Dear Dakota: How to Make Kitchen & Bath Projects More Profitable?
Dear Dakota,
Although I have completed several kitchen and bath projects, I don't market myself as a K&B designer because I haven’t found the service to be profitable. Is that an area I should expand my business into? And what advice do you have for how to make these projects more profitable?
Whether offering kitchen and bath (K&B) design services is a good fit for your interior design business depends on several factors: your knowledge level, your business model, and your capacity. Currently, things appear to be fairly active within the home remodeling and kitchen and bath industry, so it could be a good time to add this service.
With unprecedented and repeated increases in lending rates, elevated home prices, and limited housing inventory, many homeowners today are opting to stay put and undergo major remodels and overhauls rather than repurchase (often at significantly higher mortgage rates) and relocate. A recent study found that bath remodels (27%) and kitchen remodels (23%) were the top renovation projects desired and undertaken by owners. Making up a combined 50% of all home remodel projects, revenues from kitchen and bath renovations are projected to remain quite strong in the years to come.
If you want to expand your interior design business offerings to include full kitchen and bath remodels, it is important to do it in a smart and strategic way. Do your research and become familiar with associated products, materials, and key manufacturers, as well as industry guidelines for kitchen and bath space planning and functional requirements.
If this is not a service you are currently tapping into, but you want to, it might make sense for you to become a member of the National Kitchen and Bath Association. NKBA is the leading association for the K&B industry and provides education, certifications, events, and resources to its members.
Interior designers who undertake K&B projects can earn both design fees and commissions and markup on materials and products. The cost of cabinets typically comprises 25 percent or more of a total kitchen remodel budget. So, earning a commission on the sales of cabinets can be quite lucrative.
How interior designers can sell cabinets for kitchen and bath projects
Designers should be very selective in determining what cabinet lines and cabinet manufacturers they align themselves with to ensure quality products, reasonable lead times, high in-stock levels, competitive pricing, fast and efficient service and communication, and a wide range of styling options.
Some interior designers establish relationships and set up accounts with one or two key cabinet manufacturers. They then place the cabinetry orders directly after providing drawings, measurements, and specifications. Attending an industry trade show is an excellent opportunity to become acquainted with manufacturers and to check out their products. The most widely used software in the kitchen and bath industry is 2020 Design Live, which produces floor plans, elevations, renderings, and price quotes aligned with manufacturer’s catalogs.
Interior designers can also become dealers for cabinet lines. Cabinet manufacturers have specific requirements and criteria to qualify to become a dealer, often including having a retail showroom of a certain size, placing minimum order quantities, and having sufficient warehousing and storage capabilities. These dealer requirements can typically be found on a cabinet manufacturer’s website. Being a dealer of a cabinet line provides extra resources, including full-line samples and access to the manufacturer’s design services and support.
Another option for an interior designer is to work directly with a local cabinet maker. In this case, they would specify completely custom-built cabinetry rather than factory-built stock and semi-custom cabinet options. The way a designer is compensated for bringing clients to a cabinet-making small business will vary, and success here is dependent on establishing a legally binding and positive relationship with a reputable company. Often, the cabinet-making business will increase the price of the cabinets to include a fee paid to the designer, so ultimately, this revenue may be coming directly out of your client’s pocket.
How interior designers can sell materials and products for kitchen and bath projects
Designers typically do not earn markup from many products used in K&B projects, such as tile and flooring. It is typically the general contractor who places those orders, tracks delivery, manages the installation, and earns the markup. Anything that is permanently installed is considered a building material.
Depending on your state laws, you’ll want to be careful about what you earn commission and mark-ups on. You definitely don’t want to do anything that could imply YOU are a general contractor unless you are (and have a GC license and contractor’s liability insurance to protect you).
The same is true for countertops, appliances, and plumbing items such as faucets. As the GC provides oversight for delivery and installation, designers often do not earn any markup for the sale of these items. I do know some designers who mark up, order, coordinate, and make revenue on some plumbing fixtures and basic tile, though most prefer to have the GC order those items through the suppliers of their choice so as not to be pulled into the nitty gritty details. Often, these items don’t allow for much markup anyway, and designers often feel like managing ordering, delivery, and invoicing is just more headache than it’s worth.
So, you may have noted an inconsistency here and may be thinking, Kitchen cabinets are built-in. Why can designers earn mark-up on those, but not the other built-in materials, such as flooring?
It is true that kitchen cabinets are considered permanently installed, and therefore real property and part of the home’s value (as opposed to personal property items that will leave with the homeowner upon sale). The same is true of the flooring and other items where installation is overseen by the general contractor. But the revenue earned by designers on the sale of kitchen cabinets is really more of a commission paid by the cabinet manufacturer. Specifying cabinets involves technical know-how and industry knowledge. Therefore, designers are compensated much more by the cabinet company for their expertise in executing a kitchen design and for bringing that project to the cabinet manufacturer. Whereas with products like faucets and tile, the markup is way less, so often not worth the hassle for the designer to order.
The K&B products that designers DO order, coordinate, and make revenue on include lighting, specialty tile, wallcovering, mirrors, artwork, and decorative accessories — in essence, anything that is installed or added on install day. It is important to consider that K&B projects do not allow for markup on as many items as a project, like a full living room, which consists mostly of furnishings. For this very reason, I have seen designers who do not want to do K&B projects — because they can earn more markup on a furnishings project. The key is to set your design fee appropriately, likely as a flat design fee, to ensure the project generates sufficient revenue.
The best way to increase profitability on kitchen and bath projects for your interior design company is to:
i) Get your design fee and scope right. You need to make sure you set your fees appropriately to account for the functional, building system-related, and code-intensive complexities of kitchen and bath spaces and all the detailed elevations you’ll need to provide.
ii) Earn markup from product sales on lighting, specialty tile, wallcovering, mirrors, artwork, and decorative accessories.
iii) Become affiliated with a cabinet line (if you have the technical capabilities to complete the drawings and specifications in-house) or work with one who will do the drawings for you, perhaps as a dealer. With the complexity of cabinet construction and design options, you will oversee the install along with the contractor.
iv) Establish relationships with contractors. As you complete several projects with the same contractor, you’ll know more accurately what to include in your design fees for installation coordination as you see how much work will (or won’t) be required from you during the management/construction phase.
These best practices (aside from getting a cabinet line) apply to all design services, whether you offer Full Service, Design Day, Virtual Design, or blocks of hours. If your design fee isn’t right, you’re leaving money on the table from day one. Check out The Complete Guide to Pricing Your Design Services here, or watch our Pricing & Proposals Workshop* to see how designers across the US and Canada charge for design fees and product sales.
*For interior designers only, not for business coaches.
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