How Architects Can Stop Undervaluing Their Work and Start Charging What They're Worth | EP673

0:00If you're starting out as a sole practitioner of the first thing you want to do on your growth path is to make that first initial hire. Hello, architect nation and welcome back. This is the right place for you. If you run an architectural practice and on today's episode, you'll discover the hidden mistake that most architects make that keeps them broke even when the projects are flowing in. Why charging what everyone else does is the fastest way to sabotage your profitability and financial reward and the surprising mindset shift that lets you double your fees and still win more clients. Hello and welcome back, architect nation. My name's Enixirson. This is the show where you'll discover tips, strategies, and secrets for running more profitable, impactful, and creative fulfilling architectural practice. And I'm joined today by Business of Architecture Principle Ryan Willard. Ryan, how are you today? I'm very well. Great to be here. So the topic today is undervaluing ourselves and undercharging, which with some firms is a chronic problem for other firms. It's not as much. And I want to draw this distinction as we jump into this,

1:02which is we've seen this distinction in the industry between firms that have difficulty charging for what they're worth and firms that don't typically firms that are more on the residential side that are working with consumers. They're the ones that are struggling more to capture their value. This isn't always the case certainly even in industries or market sectors such as education and health care. Sometimes it can be difficult to capture that value, but not as much. So if you're a residential architect, this may hit home for you. If you're in an industry where maybe you're doing civic work, higher education work, it may not be as relevant. If you're working for developers, again, you may find this to be very relevant because again, it's a very bottom line driven industry and business. So the problems we're looking at when we have difficulty charging or we're undercharging, first is to find what charging or undercharging actually means. And a common question we get for market tax is, am I charging the right amount of money? How much should I be charging? And typically the way they look at that is they

2:04want to see what others are charging in their industry. And what we want to have you consider is that this is a horrible way to determine what to charge. It's a good way to get a baseline. It's a good way to understand what the market is currently charging, but there's much better ways for you to determine what you should charge in it. Frankly, it's a dead end road just to base your charging off of other people. There's a very specific equation that you need to run through to make sure that you're charging enough to be able to pay for all the expenses of delivering the projects as well as the profit that you need to run the business. And sometimes as architects, we may think that the profit is negotiable, or I've even heard architects say it's sort of a nice extra. Like if they don't make a profit on that on that project, no big deal, because at least they paid themselves in their team, this displays a fundamental under a critical misunderstanding of the nature of business. Because there's a lot of things that aren't baked into your typical overhead that you will want to pay for in the business, not the least of which

3:05is compensating yourself as an owner for the risk of being an entrepreneur and running a business. So if we look at a business that's not producing any profit, that would be an anemic or a sick business. And when we backtrack and we say, what are the symptoms or the underlying root causes of this sickness? Number one is probably not getting enough project inquiries. And number two is not setting the right fees for the work that you're doing. And what we're going to talk about today is number two. And relate it back to undercharging and undervaluing and how as architects, we do this so frequently. I think it's worth as well saying that the front end part of creating profit, i.e. in the sales conversation, the moment where you set your fees, that's where profit is created. And that once profit has been created, then you can go through the process of managing

4:08profit and keeping an eye on it to make sure that it's being protected all the way through until the project is completed and then you get to take it out of the business at the end. As opposed to thinking about profit as being what is left over, which is a very reactionary way of thinking about it. And like you say, a lot of firms, they're working towards a break-even point and for them break-even is success. And this is a terrible, terrible way of running your business. And again, there's a lot of psychology and money, scripts that are around the word profit. People kind of associate it with meaning greed or doing something corrupt or we think about excess when we think about the word profit. But really, Paul Eden, who was a guest and a friend on the show, he quite eloquently put it surplus. Think about it as being surplus in the business. And that every business needs to be

