Designer Product Markups vs Handling Fees – Business Ethics vs Business Reality

The ethical question of designer product markups is as old as the industry, as are their use (and client complaints about them!). And yet, the idea that increased transparency in the industry will end the practice and force interior designers to charge only for their time persists.

Of course, the reality is that virtually all segments “of the global economy run on markups, and we take most of them for granted”, argues BusinessOfHome.com author Fred Nicolaus. “No one walks into a grocery store and indignantly asks the manager what the wholesale price for a gallon of milk is. In fact, some version of that analogy is often used by designers to shut down clients who poke and prod at the idea of markups.” (emphasis added)

He continues, “The challenges of the model have always existed. But let’s not kid ourselves: Markups work. The model has stood the test of time, undergoing very little change over the past 50 years of the design industry. The vast majority of designers have relied on some kind of markup to keep the lights on. While the amount of that markup might have changed a bit, the basic idea hasn’t shifted.”

Is Online Shopping the Problem?

Although the arguments above ring true, they beg the question of how the ubiquitous use of the internet and increasingly intelligent search algorithms have impacted design client's ability to price the products their designer may recommend.

“Over the past few years,” Nicolaus claims, “designers across the country have begun to notice something: Their clients have gotten really good at shopping online. As more commerce becomes e-commerce, a trend rapidly accelerated by the pandemic, there’s simply so much stuff available online, and so many tools to find the lowest possible price among hundreds.

“In the past, if a client wanted to “shop” their designer, they’d have to visit outlet malls, sneak into a design center, or at least make some phone calls. Now it’s often as simple as a reverse Google image search. That reality has only been compounded by the fact that many once trade-only brands are now available online in some form for consumers to browse. The result is a constant second-guessing on the price of, well, everything.”

Beyond simple price shopping, however, the internet has made it possible for prospects and clients to “glean the mechanics of the industry”. That is, to understand the generally accepted practices designers use to price their services, including product markups that may seem less than ethical to them.

How Do Most Designers Cope?

As the article explains, opinions on the question of designer product markups run a predictable gamut, ranging from zero product markups to whatever the market will bear. But, ultimately, the question of ethics versus the reality of necessity can only be addressed by the individual designer and must be based on the relationships they have with their clients.

As one former mattress supplier related to us:

“Many years ago I sold luxury mattresses to a local interior designer in Denver. Though it reduced my commission, I wanted her business so I gave her a pretty hefty discount from the retail price. I know she then added something to the price for her clients. I have no idea what her markup was but I believed then and still do today, that designer product markups should simply match the discount they receive. Unless there are a bunch of custom upgrades, of course.”

Then again, Ted takes a different view:

“I’ve always been in favor of product markups for interior designers. The thing the BOH article fails to mention is that the markup is not so much a profit center as it is to cover the administrative costs associated with purchasing, follow-up, receiving, and installation of the products ordered.

“From what I’ve heard and seen, designer markups tend to range from 15% to 60%, depending on the scope of the project. When you go to a retail store, all those costs are rolled into the retail price and hidden from you. Designer product markups are much more transparent.”

What are your thoughts on the subject of designer product markups? What has worked best for you? Feel free to share your comments with us. And, if you're undecided and would like to get some help outlining a product markup policy for your design business, Ted remains available for business consulting to the industry. Get in touch with TD Fall today.