You know your firm’s design work plays an essential role in creating the buzz that puts your clients’ hospitality projects on everyone’s bucket list. And, you’re also aware that builds asset value for owners. But, when it comes to the dollars and cents, would you be willing to test out your thoughts on the importance of design by tradiing in the traditional fee structure for a performance-related return on your time/expertise investment?
Speaking as one of the honorees on the 2017 Boutique Design Up-and-Coming Hoteliers panel at BDwest in Los Angeles in April, Alexander Mirza, co-founder and ceo, Cachet Hospitality Group, pretty much silenced the SRO crowd attending the session when he brought up the idea of performance-linked payments for designers. While that was a rhetorical observation since Cachet uses only inhouse designers, Mirza’s suggestion opened up some dynamic discussion. The current fee structure essentially means that designers live, eat, sleep and breath each project until opening day. Then, they can move on. But the client can’t. Obviously, if designers’ work didn’t get good marks, they wouldn’t get the references that grow portfolios.
The problem is, what happens if a hotel, restaurant, spa, cruiseship, club or casino becomes wildly successful? Sure, the design firm gets the credit and a lot of visibility; but, the upside is not so big on the ongoing cash flow front.
Mirza’s co-honorees, Mario Tricoci, co-founder and ceo, and Kevin Robinson, co-founder and coo, Aparium Hotel Group; Rob Blood, founder and ceo, Lark Hotels, and Vicki Poulos, senior global brand director, MOXY Hotels, had differing viewpoints. Tricoci and Robinson tried the performance-based model on a specific project that allowed for closer involvement with the designer. Generally, though, they’ll be sticking to standard fee structures. Looking to keep a clear visual identity for Lark, Blood opted to bring design collaborator Rachel Reider on board as the young group’s director of design (with a stake in the company) but still give her the freedom to head up her own eponymous design firm. However, Lark is unlikely to stray from the usual fee schedule for outside designers. Poulos doesn’t see MOXY exploring any performance-based models.
So, what do designers think–especially if, as the pundits predict, we’re headed toward a downturn? I was fortunate to be moderating that panel. When I asked the designers in the audience how many would trade off the security of their current fee structure for payments linked to performance, well over 80 percent raised their hands–and their voices–to say they would.
Here are some further thougths from David Shove-Brown, partner, //3877, Trisha Poole, president and founder, Design Poole, Inc. adn 2017 Boutique 18 honorees Jaclyn Moser, partner, Harken Interiors, and Kia Weatherspoon, prsident, Determined by Design.
“We have not had this option presented to us before in the hospitality arena, though we have had it in residential. This is a tough one to consider without knowing the operator, market, RevPAR, etc. With the right owner, operator and team; I could be convinced,” says Shove-Brown. “It is definitely a slippery slope. I would want to have a very good attorney helping with the process. We would need to make sure that the operator has a proven track record and that the demographics make sense. I would then look at the complete project budget and figure out the percentage of our work. Assuming this would equate to a ‘shares’ in the project I would have our team review the payback as if it were a set term and looking at it with no foreseeable end date. Based on the ROI for each, we could make an educated decision as to which route makes most sense.”
He adds, “I would write in that we are silent partners [we don’t want to get involved with running the show] but we could get hired for additional design services. If there is a downturn, that is the chance you take. Hopefully the overall budget and planning works in your favor. Again, this is all about the right team…one bad egg running up the budget can destroy a lot of hard work.”
Poole is open to exploring this option. “I think this is a fabulous idea. I have felt for some time now this would be a profitable business model for an interior designer. We are stakeholders of the success of the project and we commit deeply to delivering a unique experience that reaches the target market in a way that will benefit ownership and add to the bottom line,” she says. “I believe the key is how the deal is structured. It needs to allow transparency related to the client’s financial success with regards to the design. My questions would be: How is the success measured and values assigned to a payment structure? It obviously has to be favorable to both sides. Is it in the initial success of the opening and/or the long term maintence of products we specify?”
As Moser sees it, “While we’ve never had the offer to receive a percentage of profits in lieu of a commission, it is a very intriguing concept. In the hospitality industry, even when considering the built environment, so much of the operation’s success hinges on service and the personality that the property communicates from the first interaction all the way through to the memory of the stay. Harken Interiors strives to build relationships to deliver our portion of the project’s deliverables. Depending on the hotel’s profits for our compensation also means depending on the property to continue building the right relationships beyond the contract with our team. We would entertain this offer if the owner was also the operator, concerned with the daily health of the relationships with guests, staff, the community, and the financials. Also, easing into an offer like this might be best; splitting compensation between a partial design fee and equity.”
Here’s Weatherspoon’s take. “As an interior designer whose goal is to transition into development one day, this would be an ideal fee structure for me. I haven’t found the right way to approach it yet, but it’s definitely a strategic and more lucrative long-term business model.”
So what do you think? Comment. Share. Tell us what you think. And, read more about what makes these hoteliers and their young companies some of the most influential voices in our industry in my feature on the 2017 Up-and-Coming Hoteliers in the June issue ofBoutique Design.