5:10making a certain amount of surplus and that surplus is agency. It allows you to do other things and go forward on the mission and the activism that you have in your own firm. So profit gets created upfront and we have a responsibility to manage and look after it. And a lot of the problems that we think in our business are to do with systems and inefficiency are really problems to do with us having not created profit in the very first few conversations that we had with the client. And those first few conversations with that client, they really dictate and shape how the next year and a half are going to go as you're executing on the project. So negligence around those early stages is really at your own peril. If there's one conversation that determines the rest of your piece of mind for an architectural project, it's when you're negotiating the fee of that project. And if you under negotiate that

6:14or you're not clear on how much you should negotiate or what that fee should be, you're going to be paying for it for a long time. Yeah. In this this conversation of undercharging and under valuing as well, I think comes a lot from this reluctance to negotiate to sell to be engaged with that part of the front end conversation. It's chronic in the industry. It's a very common complaint that we see. And when we come from it with negligence, i.e. we don't engage in selling. We don't think that's something that we should be doing. And we're only winning work through referrals. And then you just you know, you write a short proposal or whatever it is and you send it out as an email and have a quick 15 minute phone call and then cross your fingers and hope for the best that there's really no value creation or effort by energy that's being expended at that point in the project. And we're setting ourselves up for a very difficult situation when we do then agree to a lower fee or we're

7:19unable to express or understand what's valuable for the client in order to be able to create a proposal or an offer that would be compelling for them and that would be worth the premium fees that we want to be charging. And at that point in that negligence, that reluctance to talk about selling and money. Okay, great. Well, now we've just made a very inefficient rest of the project because we're going to be under resourced all the way through. There's four key problems that we'll be talking about today as it comes to under valuing and undercharging. The first one is when you undervalue your undercharge, you have difficulty capturing just the money necessary to do the work. Meaning that you may end up at the end of the project with the deficit or you may be using the proceeds from another project to try to pay for the work on this project. The second one is you just can't afford to hire. So you're held back from hiring and getting the support you need because you simply don't have the funds to do it. The third one would be lack of certainty around

8:20hiring. You don't want to hire because you're not sure you'll be able to sustain the payroll or be able to support the salary of that particular person. And the last thing, but definitely not least, is you can't afford to buy back your time or you can't afford to do other revenue generating activities like marketing, like business development, like winning new work, like focusing strategically on your positioning. And so what happens when we end up undercharging or undervaluing our services, it's a vicious cycle that puts us in a place of scarcity where we end up accepting perhaps products that aren't a fit, doing things out of necessity, instead of doing them out of agency. Yeah, it becomes this kind of rat race wheel that we're on all the time that can get worse and worse and worse. Again, the thing we see so often, this reluctance to engage with the selling process in an architecture firm, it really has an impact on every other aspect of the business. So many firm owners are convinced that they need better systems for production of work to try and

9:28be more efficient, but actually the upfront problem of you never had enough resource in the first place to do the project. Anyway, it doesn't matter how much good systems you've got in place because there just isn't enough to do the project. And that just sets up this again, a cascade of different problems that we see ripple throughout the rest of the business. And selling as an architect is one of the most, it is one of the most rewarding things you can do as an architect, but it's also one of the most confronting. Yeah. And I know this because I've lived that experience myself. I remember one of my very first projects was just, it was a residential home. And it was literally a builder set. I was like, I just got fired from my position and I just needed to bring some money in the door to finish this project or to be able to support my family and get a little bit of money. And I just remember I gave them a flat fee much lower than what we recommend that our clients charge. And it was very uncomfortable for me to actually even tell them

10:33how much I was going to charge. And in that discomfort, it's very easy to talk myself down about the value that I provide. And I know that I'm not the only one I know that there's a lot of architects that feel that as well. There's many, you know, as you progress from your career, many get over that, many get to the point where they're like, oh, you know what, I have plenty of products. I don't need to, I don't need to sharpen the pencil on this. It's take it or leave it. And that's a really good place to be at. And what's interesting is when you get to that place, you're actually more likely to win projects at those fees. So it's almost the mindset shift itself that actually results in the abundance that the practice owners experience. So one of the top things you can do if you're a young architect to be able to win better fees for your projects is simply to stand in the certainty that you're worth it and to charge one hell of a lot more money than you're currently charging. It's interesting. I was talking with a firm, a couple of firm owners recently, young guys, and they were justifying their low fees because of their lack of experience.

