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Why is the rate per square meter a standard in the market?

21 of July '21

In the holiday issue of A&B, we asked about 50 randomly selected studios from Polish major cities how much they earn, more or less, per square meter of a residential, single-family house and office building they design, as well as how many people are in the office and what is the average rate of pay for an architect?

: In a survey conducted in the pages of our monthly magazine, we asked about the rate per square meter of a project. You answered "zero." Why?

Matthew Kuo Stolarski: Because for more than a year now, we no longer use a rate based on the square footage of the project.

A&B: Why is that?

Matthew: Because it's like asking an artist to price the value of a painting for each square centimeter of it. A unit of surface area is nowhere near the value of a work of art, which is the result of our experience, skills, sensitivity, knowledge, moments lived, meetings held, conversations and so on.

Every project is different. One less, the other more complicated. One client is more decisive, knows what he wants, another will want to experiment and test many options. And de facto such a system of calculations is the source of all the problems that the architectural community faces.

: Where did you come up with such thoughts?

Catherine: Over the years we ran our companies and their financial situation was not the best. We blamed ourselves for it. We knew design, but maybe not how to run a business? We thought this problem only affected us. That changed, however, when we joined the ranks of people, the founders of SAW - the Society of Interior Designers. It turned out that all the leading architectural studios (both those dealing exclusively with interiors and those designing architecture at the same time) had very similar problems. At that time we had a lot of meetings and conversations, thanks to which we got to know each other, exchanged experiences, information about work systems, ways of calculating salaries, salaries of employees, standards of prepared documentation and the like.

Matthew: This knowledge brought us closer to finding the cause of our problems, which turned out to be the system of billing and estimating the price of the project. We came to the conclusion that calculations based on rates per square meter are completely unmeasurable. Perhaps they work well for very large projects and investments of tens of thousands of meters. But for very individualized work, which is what most architects do, unfortunately not anymore.

: So why is the per-square-meter rate a standard in the market?

Catherine: We are wondering about this ourselves. Probably this is due, among other things, to the fact that architects' rates have always been a secret. No one talked about them openly. Everyone started by pricing their service based on guesses of how much it should cost. There is no way to compare information on how a novice architect should price his work and how an architect with a lot of experience. That's why absurdly low rates appear on the market, because no one wants to fool around and lose potential clients. The problem is that we have all been fooling around - underpricing. The problem is the lack of regulation. In our environment, we rarely talk about prices, rates, work rules, scope of orders, salaries or programs. Any remnants of information are spread by word of mouth.

At the same time, ambition is inherent in the architectural profession, somewhat by definition. We are all well aware of the jokes that show that each of us "would do it better." And if that's the case, then we'll also do better at running a firm than our professional colleagues. Thus, we take the conditions previously spelled out by the market and, based on them, try to be better than others.

Besides, everyone at the beginning of their journey approaches this profession as a hobby. We do what we love, even for less than enough money to support ourselves. Almost for free, we build a portfolio with the hope that someday it will be different. But unfortunately, it's a closed circle. The company is growing, there are more customers, we want to hire employees, buy new workstations, programs. On top of that, we are getting older, starting families, having children, taking loans. Our costs of maintaining the studios and the cost of living increase extremely, and we are not able, overnight, to raise prices by several hundred percent. And we are stuck in an impasse. We are working more and more. Employees are rotating because they are looking for better pay. We are collapsing deadlines. The loop tightens until we reach the wall and start cursing the profession.

Matthew: The strangest thing is that anyone who is trying on starting a business, let it even be a newsstand, analyzes their business idea, prepares a business plan, estimates costs, profit, risks. In the case of architects, in our opinion, it is quite different. Here, practically everyone adapts to the rules of the market and doesn't think about whether it has a chance to work out, whether it's profitable. If others succeed, why shouldn't I? After all, I'm more capable, more hardworking....

A&B: But since most studios work this way, it must be paying off.

Matthew: And here I dare to disagree. We counted it in the Association of Interior Designers in many ways, we analyzed various options, we thought we were the ones doing something wrong, we didn't know something. But the numbers don't lie.

Let's start with the fact that when billing per square meter, to count how much a studio earns on a project, we have to come to how much time we spend on it. After analyzing a number of projects from different studios, breaking down the design process, we came to the conclusion that in order to bring a project from start to finish, on average we had to spend roughly seven to ten hours per square meter. For our studios, we ranked near the upper limit. Photorealistic visualizations, countless concept versions, detailed detailed detailed design, coordination of the work, supervision. It all adds up to a project.

Catherine: So it's easy to calculate that our rate divided by ten gave the company's revenue (not income!) per hour. From our findings, the average rate in the market is 150-200 zlotys per square meter. In our case, it happened that we already reached rates of 500-600. From the point of view of the market, this is an astronomical rate, but even assuming such a level, it turns out to be insufficient to maintain the studio. Because are we able for 60 zlotys per hour of income per company to pay taxes, Social Security, maintain the office, car, pay employees decently, buy equipment and pay for software licenses, all subscriptions, subscriptions and so on? Let everyone answer this question for themselves. And what about those who are in the majority and agree to a rate of 15-20 zlotys per hour?

Matthew: We were also horrified by the calculation that reversed the situation. So how much must the rate per meter be in order for the studio to start making money? At the beginning we determined the cost of running the company. We assumed the variant of a very small studio, the owner plus one employee, a small office, hardware, software and basic costs. We assumed a rate per square meter of 100 to 1,000 zlotys and the amount of time we spend on a square meter of a project: 2-10 hours. This breakdown gave us information on how much the studio earns at given costs and rates. It turned out that practically the entire table showed a loss! Only with the assumption that one square meter of the project takes us two hours, and the rate is at 800 zlotys, the project began to make a profit!

continued conversation on next page

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