:43 I think that's such a good point to finish off on. I've always said this, that hiring is a revenue stream, not a business expense and you have to treat it as such from the very beginning, or it will always be a pay cut to your pocket. So if you think about it like that–that hiring can be such a blessing for a team. And I really encourage you to explore your options of bringing on even one new role to help you sleep a little easier at night. Lindsey, there are a million things that we can talk about. We go over so much at Design Camp. I promise Lindsey is going to be a regular guest on The Interior Collective. If you're interested in learning more from her, Design Camp is an incredible opportunity to see the exact inner workings of her wildly successful interior design business. Anastasia 00:55:32 No one has more clear, detailed, or well maintained business processes than Lindsey. And it's an investment that will pay itself forward. Tenfold. You can find the details about our next event at Design-Camp.co linked in the show notes below. You can follow along with Lindsey at @LindseyBrookeDesign on Instagram and get more in-depth process tutorials on her blog Lindseybrookedesign.com. Lindsey. Thank you so much. I cannot wait to hug you next week and I will see you in Santa Monica. Lindsey 00:56:27 Yes. Thank you for having me again. It's such a pleasure to always talk business with you. I love it. Love it, love it. And I will be on this podcast as much as you'll allow me. Anastasia 00:56:36 <laugh> Perfect. We're just gonna bring you on as co-host next. Thank you, Lindsey. I love you. And I will talk to you soon. Lindsey 00:56:41 Okay, bye. Anastasia 00:56:43 If you weren't able to write everything down you heard today, you can find all the links, spreadsheets, and images we referenced and other details from this episode of the interior collective on our website at idco.studio/podcast. If you love this podcast, please leave us a review. It means a whole lot to us. If you have questions or topics you'd like to hear next season, email me at [email protected]. Again, that's [email protected].