Contractors make anywhere from 20%-50% in my area. Architects and Designers anywhere from 3-10%. Only the top dogs are making above 10%. Part of the reason is that contractors essentially retail raw materials that they get discount on as a wholesale buyer. That’s a good part of the profit margin just in that. If you get 20% discounts from suppliers you buy from often, and subs that you use, That’s 20% right there on material and labor just to be at a competitive retail price. So a good portion of the profits are not coming from the owner, but from the money you save from developed relationships with subs and wholesalers. Contractors also need to have a greater profit cushion so that if something goes wrong they are covered. They also need to cover warranty items.

The 15%-20% refers to the O&P not the materials and labor. There is a lot more expense overall that construction contractors are required to spend (and ultimately, the client pays for it) to build the house than the expense of making drawings on paper. Construction can take longer and are potentially more exposure to lawsuits than the architect might be. So, it might actually be more than 50% of the project budget but the 20-50% O&P can exist in some type of work but we're not talking landscape contractors but construction contractors which there are a lot of competition. Architects/Designers' portion also depends on whether the project is new construction or involving existing / historic buildings. The latter tends to be higher percentage rate. If you know the work involved, you'll understand why given how obvious it is.

Rick, 20-40% is the profits after expenses. A 100k landscape construction project often equals 20k in profits for a person who is subbing all work. A company with employees who is self building is often making upwards of 40k or even 50k on that same job. And I’m in probably one of the most cop
House construction is not too different from what I hear. They make slightly less, but the job costs are higher, but the projects take much longer to build. A high end landscape project with a pool, spa, walls, irrigation, etc can easily cost 500k-1m.

*most competitive markets in the US. Just from what I hear from other contractors. A custom home builder would not stay in business if they weren’t making at least 30%. They usually only do a couple homes a year, have office expenses, office employees etc. By “profit” I mean after construction expenses, not general business overhead.

If you calculate the O&P and divide it by the material & labor, you can be in that zone. What you are talking about is essentially the contribution margin. A successful business needs a contribution margin in the 30%-50% range... the higher the better because its more pure profit compared to the expense. Construction is likely to be in the 25%-40% range with most being in the 30%-35% zone.

Rick what I’m saying is that if you go to abc directly he will charge you 100$ for x. If you come to me I will charge you 100$ for x too. 80$ will go to abc-sub and 20$ to me. That’s a low ball version of how it works. So “why” do contractors make 20-40%. Because they can is the answer. They can because they generate business through relationships and marketing, and subs are willing to discount them for that repeat business. The designer in contrast is charging a fee to the client and that fee itself is the entire profit or contribution margin or whatever you want to call it. Contractors make a portion of a large charge. Designers make 100% of that charge typically. A contractor never makes 100% on a fee unless they literally build themselves with free materials. I’m otherwords, contractors profits are negotiated on 2 fronts, with supplies / subs, and with owners. They have more opportunities to increase profits on the work side. Designers can only increase profits for the most part on the client side.

First off, it seems that how you wrote that makes little sense. When contractors bill, they bill M&L and O&P and those are more transparent. 

There isn't any P in the M&L. Maybe if you compare the actual M&L to the bid. If something comes in under estimate, the M&L is reduced. The difference may or may not be added to the actual P. When you invoice, your M and sometimes the exact L is not disclosed to the client except when it is required by law or contract. You really don't have much billable materials as an architect/designer. So, it's almost just L, O, and P. 

I'll restate myself to technically correct myself on the M&L part of contractors. There is an O&P embedded in the M&L for work performed by subcontractors but the normal O&P you see is the GC's O&P, not the subs. The GC's O&P may be reduced if his/her role is more PM/CM and not doing any of the real work constructing other than a small number of hours spent to check on things by the subs throughout. 

Architects and designers usually have very modest overhead and material costs which often are not billable so non-billable material falls into overhead and the labor is just the billable labor. Non-billable labor is just overhead but you can design houses just as an individual. You can't really build them by yourself unless you're talking about something like a chicken coop or glorified dog house. 

Construction is typically a much more expensive business to operate per relevant scale. There are human resource demands in construction. There are tools and equipment and facilities for that equipment that you won't have as an office worker. You know, big vehicular equipment. You won't have that as an architect/designer unless you construct what you design. Overhead expenses of owning or renting or leasing property may be more significant than just an office. 

Then you have to have a contributing profit margin (contribution margin or simply your profit margin) large enough to fill your piggy bank and have some rainy day funds to ride out lean times. This profit isn't all going into the contractor's pocket. Maybe 10% of it but a lot is retained earnings retained in the business's accounts not the business owner's personal bank accounts. I'm not saying there isn't any sort of financial mismanagement as they do occur but usually, not so much.

I'll explain it in simple terms. Here is an analogy. A store owner makes money on a product that they sell. They can increase profits in 2 ways. 1 raise the price to the consumer. 2. get a lower price from a supplier. Whether they raise the price 1$, or get the product from the supplier 1$ cheaper, they still make 1$ more in profit. A GC has the same ability to carve out higher profits on the consumer end, as well as the supplier end. This gives them more opportunity to find ways to increase profits. Designers can only increase their profits by raising price to the consumer.

That's true but remember, while you make a bid, a contractor, depending on a number of factors, especially in public projects, can't just pocket the savings. It's not that uncommon in contracts with public projects that have some stipulations. Private clients and developers may apply similar terms in contracts as well.

To settle this, we literally just get the costs from our subs and put 5% on it.

What type of construction?

