Mind the Minutia: Maximizing your Earning Potential

As interior designers, we have thousands of miscellaneous fees attached to the necessary parts of our job that feel like dragging a ball and chain. These costs incur, sometimes sitting on your credit card statement too long so you end up paying interest on them before they are billed to the client! Then you may get pinged by the client with a question or they may dispute for the fee. Empathize much?

Let’s get proactive and liberate ourselves from this burden! Hidden expenses and ineffective invoicing methods can erode both your time and profits. In this edition of the Philes, we are offering you clever strategies for streamlining operations and preventing fee disputes.

PROCURED GOODS

Often, one of the biggest potential profit sectors in your design business is the procurement of product. Although there are many different ways designers approach the billable price, you can either collect payment per proposal as you obtain client approvals OR collect a large percentage payment on the goods once the budget is approved.

The ladder method of a bulk, front-end deposit eliminates piecemeal proposals which delays the ordering process and ultimately affects your installation date. Say hello to full control and cushion time if something arrives damaged too close to the install date (and there’s no time to fix it, but the client expects it to be in place!). It also reduces the window of time for an item to be discontinued or fall out of stock in between the time you present the item and the time you get paid for it. You have the liberty to place the order right there in the presentation if you need to!

Avoid the awkward answer to their question, “Where is this or that?” and having to explain that you installed their bedroom but actually the bed is missing so you cannot move in tomorrow like you had planned. During the onboarding process, we recommend explaining this scenario to the client as an example of the many things that can occur and affect their project timeline.

interior design by kmnelson design.

FREIGHT

A necessary, but unexpectedly expensive fee when designing a home, freight is the most contested and complained about fee in my two decade experience. To reverse this reputation, think about the best possible experience for the client. I did and use these tactics in my design business successfully:

When?

The client should pay for the freight when their estimated furnishings budget is approved, prior to actual furniture selections.
Your bookkeeper should collect freight bills and reconcile them on a monthly basis against the estimate and client payment.
Invoice or credit the client, based upon the original freight estimate, at the end of the project. It gives clients less irritation during what’s supposed to be an enjoyable design process.

How?

I typically estimate at 22% of the total procured goods net cost for remote project locations and 18% for local and or bigger city (with easier access) project locations. That percentage covers inbound freight from the manufacturer, a receiving report with photographs, storage, 3rd party delivery and installation plus messenger service for miscellaneous things throughout the project.

*Pro-tip: A messenger should always be less than your design service fee. Instead of having your employee return memo items from an installation, have the messenger pick up to save you hours and lighten the client’s freight cost.

Why?

It may not be hard to imagine that a client may not pay for a freight invoice quickly enough, or perhaps it fell through the cracks and didn’t get billed previously. Now, you are in a position of weakness with delayed goods and possibly a delayed installation date.

CREDIT CARD FEES

To pass the 3-5% processing fee on to the client or to not pass it on? If you are simply needing more airline miles or points, think twice about billing the client for the fee if you haven’t already discussed your vendor payment policy with them. You should establish this policy up front and include in your contract if all purchases will be made by credit card and passed onto the client.

Not all vendors charge a fee for using a credit card. If the project has a tight timeline, I would encourage you to include the percentage for using a credit card payment method in the original budget for approval.

Just like we talked about with freight, your bookkeeper should be reconciling it monthly and either invoice for the remainder or credit the client for the surplus at the end of the project.

TRAVEL TIME

If you could only monetize your time going from point A to point B for any reason, we would all be living large! Time holds immense value, especially in business, and it behooves you to account for that time spent traveling. Your time is worth more than just the expense of gas and the government car mileage rate. Ultimately travel time from one client takes you away from tending to your other clients.

I consider traveling to the client or their project a luxury concierge service and it is billed at half of my design selection fee. Whether you charge by the hour or a flat fee by the project, failing to factor in travel time can lead to underestimating the true cost of site visits and client meetings. This fee is separate and apart from your airline or train ticket, which is a reimbursable expense.

OUT-OF-STATE PROJECTS

Expanding your clientele to include out-of-state projects can open up new opportunities for growth, but it also comes with its own set of challenges. One such challenge is navigating the tax implications of conducting business in multiple states. To maximize your earning potential and simplify the process, consider establishing an LLC in the state or country where you’ll be conducting business. This official motion not only helps you secure a resale certificate, allowing you to purchase and ship materials to that location tax-free, but also provides liability protection and other benefits for your business.

Some states may have residency requirements for LLC formation, meaning that at least one member or manager of the LLC must be a resident of that state. However, many states do not have such requirements, allowing businesses to establish LLCs without needing to reside in the state. To ensure compliance, you will typically need to designate a registered agent located in that state who can receive legal documents and official correspondence on behalf of the LLC.

It’s essential to consult with legal and tax professionals who are knowledgeable about the laws and regulations of both your home state and the state where you plan to form the LLC. They can provide personalized advice based on your specific business goals and circumstances.

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