11:39And we had to sit down and go, okay, well, what do you mean by lack of experience? You're, you know, they were late 30s. So not, you know, not kids as architects go, they're babies. They're babies. But it was a lack of experience, not professionally, but a lack of experience because the firm was new. And so they were like, well, us as a firm, we're only just, we're going to start it to exist. Therefore, you know, we can't be charging that kind of fee because, you know, we haven't proven it yet. And it's like to who? You've been an architect for best part of 15 years here. I call that negotiating against yourself. Yeah. No, but nobody, I said, how many times does the client brought that up? Never. And we don't have a portfolio to show. Well, how many times does the clients even ask you to see the portfolio? Actually, they haven't asked to see the portfolio because we've just been introduced as relationships. Okay. So who are you negotiating against? Where did that number come from? And it was a very internal mechanism of we don't deserve that

12:41for whatever reasons we spoke earlier on some of the podcasts about how our approval system in architecture is wired through looking at approval from other architects, just because the nature of the academic gestation period of the architect and how we raised that, you know, this idea of inexperience or I haven't proven myself yet means that, you know, I couldn't possibly be charging. I couldn't even be possibly charging what I need to do the blooming project in the first place. And that's the other part of it where the math is just wrong. And so it's got nothing to do with what you feel like and your insecurities about it. Let's at least get the math right about how much money you need to do this project properly and start being responsible about it. Otherwise, you know, and I think a lot of architects actually, they can get into that easier, if you like, where at least if there's something intellectual

13:46and a calculator that's worked out some fees and that they've made some educated assessments of how long, how much resources going to be taken and they can see how much, you know, overhead they need from this project, how much profit they're going to need and they can plan for it. Okay, now we're in some sort of better position rather than just basing it off, finger in the air and my how I feel about it. What other people are charging or what I think we can do to see what, yeah, how much are they charging or sometimes with our, you know, when I speak to sole practitioners, that's what they want to know. They're like, I'm charging this much. Is it enough? And you're like, I don't know what you're going to do for that. That's what it depends. I often used the story of years ago when I first had up my own firm and I was asking another architect, how do I, you know, how much do I charge? And they said to me, well, here's how much I charge per hour, I charge, you know, 150 quid at the time per hour. And you should charge 75 pound

14:50for years because you just started your business. And at the time, I didn't really, I was like, fast, that sounds like that makes perfect sense, but I wasn't happy about it. And I had a little bit of an arrogance of like, well, why you like, you know, twice as much better than I am just because you've been around for 20 years. And I remember the first project I did, I took that advice and I had like a 75 pound an hour kind of rating on it. And I was just like, but I'm young and I'm innovative and creative. And he's old and doing things without that level of creativity. And so in my mind, I kind of rationalized it that there was value in being young and not having been an architect for a long period of time. And I was like, well, what does a client know about the difference between the two? And if anyone asks, I'm like, well, because I'm young and creative, that's my reason why I'm going to charge 150 quid. I'm going to be the same as this person, which again, with very quickly, it didn't make any difference to the clients I was talking about,

15:56whether one was 150, they didn't, they weren't rationalizing it like that. I never had to justify either, just ask for it. And I remember getting that, getting that fee and the other architect was a little bit almost like, you're not allowed to do that. Yeah. So when an architect nails this, when you nail the pipeline in the pricing, which are the first two steps on becoming the liberated creative director of pipeline and pricing first two that we would look at, this is what opens up for your number one profits. And along with those profits, agency, we say agency, we mean the ability to hire, we mean the ability to invest in marketing. So we talked about hiring. That's one of the pieces of agency that you can hire. And you can bring someone in to do the things you don't want to do. You can bring someone in as less experience. It has a very specific focus to be able to take some of these tasks off of your plate to buy you back time. So you can ultimately focus on doing what it is that you do best. And well, number three, possibility there would be you can't afford to buy back your time. And buying back your time is so important because you can buy back the things