Resi, commercial, healthcare. There’s no voodoo going on of saving material costs and pocketing cost the difference ect. It’s literally just subs get costs and add a 15% markup and the GC 5%. We might add “fluff” at scope that’s vague or is a repeated shit show or if you really don’t want the job because the architect or owner is notorious for being terrible to work with but it’s really there to avoid change orders on the inevitable screw ups humans make not for additional profit. If you run the the job really well you might have extra but everything is GMP these
days so

the fluff gets returned to the owner at the end of the job.

Especially since the contract language is pretty standardized now. Years ago, it was common with public entities but those terms are available under FOIA and state related public records laws. So they began being used by private entities and its more normal now that clients, especially developers (residential, commercial, and healthcare) incorporates such terms or requires it as part of contract negotiations. Yes, there is cases where shenanigans like some saving material costs and pocketing the savings but not as much and more abnormal given the lime light that had been put on such issues.

A 5% markup seems very low unless you are doing huge projects.

A 5% markup on the subs fees seems very high. I wasn't aware that fee markups where done anymore.

Markup for stopping by the construction site for 15-30 minutes to maybe an hour here and there overseeing that the work is done and done accordingly. It's not like the GC tells the sub's employees what to do. Otherwise, it's just the GC covering the cost of sending out invoices and such. I can see it go higher or lower depending on the scale of the sub's work. It's about what is needed for the GC to at least break-even and they might squeeze a little extra profit in that but very tiny.

Rick, you aren’t getting what I’m saying. In a competitive market, the less costs you have, the greater markup you can do. Your potential profit is often capped by what competitors are charging. Usually owners are getting multiple bids, and you need to come in at a competitive price. So, saving on costs gives you room. If your costs are 80, and average competitive price is 100, You have a max that You can charge before You price myself out of the market and lose jobs. If costs are 75, you have a little more room. If costs are 100, then you may as well close up shop. So, of course saving on costs is important. No one does the math that way, but that’s how it generally plays out is what I’m saying. The market controls average fees, and a lot of whether you make a profit or loss has to do more with costs than anything else. Anyone who thinks that you just take whatever cost and add some multiplier to it is not being realistic. If your costs are high, your total will be high and you will lose jobs.

Richard Balkins wrote: 

 "It's not like the GC tells the sub's employees what to do. "

Actually they do, a lot. 

The GC is responsible for their subs work and will inspect and direct subs on how to do things to meet the GC's standard of care and insure that the work follows the CD's.  .

While that is true but you may be contractually barred from pocketing the saving you make on material costs. Sometimes, you have to give a detailed breakdown of your estimate, line item by line item. This means the client may not select you because you pad too much compared to the other bidders. Sometimes, there are specifications to be met and if you are ethical, you are honest with the estimate so you are substituting what was specified with a cheap knock off. If the client wants granite countertop, you price genuine granite top not some knockoff fake countertop. Some contractors are unethical and their bid is totally wrong. Even with the subs, the GC may have to get this level of information about the bid from subs because it's part of the prime contract requirements. Clients may have someone that has cost estimation or contracting background they solicit their opinion on the bids. 

Remember, one just can't willy nilly reduce cost and assume He/she get that. The contract may require that he/she hand that over such detail bids. They may also look at how much you are pocketing for profit and ask you to justify (ie. convince them that they should allow you that extra margin) or reduce it to match the percentages your competitors are. Clients can do that. 

Additionally, if you are significantly lower than the competitors, that is also a red flag. Why? How are you cutting corners to get to those prices? 

Questions like that may arise. 

If you are in the statistical blob of what others are bidding then you won't stand out so much. Clients vary but sophisticated and thorough clients scrutinize bids quite thoroughly and you better have your answers to their questions.

Chad, we're talking about the semantics but there's a procedure. A GC is not permitted to micromanage the sub's employees but are allowed to do what you are saying. My point is there are limits and technically they are to communicate that to the sub but the sub's employees may be present for mutual efficiency.

The sub's employees works for the sub not the GC. The GC is not suppose to go behind the sub's back directing the sub's employees. That can lead to legal issues.

You can’t tell them to be at the site by 6am sharp or tell them when to take breaks ot how to hammer a nail, but you can certainly manage the project and communicate with them kf they do so

*something wrong or if something looks off. The subs foreman is there for that reason. They are a representative of the company, so you are communicating with the company you paid to do a task. The guy hammering the nail is not necessarily authoritarized to represent the company, so the line is a little hazy there, but management level employees are different.

Chad, it’s a 5% mark up on overall costs not a sub fee mark up and then overhead and profit.

Of course, x-jla, that's basically what I intended. It is not that there can't be communication but you have to professionally respect that they don't work for you but your consultant. You don't go to the engineering consultant's office telling the engineers' employees how to do their job like they are your employee. They are employed by the engineer, not you. They have their orders from their boss. You have to direct your concerns in some of that to their boss. You don't get to control the sub's employee(s) like you would your own. That's what I was getting at. There is certain kinds of communication done in certain manner that is acceptable and there is ways where you overstep. Otherwise, you may become liable for paying those employees as your own (including reimbursing the sub)... well... all sorts of legal crap can come your way. So there's a number of what we can call the "right way" and there are plenty of "wrong ways" of communicating with subs' employees.

Sometimes, a contract or an associated memorandum indicating the parties responsible or otherwise authorized to represent the GC/Subs/etc. so they are persons you can address such issues if the RMI (Oregon's term for the contracting firm's person responsible for contracting services as it is the firm that is issued the license which would be the case for me.) is not present on-site at the moment in time. 

