We just came back from a site visit for an office project, and the usual scenario is you will find other designers or contractors on the site. The irony is some clients are so lazy and insensitive that they pack all ID’s and contractors in one site viewing and expect everyone to give their proposals in a few days time.
The same scenario happens most of the time. Just do the math, 10 proposals equal a 10% chance of acquiring the project. 9 firms will go back with nothing and the winning firm will overprice the project to cover for the proposals they have lost in the past and the cycle goes on.
How do ID firms survive if they just rely on pitching & proposals to acquire projects?
Lets us do a simple cost calculation to cover a 3000 sq.ft. turnkey project proposal…
The case proposal will take a minimum of 4 days and will involve at least 2 designers, a QS and a Director to oversee the proposal. The pitch will typically consist of a Floorplan, 3D perspectives, materials board and cost quotation.
- Man-day cost for a Senior Designer = $234.00 per day
- Man-day cost for a Junior Designer / 3D renderer = $152.00 per day
- Basic software cost per day Autocad, 3Dmax, Photoshop = $55.00 per day
- Basic operational cost rentals, utilities and supplies = $180.00 per day
Total cost per day = $621 .00 x 4 Days = $2,484.00 or $2500.00 per proposal.
*The above estimate still does not include the cost of support services eg. QS, accounts, sales and also other intangibles like transport and relevant company overheads.
The question is who will be paying the ($2500.00) cost of the proposal if the project is lost? Will this type of business be sustainable in the long term? This is only for a 3K sq.ft. project most RFP’s are more than that some are over 10K sq. ft. and will require probably triple the requirement necessary for the pitch.
That being said, if you draft a proper business plan before setting-up the ID business your profit projection will already be negative. unless you are optimistic that you will win every pitch proposal that your firm participates in.
Well in the real-world a 50-30% success rate is already phenomenal, only the big boys are able to meet this due to their capability, credibility and connection.
What is Typical Budget for a small boutique ID firm with less than 10 staff?
In my past experience with our design firm ARID Builders. Our monthly burn-out rate is around $30K, meaning we are spending at least $1,500 per day (conservative estimate). Therefore to augment our cash flow, we have to have a sale of at least $100K per month or (30%) profit to breakeven and $120-$150K per month to be profitable. A turn-over of 1.8 to 2M is our target and we are able to achieve this during the first few years of operation.
Fast forward to this day, A small boutique ID firm will have to at least burn 40-50K per month to employ a complete team to be able to compete on small to medium scale projects with occasional big projects to pitch. With the increase in the cost of almost everything from salaries to foreign worker levy, expenses are skyrocketing year on year.
What makes matters worse is that there has been an oversupply of new ID firms, those who either resigned or retrenched senior employees who started their own firms and who are also competing with their old firms and counterparts for declining demand for design skills brought about by the availability of information over the internet.
How will the Business Profit?
Going back to the pitch & proposal model, In my opinion relying on this method to acquire sales is not sustainable. Sooner or later a few months with no winning pitch will frustrate the staff, affect cash flow significantly and will put the company in debt.
Turnkey ID firms who often follow this method often end up with overpricing the winning project to cover past losses and for retain earnings. Nevertheless, with increased client knowledge and awareness of the actual cost, it becomes extremely difficult to achieve a 40-50% margin.
Quantity over Quality
Often times, residential ID firms resort to quantity over quality. They advertise and offer Free Design & Consultation to attract potential clients which in return degrades the ID profession. This “Spec Work” tactic will have an adverse effect on the minds of the clients now and in the future.
In my experience, clients nowadays are already expecting Free Designs and Proposal from almost every designer in Singapore.
Path to Profitability
The best way forward is to acquire sales through networking, relationship building and credibility.
In a perfect world, a client will pre-qualify their preferred designers and select from a small pool of say 3 firms. This way chances increase and those not selected will also be paid royalty design fee or participation incentives to cover the cost of the pitch.
Alternatively, A stringent and professional accreditation body should be set-up to look into the industry to counter the over-supply of ID firms and unqualified contractors.
Singapore has shown it can be done. Not so long ago the Real Estate industry was also flooded with agents most are not qualified and it affected the market adversely. After proper accreditation, we have seen a property boom.
The rate of change has been enormous, in my 8+ years of running an ID firm, We have experienced rapid changes in market & client behaviour. What works before may not work in 2020 and beyond.
The new decade calls for a new strategy that augments with the millennial mindset. This up and coming decision-makers should not be lured by offers of Free Designs and Proposals but instead a promise of professional service and credibility by using technology, social engagement and digital media to showcase a designers capability.
We welcome other ideas that can help the industry moving forward, In our part, we started an advocacy called 3PM or #payperproposal movement to create awareness and kickstart a campaign to bring back the respect in the Interior Design profession.
You may also want to read this related article: The inconvenient truth, Why Design has become a value add rather than a selling point