17:02that you're doing that aren't as valuable in economic sense, right? I'm not talking about like in heavenly or spiritual sense. If I'm talking about like in true dollars, you could bring someone in to do that for $25 an hour, 20 pounds per hour, et cetera, right? Bring someone in to do that. No reason why you need to be doing that. And then as you as the as the operator of the business at this stage, you're then spending your time doing things that are a lot more high value. And this was the in my business journey, this was the number one thing that helped me get to a sustainable place in business and get out of the that hamster wheel mode because my very first hire was a virtual assistant. It was all I could afford at the time, which is fine. So virtual assistant, she was part time. She helped organize my email. She helped respond to people. She helped manage my calendar at the time is doing some content marketing. So she helped post some social media content, some blog posts with a marketing stuff there. Otherwise, I would have had to do those kind of things. And they might have taken me a long time. So it would have detracted from my ability to do certain things. So if you're starting out as a sole practitioner, the first thing you can

18:06you want to do on your growth path is to make that first initial hire. And typically, what we recommend is that first hire should be an administrative help. It's only going to be possible though. If you nail the first two, which are pipeline and pricing, stop, stop raising those fees. Yeah, raise the fees. Don't charge less just because you're new. If anything, you may want to charge more because you have access to new tools, you bring new ideas, new pathologies to the project. And ultimately, set as your baseline, what you need to do the project plus the profit that you would need based upon that. And that's really something that you begin to understand over time historically. So this is why it's so important that as a firm owner, you're keeping meticulous records about how long it takes to do the projects, what how much time it takes, how much money it takes. You can begin back to look and say, okay, here's how much this took. Also, it's not a bad idea to sort of rate the clients A, B, or C. A, this client was totally easy. They didn't have that many changes. They were super easy to work with. B, you know, so so C, man, they resisted

19:07and they asked for extras and it was a pain in the ass to actually work with them. That helps you then determine the fee as well. And for some of those C clients, you might just want to tell them yeah. And again, it's really important to this exercise in raising fees and doing a little bit of preparation in just analyzing how much resources going to be needed, setting a profit margin. And again, I'll encourage people to set a profit margin of 30%. You know, I know in architecture, when we look at the industry as a whole, it's more like 10 to 15 perhaps for for a good functioning small firm. Yeah. Yeah. And I, you know, let's not benchmark myself against the status quo, which actually is not that great. Exactly. And that's starting to go for 30%. And there are firms we was talking yesterday with with her with firms that are up in the 40s. Yeah. You know, that's

20:07not, that's not out of this world. Yeah. We want to start there and raising your fees, having an idea of how much time you're going to be spending on doing it. If someone starts pushing back and saying, no, okay, great. That's some feedback for you that your sales skills need to improve. There's no such thing as a bad prospect, only a bad sales person. Amen. Amen. And again, that's, you know, the, the idea that we're not selling and we're just sending out emails. We're not kind of in conversations about our fees. It's very easy for us to fall into the trap of like every other architect where you've externalized the locus of control. So I can't get fees higher than this. I can't do it. It's not possible. Yeah, maybe not in that market, not in this market, not in, not, I can't do it. I mean, that geographical area. Yeah. I mean, you may need to switch some things. Yeah. You know, you may need to switch some things. You may need to focus on a different kind of architecture. That can be difficult to do and scare if you haven't done it before, which is why a group like businesses of architecture smart practice can be

21:12so valuable, especially for small firm practitioners because they begin to open up their possibility for what's possible, right? I love Jim Rohn said, you, you are the average of the five people you spend the most time with. And if you're spending your time, well, let's say you don't even have a support network as a firm owner, that's a very, very lonely place to be. Yeah, absolutely. So one of the principles here is that you set your value at the end of the day. Ryan was talking about the external locus of control versus the internal. If I'm looking at the market or clients as being the ones who determine what or how much I can charge, then you have just disempowered yourself. You've given away your power to an external authority. On the other hand, if you say, okay, I'm the one who sets my value. This is what my value is. And I'm going to learn the skills necessary to enroll clients in paying me this amount of money. You'll be surprised at your ability to do that because what we know working with many firms is that there's a wide wide range of ability for them to get paid in terms of the low on the low end over here,