RMI stands for Responsible Managing Individual

Yes, more than one person may be an RMI, and in some companies, the foreman and others undergo the 16 hr. training program and exam. Some license tiers require more experience and that's something we don't need to go into here.

orca, the markup is usually baked into the O&P but may be baked into the labor estimates and GMP range. Of course, each sub has their own baked in O&P baked into their bid and pricing or they are idiots with no idea how to estimate and bid... like zero business education/skill to not build in a profit margin and coverage for overhead.

Those numbers are more likely true with new construction namely tract housing development and similar type of work. Work involving existing and historic buildings can be 1.5x to 2.5x that on a typical project.

“Tract housing development” is rarely, if ever, architect designed & is not getting anywhere close to 8% of construction cost.

While what you said is largely true but actually even smaller housing tract development or developer-client project developing housing is likely to be in that price zone but that fee also incorporates the fees of consultants like engineers.

Most data regarding fees percentage for architects has the architect's consultants embedded which includes engineers and others so 8% is believable. You might directly get 3 out of 8 or similar ratio as you go up from 8 to 10 or up to 12%. Additionally, the size plays into the figures. My fees would be similar when including engineering consultants. Sometimes, that also may include landscape architects/designers.

I need to move where you practice. I just put out an RFP for Construction Management on a $70M job and all fee proposals were between 2.25% and 3.75%. I'm not saying that those are totally honest numbers, but nobody is getting anywhere close to 10% on any job I've ever worked on. For the same project, the total consultant fees amounted to 6.5%.

As CM, are you essentially the GC subbing out all the work and overseeing it?

If I was the GC, (just need to pick up the insurance, bond, and finish off the license payment process) my bid to client would be an amount that includes the subs and then my O&P. Subs' O&P would be built into their bid and be built into the bid proposal so it's basically backed into what is essentially the O&P. As a designer, my design fee may be a separate line item because it's not just construction or just design.

I ask to get more understanding in your context to better understand the numbers you mentioned.

I should clarify, the numbers I referenced were the proposed % based fees for the project. I have no idea what their actual profits are. I think we might be conflating the two.

Is this a CM as Agent or CM@risk?

The amount seems more of a CM-agent (CM as agent) than the latter.

My understanding regarding CM-agent, is their fee is just their labor for providing their service, a backed in overhead and profit but the material, labor, equipment and sub-contractor(s) O&P would be provided separately from the CM-agent and so they do not have the M,E,& L listed in a typical bid by a GC because it's not integrated for the subs are not contracted directly with the CM but the client whereas which they may actually be primes instead of subs as in a multi-prime with a CM-agent. Whereas with CM@risk, subs are contracted directly with the CM much like a GC. It's a nuance of contractual relationship and project delivery.

bowling_ball - the 10-15% proffit I mentioned is part of the overall fee the GC provides. IE - 10% of their 3.75% fee is proffit.

$70 million project

$2,625,000 GC fee at 3.75% of that $256,500 is the GC's proffit at 10%

Of course that's typical for new construction above a certain scale. Really small projects and work on existing or historic buildings may result in different percentage figures. Of course, those percentages may be consumed in art by the consultants so the net % the architect keeps may be a bit lower than 6%-10% figure.

Not everyone here started yesterday.

The OP maybe. So it might be appropriate to provide thorough responses for the varied situation like I said. Existing and historic building, the design work tends to involve more work such as preparing as-is set of drawings and HSR or equivalent which all necessarily takes place before you get deep into the actual the design work for the client.

I try not to assume by users aliases anything but if you are at the outfit in Montana then you know what I am talking about but can't assume the OP does so the response is more for the OP than you.

There are a few others that could fit the bill with your background but in any case... don't take offense if I have mistaken you for the firm in Montana. I haven't seen enough posts from you to know for sure.

I think I know who you are after reading enough of comments you wrote. I'll leave it at that. If I'm right, your firm has done some good work in NY area.

​OP asked about arch fee for a 3,000sf house in LA: whether 8-15% was appropriate. Yes it is, but it is on the lower end. 10% is by no means “superstar” level.

smaarch wrote:

"Confusing question from the OP. Architectural fees are one thing. Contractor's O & P is entirely another.

 Architectural fees of 6 to 10% would be appropriate for east or west coast. If you are getting above 10% - well you're a superstar."

That's not correct.  

For a single family residence in LA you'd need the construction cost to be in the $12-18 million range for a 6% fee.

A 10% fee would be reasonable for a single family project with a construction budget around $200k

Each place varies but also the project. It is possible to be in the 8-10% range.... even in L.A. for a 3000 sq.ft. home. It depends on whether you are doing a typical light wood framed home on concrete slab without needing engineering consultants. smarch's west coast and east coast is quite a large area and not just L.A. At $500K, 6% is $30,000. You can surely design an SFR that size in 200 hours for a billed hourly rate of $150 an hour. I'd argue that $1.2M to $1.8M would be typical for a 6% fee because unless you are doing some unusually complex home involving engineering consultants, charging 12% might be high. Without engineering consultants or minor use of them, 6%-10% is realistic in the $500K to $2.5m range construction budget. 3000 sq.ft SFR shouldn't cost more than $2.5 Million in construction cost budget for fairly typical construction.

Granted, some firms on the high end, would charge in the 10-15% range but that's another topic and that's for the more sophisticated high end homes.

A lot of homes in L.A. area are tract development. From low end to higher end tract marketed to various levels of socioeconomic classes.

