Markup is Dead
Let's go back to a time pre-internet. Cue the fog and crackly old-time radio. Generally, the wealthy were the only ones who could afford to hire a decorator. HGTV didn't exist. Correspondence was done via letter or the phone. Orders were placed with checks. Cell phones didn't exist or were giant bricks kept in the car "for emergencies". Shopping was all done in-store or from a mail-order catalog, you had to literally mail-in or call in your order. Things that couldn't be sourced would be designed and custom made in a workroom. Clients had no access to trade-only sources.
Design Today
The internet has changed the way that designers do business. Most of your client correspondence is done through email. Orders can be placed and delivered same day in some circumstances. Your mobile phone is a constant companion. You can source items from around the world on your computer with a click of a mouse.
The same way that shopping is now easier for the designer, it is also easier for the client. Design has been democratized and unveiled. Clients can probably discover the manufacturer (and price) of a specified product just by doing a Google image search. Then they can find dozens of other look-alike options. They can compare pricing from all the online stores with a few clicks of a mouse. Clients are used to crowd-sourcing purchase decisions (aka reading reviews). Today's clients are used to gathering a lot of information before making a purchase.
Interior design will never go back to the way it was pre-internet.
The internet has changed clients and it has changed the way designers conduct business. So why, when the internet has influenced every aspect of the design industry, are designers still clinging to an old pricing model?
Markup is dead
The internet killed traditional markup.
To all the designers that are wondering how to win against the information gathering: you can't. Instead of fighting against it learn how to make it work for you.
Many clients have a hard time with the idea that you are adding costs and fees to the price of the product. They can't read reviews to know the quality. They can't compare pricing to see if they're getting a good deal. They are just taking your word for it. Yes, retail stores set prices for product and hide their markup, but unlike retail, interior designers were hired by the client to be on their team and help them design their house. The difference between interior designers and retail is examined in more detail in this post and this post. Shopping retail, clients can read reviews, they can price shop, they can make returns, they know if a particular brand has a reputation for quality or economy, but not when they are buying a random sofa from a designer that can feel like an arbitrary price tag.
Which is why the practice of adding fees, markup, to the designer's net is facing a lot of resistance. The retail model of markup - giving clients the inclusive price - is no longer working in our favor.
Options in Markup
So what will work in your favor? Improving trust with clients and designers can do that by being transparent in their business practices and showing the clients you are working for them and their best interest. Being transparent satisfies a client's desire for information by readily giving them the answers they seek.
Stop charging clients multiple fees. The name "Markup" has a negative connotation as an inflation in price; but your Design Fees are compensation for experience, expertise, knowledge, for procurement, for product management. Design fees are for the value you add to the project, and so that you can run your business, cover your expenses, and make a profit. Calling your product markup fees 'Design Fees' (or whatever you currently call your time-based fees) so that it doesn't feel to the clients that you are charging them multiple fees (like the phone company or water company). No one likes to pay a bunch of different fees.
Show your clients pricing. Jennifer Potter the COO of Bunny Williams Home said in a recent issue of Business of Home "Confident designers don't hide pricing anymore. [The markup] is for what they're providing. It's a service." Your markup/project management fee/procurement fee/design fee - whatever you're calling it, is for the value you add to the project and your expertise. Don't be afraid to show your clients what you're worth. Or at least put the amount that you markup in your contract so they can do the math if they'd like. Keep a consistent markup, don't markup one item 100% and another 15%. Showing clients the designer net and design fee as separate line items creates trust and disassociates the design fees from the product instead of one lump sum.
I like including the retail price on proposals to show clients that they are (usually) saving money. If the cost to clients exceeds the retail price, they understand that it is not that they are paying more for the product, but they are paying your design fees. This can be as simple as adding the retail price to the description: retail price $3999 or retails for $3999 or MSRP $3999.
Educate clients that retail stores markup their products on an even larger scale than interior designers. Retail pricing is very inflated. That clients are likely paying a larger margin for lesser quality furniture. Ask your clients what appeals about buying retail to them. Is it the cost, the reviews, the ability to test it out, the brand recognition, the returns, the free shipping, the lead-time (or lack of)? By understanding their motivations you will be able to assuage their markup resistance by educating them on the benefits of buying through you.
The Best Pricing Model
Designers have a right to make a living wage from this luxury market that we serve. Unfortunately, I see many designers spending too much time trying to fit an old, outdated model into their businesses and losing the pricing fight. The best way to price interior design services is by going with what is working for your company. Too often designers get distracted by how others are doing it and trying to fit another designer's pricing model into their own business. The best pricing model is the one that works for you and your business. Some designers are still making the traditional markup model work, it's not impossible. But from what I see regularly from the work that I do is the traditional model is causing designers to struggle. I don't want you to struggle, I want you to succeed!
Sample Client Proposal
Below is a sample proposal with some of the things I talk about above. This is a real chair I bought for a client. The "unit price" is the net designer cost, what I paid to the vendor. The "design fee" is a sample 35% markup on that price. You may not charge a design fee/markup on product. You may charge a different percentage. You may split your discount with clients. So your proposal may look a little different from this. But visuals are always helpful, right?
Let's recap: Traditional markup is dead. Clients are too savvy and information motivated to just accept this pricing model anymore. Your markup shouldn't be part of the product cost, but a separate design fee. Be transparent with your clients and educate them on the realities of product.