22:16and on the high end over here. And many of the things and services they deliver are not too different. But the amount of fees they get paid can be enormously different. And it's interesting, I love to see people on LinkedIn complaining about, in my market, I can't charge these high fees or in my geographical region, I can't charge these high fees, or I'm working with these community type projects, you can't charge these types of fees. And the question then comes up, well, selling and marketing is about choosing the right types of clients where you can choose the right fees where you can afford to live off your blooming business. Yeah, yeah, I don't have a lot of time for when people are getting themselves stuck into serving, over serving a particular type of clientele where they cannot get the money, they cannot get the fees needed for the job because that's a charity. And you're not a charity, unless you've got loads of money from a different resource, it's either a charity or a hobby. Yeah, it's just like in the

23:21airplane when the little oxygen mask drops down, they say, put on your own mask first. If you want to have impact in the world with disadvantaged communities running on profits, you got to be able to make sure you're standing on solid ground. It's like last year, I was swimming across, I told you this thing, I was swimming across this little river with my daughter. And we almost drowned because she was holding onto my neck and like, I didn't have the stability to really get us across the river, right? And like, if I'm the one who drowned, if she starts constricting my neck and pulling me under the water, we both go down. Yeah, not a good place to be. No, it's really irresponsible. We have the sometimes of firm owners that we speak with, we go for their books, we look at the enormous amount of community-based work that they're doing, pro bono services, and you're like, okay, then you guys must be doing enormously well with loads of reserves and profit to be able to be doing in this kind of work. No, we're making losses. And why the hell are you doing it? Because no, only that. You are now endangering

24:23these non-profit organizations that you're working with. You're putting them at risk as well as yourself. And just like in your example, because if they go bankrupt or they can't make any fees or they can't pay people and their whole team walks off, then now you've just endangered this other charity organization that you were trying to help because you were being irresponsible. Yeah, and that's the thing. As architects, we have big hearts as an industry. We want to help. We have a heart of service. We want to bring design to the world. And yet, if we're not financially stable, if we don't have our own oxygen mask off, they didn't impede our ability to have that agency to be able to help other people that need the work. So the most critical skill that you can learn or implement in your practice, we're talking about the first two, which is pipeline and pricing. Now, both of these together are what we call being a rainmaker. So when you're a rainmaker, you have the ability to grow a pipeline. You have the ability to correctly set the prices

25:25for those projects and to actually propose on those and win those proposals. That's what it means to be a rainmaker. And here's today's smart practice tip. If every week feels like a cycle of putting out fires, chances are you don't have a hiring problem. You have a team problem. The rockstar hiring guide helps you break the cycle with proven strategies for identifying hiring and retaining top talent who actually take ownership and make decisions. No more micromanaging, no more turnover, just a team that gets it and gets it done. You can download it now by going to businessofarchitecture.com forward slash rockstar to get this guide. Absolutely free. Today's episode of the Business of Architecture Show is sponsored by Smart Practice, the world's leading step-by-step solution for architectural practice owners that want to structure their existing practice so the complexity of business doesn't get in the way of architecture. Here's the thing, if free advice was enough, everyone would be crushing an end succeeding. The truth, free advice can only take you so far.

26:30The breakthroughs come when the advice is designed around you. So if you're ready to quit being a glorified administrator and get back to architecture again, go to smartpracticemethod.com to discover the proven simple and easy to implement smart practice method that is revolutionizing firm management for small firm owners and teams around the world. And as always, Ryan and I want to thank you for joining us here and remind you that the views expressed on this show by our guests do not represent those with the host and we make no representation promise guarantee pledge, warranty contract bond or commitment, except to help you conquer the world. Carpe Diem.