The homes on the L.A. hillsides on the northern L.A. and certain other locales, were the multi-million dollar homes (back in the 50s - 80s) and architects would charge in the 10+% of construction cost budget as the architect's fee tacked on to the project cost. The average homes of suburbs around L.A.like West L.A., Venice, Torrance, Compton, Carson, Wilmington, Long Beach, Pasadena, and other locales are seldom that sophisticated. Most are just 1-2 story (some 3) platform frame wood or light-metal stud framed walls with stucco, wood/vinyl siding, with occassional ones with brick facade. Most with concrete slab or wall foundations. I used to live there and I suspect it hasn't changed that much. According to Google Street maps, it hasn't looked like it changed that much. 

you lived there, huh? well, that certainly substantiates...well, something...

fyi, we're getting +/-10% in portland on homes +/- $1m without consultant fees included.

i can assure you that (LA & SoCal in general) is more. And that high end architects wouldn't get out bed for your 6% calc, much less run their studios on that fee

That is why those architects don't design the majority of houses. Those architects won't get the job. So who gives a shit. They are only going to be designing homes for celebrities, executives, and high priced lawyers and others like them.... basically the top 5% income earners in America. The majority of houses are nowhere going to be at that price level.

If you need to make $90,000 to $100,000 to design a 3000 sq.ft 21st-century modernist-ranch style house for average income homeowners, you should be smacked in the back of the head... Gibbs style.

"those architects won't get the job" ...do you have any idea how out of your depth you are? how off topic?

"average homeowners" aren't hiring architects at all

[it sounds class-ist, but it is just a fact of life in this industry]

"average homeowners" and average-income prospective homeowners sometimes do hire architects. Not all architects are pricing themselves that high. Then you have developers developing housing for middle to upper middle class not just the 7+ digit income earners.

median household income of U.S. homeowners is less than $100k -- they aren't hiring architects

citation: https://www.census.gov/library/publications/2022/demo/p60-276.html#:~:text=Real%20median%20household%20income%20was,and%20Table%20A%2D1).

Rick, most people cannot build a custom home even if the architect did the work for free. Getting a construction loan, buying a lot, it’s not happening for most folks. It’s not the design fees keeping average people from building custom homes.

Bu there is certainly people not in the upper 5% but part of the remaining 95% that can afford a home. Yes, getting a loan, buying a lot, etc. Then there is developers who develops apartments, condos, etc. that can afford that. Not everyone is Bill Gates rich. Yes, they might not buy out of pocket but they get a loan then refinance it with a mortgage, making payments. Even if they aren't the lowest 60%, there's the next 25-30 or so percent which makes high 5 digit and 6 digit annual income. 12 to 18 Million is way too high for 80% of the SFRs at 3000 sq.ft. It doesn't cost THAT much and we aren't suppose to be charging our fees on the total cost of the project where land acquisition is part of the fee. We are suppose to charge our fees in percentage ratio of the material, equipment, and labor not including O&P. A modest stud frame house, like those in the 50s-80s with up to date electrical and wiring for ethernet/wifi, drywall interior finish and ceiling trim and basic base board, standard insulation, should all cost under $350 per sq.ft. so $1 Million for the home (not including buying the property and property acquisition should have nothing to do with prices of the designer/architect design services and the contractor's cost. So, out of $1M, our fee should be under $100K since we should be able to design homes like this in 200 to 400 or so hours. 20% of Americans makes ~$90K to $150K. This is the upper middle class. The upper most 20% is the upper class. Only a fraction of the upper class (highest quintile) makes a 7-digit income which is what you have to earn for those $10+ million homes. I serve the 4th quintile and part of the 5th quintile for new construction. Renovations and such, the 3rd quintile. Below that are the ones that pretty much just rents. First quintile, poverty. Second quintile low income. 3rd quintile... middle-class. 4th is upper middle class, 5th quintile (highest) being upper class. There's no multiple interpretations but that's approximate where terms are associated with quintiles. Over 50% earns more than $100K. ~7-8% makes more than $250k. Nearly 58% earns over $50,000. The clients I serve is over half of American households. If you price yourself so high only the top 2-3% can afford you, well... you aren't getting the job because those you're earning more than the cost of the house. A $12-18 million house divided by 3,000 sq.ft. is $4,000 to $6,000 per sq.ft. I can understand $400-$600 per sq.ft. and I can understand $250-$400 per sq.ft.

It’s glaringly clear you do not understand it. That’s because you are out of your depth. Maybe stop pretending to be an authority in areas where you have no direct experience? It’s ok to just read a thread. There are ways to participate without posing as a mansplaining omniscient lecturer. You can post about your personal experience as a comparison & acknowledge your limits in the conversation.

A 3000 sq.ft. SFR needs only one person to design it. Average 3,000 sq.ft. home typically requires from 350 to 700 hours to design. That would be typically within 5%-8% construction cost. That's based on an billed hourly rate of 180/hr. The architects designing for high-end custom homes like those by Richard and Dion Neutra and others did and the likes, priced themselves too high for tract developers, and those not in the upper most 5% income. Those earning $100k to $150k a year, they aren't going to underwrite your collection of super yachts. They are going to choose someone at a lower price level. Not everyone seeking a architect/designer are paying for something that high up there. They seek a more modest costing home. They seek us because they want something more than a plan book. Maybe a home designed with passive solar design and sustainable practices. Not every client is a Kardashian.

I am doubtful 3,000 sq.ft. house would cost $12-18 Million. I'm pretty certain a 3,000 sq.ft. home would cost closer to $1.2 to 1.8 Million in Los Angeles. Such a house would normally need 350 to 700 hours to design. Earning 5% to 8% is a reasonable pay for 350-700 hours of work. Pulling in $60,000 to $144,000 for 350 to 700 billed hours is actually pretty decent. After all, you would likely be working on at least 3-4 such projects a year. 

If the project was $200k or less, I can understand the percentages going up to 12%-15%. This isn't the kind of project you throw 5-10 people working on it 10-20 hours a week on. This isn't a school building or a hospital. 

SFRs are customarily designed by sole-proprietors where they may rake in $180,000 to $576,000 a year gross revenue. Likely in the $200-$350k. In L.A., $180K income is still comfortable living. 12% would be a bit high unless you only want to serve Kardashians, and hollywood stars.

x-jla wrote

'Rick, most people cannot build a custom home even if the architect did the work for free. Getting a construction loan, buying a lot, it’s not happening for most folks. It’s not the design fees keeping average people from building custom homes'

Most architectects can't afford to build a custom home that they've done all the design and CA work on.  :(

If you're charging 12% on 12-18 M, you should be able to after a half-dozen projects.

It's your own posts that alludes to it. It's not stalking to look through prior comments. Facts and details you had given, does narrow the list down and SMAARCH seems to relate to firms using the SMA and Architecture. I could be wrong.

What you say on the internet is not private. It's public since it it was no longer NSFNet and ARPANET before that. Since the 1990s. If you want everything about you private, don't post. Fundamental rules since before internet.

It sounds like the term "stalking" wasn't well-enough defined...

Everyone has their own definition for every word. I'm not going to waste my time pleasing everyone's definition. Everyone can go f--- off. Besides, licensed architects are supposed to only refer to themselves as licensed architects under their legal name. How is someone to verify you are duly licensed when you use a false identity? Big "Trumpian" problem.... accountability.

It's been a few years since I've done any SFR, but based on my experience in SoCal, I wouldn't be too shocked at $500/SF for "higher end" work. Last time I was really up on it, even contractor spec houses were costing around $300/sf.

I know a few high end residential architects. For a $10 million home they'd be charging 15-18% in fees. On the topic of fees - it's always been my understanding that under a certain construction budget (currently $1 million in our area) doing a % of construction cost doesn't work. The fee isn't high enough to make any money.

First thing, don't by million dollar yachts and the thousand and one bottles of Domaine Leroy Musigny Grand Cru. That would be a good start. Second, you accept earning $100k a year and spend only 350-700 hours of time on the project and you'll have a profit on a design/architectural services fee of 5-8% or equivalent. 

It's called managing the resources spent on the project. Custom-designed home does not mean high luxury. They can be a custom-designed home of the similar construction cost as tract development with basic finishes. They can be super elaborate high luxury. There are architects and designers that designs homes for modest budgets for those earning under $500k a year.

Ricky, we do just fine and although I am not very keen on working on these uber expensive third (or fourth) homes, they keep the lights on and lead to bigger projects that support several staff. These are the types of projects that payed the bills and allowed us to keep our entire staff on payroll throughout covid shutdowns so I don't think I need business advice from you. My point above was that it's hard to see profit % when it's a perpetual hourly bill. Having a set $ fee and clear deliverables is much easier to control but is a rare option when you have clients that ask you for options bec ause they might purchase a second helicopter. True story.

“First thing, don't by million dollar yachts and the thousand and one bottles of Domaine Leroy Musigny Grand Cru“. I spent all my money on grey poupon and now I can’t afford a 10% architecture fee.

N.S. you can make a profit on a 6% fee even a 3% fee. The idea is controlling your expenditure. If it was me, I'd charge an 8-12% fee on the bigger projects like campus projects for schools, colleges, universities, and corporate campuses and for designing mansions for celebrities.... those clients that has that kind of money. No need to give charity to the rich or the deep pocket clients. For the majority, don't be so price-gouging. After all, the lenders don't pay for design services only the construction. Generally, clients have to pay out of pocket for my services. Even in 2023, people in much of America can raise a family on $60K a year. $100K should be easy and comfortable living. Even at 5%, I'd can afford renting/leasing an office space with just 3-4 houses of 2500-4000 sq.ft. designed. The reason is, we aren't spending $10+ per square foot per month in renting or on a bunch of crap that is not needed to spend money on. It's called managing expenditures. I usually won't charge 10-12+% on new construction design unless the project's construction cost is under $500K or is significantly complex and typically not using conventional construction.

Many assumptions and many "If I was" lines of thinking Ricky. I know it's easy to fantasise scenarios but the real world is different. BTW, how many campus projects have you worked on? any above 1mil? what about 10mil? Ever work on a 100mil... or 2-billion? I have.

@Rick ..." I'd charge an 8-12% fee on the bigger projects like campus projects for schools, colleges, universities, "..

Man , you have no idea.

Sure, N.S., I could go with 5%-8% for designing a $12-$18 million. You can choose to bloat the cost of everything. What the fuck in your life costs so much that YOU need a million-dollar paycheck. Don't tell me children and a spouse unless you're raising over a hundred kids.

Now, quit gaslighting with the bullshit.

PS: You set the price based on the scope of work. Whether you choose to bill hourly rate it, percentage fee, or whatever else. 

No gaslight Ricky. Just letting you know that some people here have real experience with real projects.

Gaslighting

You've literally never worked in a firm or the industry. Your advice on how to run a business is meaningless.

Non, I'm curious, why aren't you building enough profit into your hourly rate to make it profitable?

It's because of the moose WG. They control the architecture industry up there.  

WG, Chad is partly correct. We have good margins on normal projects but our residential clients are the type that change their minds several times per day even during construction so it’s a $/hr fee for them. It would be impossible to predict a lump sum. It can get very frustrating at times and we’re not tooled up as a residential production office but these are also commercial project clients (with lump sum fee projects) so we bear through it knowing there are a half a dozen other projects with them on the books. Also, damn the moose mafia and their cut of our sweet sweet maple syrup.

Your experience with high end residential construction is the same as mine NS. The irony is that doing a high end single family project is more complex and time consuming per sf than say high school or hospital project. As for the moose - when in MN we just gave them beer and if they didn't fall in line we'd hit 'em with our trucks.

Non, I understand that clients change their minds--all I've ever done is residential work, though rarely for the ultra-rich, the wanna-bes are nearly as indecisive. I definitely understand the frustration and that you're not set up for it. I don't understand why if you normally aim for, say $300/hr on fixed-fee projects that you can control, why can't you charge the residential clients $300/hr for however long it takes to do the work?

Regarding indecisive clients--about 20 years ago I built a $2.2M home ($3.4M in today's dollars, so not crazy expensive but above average) that had full architectural drawings, but the clients couldn't visualize anything, so we built the entire house by working for a few days, having the owners look it over and telling us what to redo, which was most of the house. It was hourly so I didn't care but the masons were upset to have built a real stone fireplace, floor-to-ceiling, only to have the clients want to make it a gas-burning fireplace, which they did, then deciding that they wanted a brick fireplace, so they tore down the stone one and started building a brick one, then the owners decided that they didn't need a kitchen fireplace after all. Good times. 

Like moose, residential clients need to be herded into the right direction. I charge a flat fee and break my design development process into phases ending with a meeting to review and revise. 3 meetings. 3 design development periods. Then plans finalized. If more development periods are required an additional charge equal to 20% of the total original design fee is added. I just started doing this last year because the changes got out of hand to where I was spending way more time than anticipated in my flat fee. This is for landscape. Architecture may require more than 3 phases.

For instance, site analysis 10%. DD 1 20%, DD2 20%, DD3 20%, Final plans/documents 30%. If the total is 10000$ Each additional Development/revision period would be 2000$. It definitely forces clients to be more mindful of their changes at each stage. If more time is required then no problem. Just need to get paid more. It’s a way to do flat fees without getting jerked on changes. Seems to be working so far.

Things are different between landscape design and architecture though x-jla.

Wood - it's interesting that your 'not crazy expensive' houses are in $2-3 million dollar range. Every place I've ever lived and worked (not counting mountain towns) that would be incredibly expensive.

WG, feel free to send a note to my office's ownership. I know I pad the fee accordingly in the proposals I write but I serve many projects were I am not involved in the accounting. Fun times indeed but times are looking up and some of our dormant large industrial and commercial projects are gaining new life. 2024 summer looking to be a different kind of busy.

Non, I don't mean to pry, I'm just curious--as a builder I always had mixed results doing fixed price vs hourly. I'm currently working on my first fixed price design project, that I wasn't very interested in so I estimated very high, or at least I thought I did--I didn't allow enough for pre-design but hoping I make out better on SD.

Chad, it's all relative--that was a big project for me, and I have a $3M new home now that's my biggest design project to date--really too much for me to do alone, but I'm pushing through. My brother is a builder on Nantucket; Google execs are repeat clients, with $20M-$50M compounds. An architect friend of mine elsewhere in New England designs large Passive Houses that probably cost at least $5M. (And they get 15% fixed fees!!)

WG, the management team discussed fixed vs hourly a few weeks ago and we cam to the conclusion that, given the unknown scope/lenght of the custom homes we've done, it's impossible to predict an acceptable fixed fee... and our clients don't mind keeping 2 or 3 staff on call for 2 years as they figure their stuff. Easier to bill-out every month as is then come back every 3rd month to ask for more fees. Different story on our large commerical projects because the scope is typically defined as part of the proposal but we do allow for $/hr up to a max for SD phases especially if there are months of zoning work ahead of the real design phases. An example would be SD at $150/hr up to a max of 10k + lump sum of 30k for site plan submission. This way we can protect ourself if the design scope starts to creep.

I have a local colleague who does that level of residential design and the billing is fine. It's the burnout on the never-ending design phase of various project elements that gets him most. He gets exasperated at a moment where they've produced a number of successful solutions but somehow the client still wants to see another to only go back to one produced previously. (But I haven't had him send those clients my way either). For my part, we seem to work for clients are in the entry level or midlevel of owners who can afford to pay an architect to design their house projects; no $10m & up projects here...

"...our residential clients are the type that change their minds several times per day even during construction so it’s a $/hr fee for them" 

There's your problem. You aren't keeping the client under control. I don't always use percentage-based fee. 

If they are out of control, I have a Billed hourly Rate for that. If they behave themselves and exercise their right to STFU, and not constantly changing their mind every hour, it would cost them less. I require also that changes have to be signed and agreed to by not only them but me to be contractually binding. 

The idea is don't keep changing shit. Make sure you really want those changes. Just because we are using digital tools doesn't mean we are going to dick around with clients changing their mind every hour.

I know you understand that but sometimes you have to get the client under control and behave. Reducing the number of changes. Especially when you are in CD and construction stage. Otherwise they'll just waste your time and come at a cost. You have to balance providing quality service but at the same time not let them suck up your time because excessive changes will cost a lot more than if they more decisive about what they want. Be sure they really do want the change and not change their mind hours or days later. Make clear you aren't going a bunch of changes from CD phase and later phases of the project.

Not impossible but I agree. That argument makes sense. However, it is still possible without being on the cover of magazines. Difficult, yes. Impossible, no. If you make a good name for yourself and your reputation, you can make 5%-15% and being fair and reasonable. Sure, you may do other projects as well so you are always busy. 

How many projects do you have in California Rick?

FFS: The cost of building material isn't that much higher in California than in Oregon. Go look up the shit on Home Depot and some other sources. Jesus F---ing.... do a god damn materials list and figure it out. It takes about the same amount of hours to frame a wall in Portland, Oregon as it does in Los Angeles. The prevailing wage rate is going to be similar maybe a $5 an hour more. There are lots of factors that effects the material cost. Oh, wait, I forgot... you're an architect, your material expense is paper and ink... unless you are also a contractor.

So, zero?

atelier already proved my point. If unlicensed designers are doing this for 2%-3%, and they're making a profit, otherwise they would be out of business. 6% to 8% is more than 2x the price.

There's enough competition duking it out down in southern California to bother with projects down in L.A. If a client were to contact me for a project to be designed... maybe. 

higher quality work = higher price. We've gotten sooooo many small jobs because clients hired cheap building design professionals and got nothing of worth. Actually started my career off back in undergrad redoing these types of projects under a licensed arch. Good times, for us at least, not for the wankers who lost jobs.

Done plenty of those too. Those cheap still wankers still got paid. Client just had to pay twice, once to get cheap crap on paper with ink as Ricky B says, second time to get a nice building designed and built.

higher quality work = higher investment in time to design each corner & element [& redesign if needed] = higher price

rick has zero idea that the cost is for designer’s experience and ability to deliver high quality design, for the time/team to produce the work in a manner that communicates appropriately to the client, and for producing quality documentation and following that work into construction.

The value of fee isn’t just the monetary quantity. And the scope of work provided is definitively not just some spare permit plans.

I've seen designs by architects with better talent and skill than any living architect today and was affordable and able to do that in a modest number of hours and make a profit at 5%-8%. I don't need to have Buggati and a super yacht, and Citation X and plastic fake as hell life to live comfortably or provide quality design, or make a profit. The design service's percentage relates to the cost of the construction. Average cost per square foot construction cost for a custom designed house is what... $400-550/sq.ft. 

Couple sources: 

https://buildmethodconstruction.com/cost-to-build-a-house-in-los-angeles/#:~:text=Reports%20suggest%20that%20the%20average,from%20%24400%20%E2%80%93%20480%20in%202023. 

 and 

https://www.homebuilderdigest.com/cost-guide/california-cost-guides/how-much-does-it-cost-to-build-a-house-in-los-angeles/

So Ricky, what was your profit % for 2022 after Payroll and expenses?

Don't remember exactly, but I'm part of the payroll when I work on projects. In my pricing, typically 25%-35% of the billed hourly rate is the payroll. My overhead expenses are about another 15% give or take. Taxes consume about 20%-25% of revenue. Sometimes less. End-of-year net profit may be 15%-25%. Most of the time, the profit is retained earnings. If I hired employees, they will end up being on the payroll. To make it pencil out, I have to procure more work and higher yield projects (not necessarily higher % of construction cost). My billable hours are packed into the payroll portion. It's a little different for me than an employee but that's in the details. As an LLC, it's either pass-through taxes or it's taxed like a corporation. I can avoid double taxation by paying on the whole once but I do separate what is retained for business from my personal. Technically, the profit is mine to use as I see fit. I can disburse that to myself in whole or in part or retain it for when there is a downturn economy.

Appreciate the answer.

I separated income taxes from overhead (which may include some other types of taxes, fees, etc.) but you could aggregate. The overhead can float above the 15% and combined with taxes is within relative norm for architects. There is some 'fuzzy' area where things vary. I strive to have similar ratio on a per project as well as in the year round. It doesn't always happen but it's realistic figure if I don't try to be too zealous.

tintt, I understand there are shitty designers as well as shitty architects. Quality and price don't always correlate. There's a reality in the residential design market means you may have to work more for less and ultimately suffice to live comfortably with less money.

Aside from RS Means data, you may want to do material cost research and collect data and also price changes over time. This can give a sense of inflation. Sometimes the project cost will exceed the funds and may require changes to the project program. That may be reduction of sq.ft. or changes to less pricy material, etc. Many strategies.

There is nothing particularly special about Los Angeles. First there is a practical reason for never design with the total financial budget. This is practiced in every state by the majority. Likely, if it's common knowledge on the internet, then it just might be true. Of course you should verify the source with other credible sources. Here's an example, what if there was a large earthquake during construction and there was damages done to the home under construction? It might not be a total destruction but does come at a cost. 

By the way, where I am, it is one of if not the highest seismic zone in the U.S. except if your project is literally on top of say, the San Andreas fault line, which is where seismic zone E exists. Only idiots build directly over a significant seaismic fault line. Build on one side or the other but don't straddle both. Most of L.A. falls under D1/D2 or simply D. 

I'm in the area where we have also hurricane force winds up to category 3 to 5. We also have the tsunami because off the coast is a seismic faulting that has the potential of producing the most powerful earthquakes on this planet. More powerful than any earthquake L.A. ever had. 

What I explained is what you have to do in Los Angeles as with any place in the U.S. Houses built in L.A. are built the same way as it is up here in Oregon. Architects charge similarly in rates/percentages in L.A. as in Portland. It's not a hospital for crying out loud. If your project happens to be within a certain distance from the ocean. You may have the California Coastal Commission to deal with as well. Which is another bureaucratic headache to deal with.

Building in Los Angeles/so.cal. would be like building in Warrenton and parts of unincorporated areas except LA/so.cal is warmer and mostly drier environment. You can build houses with 6-12 inch thick wwm reinforceced concrete slab. Hillside locations like most of area in my area is more complicated and may require specially engineered foundations.

If one is familiar with the regulatory requirements, they should be able to intuitively design with those requirements. Additionally, if you don't let clients walk all over you, making changes several times a day, you would be spending less labor hours working on the project. In fact, you'd end up working more efficiently. This is true anywhere.

One forum I'm on limits how often you can post.

Regarding the "mansplaining" comment, people on the forum overused that term way too darn much. You're projecting yourself as a man-hater. Mansplaining is a relatively new word that was a portmanteau of man and explaining as a derogatory expression by women that dislikes or hate men whenever they explain something. The OP demonstrated not understanding some things that needed to be explained. The client may have $1.5m does not mean you design $1.5m project because a home that's $1.5m is likely to be more than $1.5m like maybe $1.65 to $1.8m. That would exceed the budget and cause the client to either try to find additional funds or the project scaled back. Start off scaled back. You can kind of predict inflation based on past data points. Of course not perfect.

You need to think not just three dimensionally but also the passage of time and cost changes. 

Perfect mansplaining of mansplaining ;-)

You can't properly use mansplaining unless the receiver of the explaining is a woman. When the gender is unknown, it's a misuse of the term. Mansplaining requires the man to know the other person is a woman and is condescending because she's a woman. Otherwise, it is a bastardized misuse of "mansplaining". It is supposed to be used in the context of a sexist male explaining something condescendingly to a woman as in Rebecca Solnit's "Men Explain Things to Me: Facts Didn't Get in Their Way". 

When gender is unknown, is it really mansplaining? 

 When I am explaining something to you Wood Guy where anyone here that knows you, knows you are male. When a male person explains something to another male person... is it mansplaining? No. Of course not. It is just "explaining". 

Think this out: How would I know someone's gender?

If your client only has $2M and you designed a $2M house on today's prices, the project WILL exceed $2M when it is built. Why? Unless there was absolute zero percent inflation with regards to everything in this world, The year or two or more time frame it takes to build most custom houses, the price of components that makes the house goes up in price. Also, if you are price is percentage base, your fee goes up with that increase to construction cost. You may have then pissed off your client because the client didn't budget or secure more funds. Maybe an incomplete project that is not done. It is not like all clients say they have $2M but really have $3M. Get it now? I'm being sarcastic that an architect here doesn't get it.

Basically, if the client has $2M, your client would only be able to build a project that if completed today would be around $1.4-$1.65m project cost. So, it's relatively safe to design what was built today for a $1.35 to $1.5m project cost. because it will cost between $1.5m and $2m to build over the next 3 years. The reverse of inflation is just theory and effectively a myth in contemporary economics. So you should assume inflation and the devaluing of the U.S. dollar to continue the increasing cost trend. Bread that cost $1 just 5 years ago would cost $1.50-$1.75 today. Same bread but you have to spend more. The underlying concepts are easily found on the internet but the explanation is to connect this reality to the reality of a project in which architecture school may or may not have done a good job of teaching about these issues. How often have we heard that architecture school is basically a glorified art school (not including anything I have said) from students of those schools? How woefully unprepared they were for real work, in real office, involving real projects, etc.

...

If you're explaining a concept to me as if you thought I was dumb, that's still mansplaining.

The financial concept you're describing is called net present value, used regularly by the financially astute.

Yes, but "net present value" is not a commonly used term in architecture courses. Since there isn't even one required business course in architecture degree programs in just about every architecture school in the U.S. What I was talking about is ultimately more than discussing "net present value" (NPV) or "net present worth" as it may be called. It is an important factor is designing a project within budget. Sometimes you may have a cost that occurs on a particular project but not on the prior 'reference' projects. Some of the rare yet craziest shit happens.

Stop splaining, man.

If my clients want to calculate the net present value of what their project costs, they are more than welcome to, but it's not common on residential projects. The only times it has been something I've considered is when showing return on investment for energy upgrades. I've never heard it called net present worth but that's probably the same thing. I don't see why it would be something important enough to include in architecture school; like learning to read financial documents, it's something you usually pick up pretty easily in the field if it's important to your role.

Even then, it is not necessarily about showing the client what the net present value is but that you have to take into consideration the design decision and not what it cost now but what it will cost when constructed. At the beginning of design, it maybe several months before construction even begins and several more months before it is completed. You know that 2"x4"x10', today might cost $4.50-$5.00, today. It might be $5.00 to $5.50 to maybe$5.25 to $5.75 when construction begins. These line item costs are all going to increase at independent rates. All of which will impact the cost of the project. If your designing a $2M project, customary practice might be designing with it costing $2M. Sometimes, the designer completely forgets the contractor's O&P or their fee on top of it while designing. They even forget to take into account the progressively increasing cost of materials, equipment rental costs, and even the increase in labor rate. None of this even on the designer's mind while designing. While the client might not ask for the NPV but we need to kind of think about that for every stick, board, nail, screw, etc. We might think, the design that was built for $2m today's prices is going to work. No, it won't unless the client has more money to put to the project. If not, you have to make changes to scale back the cost. You could have done that from the beginning and scale up here and there if you are safely under budget that you can safely make some upgrading decisions. The problems clients have is that almost every time an architect is hired, the design is almost always comes in high and above the cost when bids comes in. We need to be better proficient at quantity take off cost estimation even early in design and perform an internal "sanity check" on what you are proposing to clients. So instead of designing on a $2m budget, even if that is what the client has, you plan the design around a reduced budget like 75% of the client's budget. So, instead of $2m, you are designing with $1.5m budget in mind and that construction cost will be between 1/2 and 2/3 of the $1.5m because when you tack on contractor O&P, architectural/engineering fees, and misc. project expenses such as permit fees and such, these costs are typically an additional 40%-60% on top of construction cost.

It's not about whether the client wants a calculation of NPV. It is about designing the project from its very onset to be within the budget. You need to budget the design safely within the client's secured financial resources. If the client doesn't have the resources secured, no point in getting deep into design.