Ep 236: The Human Advantage - Why AI Makes Value-Based Pricing Non-Negotiable for Interior Designers

For years, hourly billing has been the industry standard—but what if it's actually holding your business back?

In this episode, Michelle continues her AI series by tackling one of the biggest shifts interior designers need to make: moving away from hourly billing and toward value-based pricing. While this isn't a new philosophy for Michelle (she's been teaching it since 2015), artificial intelligence has made the flaws of hourly billing impossible to ignore. As AI helps designers complete tasks faster, charging by the hour means getting paid less for becoming more efficient.

Michelle explains why hourly billing penalizes expertise, creates unnecessary tension with clients, and limits profitability. She also shares the story of her first (very underpriced) flat-fee project, why she would make the same decision again without hesitation, and the practical steps designers can take to confidently transition to value-based fees.

Whether you're AI-curious or already integrating it into your workflow, this episode will challenge the way you think about pricing—and why your business model needs to evolve alongside your technology.

In This Episode You'll Learn:

• Why hourly billing actually punishes you for becoming more experienced and efficient.

• How AI is accelerating the need to rethink traditional pricing models.

• The hidden tension hourly billing creates between you and your clients.

• Why value-based fees create better alignment for both designer and client.

• The biggest misconceptions designers have about flat-fee pricing.

• The numbers you need to know before confidently quoting value-based fees.

• How to scope projects more accurately to protect your profitability.

• Michelle's personal journey from hourly billing to value-based pricing—and the lessons she learned along the way.

• Simple exercises to evaluate whether your current pricing model is truly serving your business.

Mentioned in This Episode

• Private Coaching with Michelle Lynne

• The Design Bakehouse

• AI Series:

  • Episode 1: Why AI Won't Replace Great Interior Designers

  • Episode 2: Positioning Your Firm in the Age of AI

  • Episode 4 (Coming Next): How Your Systems Support—or Undermine—Your Value

Key Takeaway

The question isn't whether AI will make you faster—it will. The real question is whether your pricing model allows you to benefit from that efficiency or gives those gains away. The firms that thrive over the next decade won't simply adopt AI; they'll build business models that reward their expertise instead of charging by the hour.

Connect with Michelle

Ready to build a more profitable pricing model? Learn more about Michelle's private coaching and discover how to create a value-based fee structure designed specifically for your firm.

Transcript:

MICHELLE LYNNE (01:05)

Welcome back to Design for the Creative Mind. I'm Michelle Lynn, and this is episode three of our series on artificial intelligence in the business of interior design. If you're just finding this series now, go back and start at episode one. We've been building on each other, and what we've covered in the first two episodes

sets up most of what we're doing today. Because today we're talking about money.

Specifically why the way most designers charge for their work has never actually served them. And why, if you've been sitting on the fence about changing your fee structure, I need you to hear this episode and I need you to take it seriously. I'm not saying that as a coach. I'm saying it as someone who made this switch in 2015 and has spent the better part of a decade since then trying to get other designers to do the same thing. I've been preaching value-based fees for years, y'all.

And at this point, with everything happening in this industry right now, I am pleading, pleading. So let's get into it. I want to start somewhere that has nothing to do with interior design. Sometimes you just kind of need to step outside of your own industry to see what's actually happening in it. Do you oops? Do you remember? Do you remember when cell phone plans build by the minute? You had your plan, you had your minutes, you watch the counter.

And if you went over, you paid for every single additional minute you used. Some friends of mine had actual strategies for keeping their minute count down. But at some point, that billing model just stopped. The carriers moved to flat monthly rates and nobody looked back because the cost of a call had dropped to the point where billing by the minute no longer made any sense. You just pay for access now. You pay for the capability. You don't pay for the minutes.

So I switched to value-based fee at ML Interiors Group in twenty fifteen. I was I don't know, there were some friends in the industry that thought I was a little bit crazy.

I think it's because at the time the designers that I was talking to, they weren't doing it and they didn't really understand it or why I was doing it. A lot of these people are still billing hourly today. Okay. And every year that goes by, I understand less and less why. Because the logic that made hourly feel like the safe, straightforward. Actually, at the time it felt like it was my only choice. That's been falling apart for a long time, y'all.

And AI has just accelerated this collapse. The cell phones didn't, the cell phone companies didn't wait until billing by the minute became impossible. The smart ones saw where things were going and got ahead of it. So that's what I'm asking you to do. That's that's what we're talking about today. So let me just lay out the problem plainly. Because I think sometimes that when you've been doing something

a certain way for a long time, it just stops feeling like a choice and it just feels like, well, that's how things are.

But the hourly model structurally works against you. The better you get at your job, the less you make. So what do you do? You spend years like building this expertise, building connections, you develop these vendor relationships and you get faster and you get more decisive. You start catching problems before they become expensive.

Your projects run more efficiently because you've you've made enough mistakes earlier in your career that you're not making the same ones anymore. And the reward for all of this growth and development under an hourly model is a smaller invoice. Like you have literally built a business that penalizes you for getting good at what you do.

Think about what you actually bring to a project. Like the call that you make at seven in the morning when something goes sideways, because you know exactly who to call, and you have the relationship that gets it handled before your client ever finds out that there was a problem to begin with. Y'all.

How do you assign a dollar amount to that as a billable hour? Okay, the fact that you can walk into a space, understand the issues immediately, and give your client a clear direction in an hour when someone less experienced would spend four hours just getting to the similar conclusion and they still wouldn't have the exact right answer. Like that expertise is worth something. But under hourly billing, you were literally charging less for it than someone less experienced would charge. And

That to me makes no sense.

And then I I I remember this feeling with a client. It's that it's that client relationship piece, right? Because hourly billing creates this undercurrent of tension. It's almost adversarial. Okay. We don't really talk about it, but we can feel it. Because the client's always aware somewhere in the back of their mind that more time means more money for you, less money in their pocket. It's not that they think you're being dishonest.

Okay, it's just that the model itself creates this misaligned incentive, and sophisticated clients know it.

And then when something takes longer than it's expected, there's a conversation to have. Or when scope needs to shift, there's a conversation to have. And all of it runs through this lens of your hourly rate. Okay, it's this cost that puts you in an uncomfortable position every single time.

When you are billing with a value-based fee, it eliminates that completely. When you charge for the outcome, what's good for your client is also good for you. You both want the project to go smoothly. You both want decisions made efficiently, and you both want the result, not necessarily the process. So the model is just cleaner and it changes the dynamic, like the dynamic of the entire client relationship.

So let me ask you this. Do you think a corporate attorney who's billing at 500 bucks an hour is gonna hire you at your hourly rate and feel good about it? Do you think a surgeon, a successful entrepreneur, a real estate developer, the kind of clients that design firms at a certain level are working with? Do you think these people are looking at your hourly rate and thinking it's a reasonable exchange? Because here's what I think they're really thinking.

They're calculating in their mind, right? They know roughly how many projects, how many hours a project takes. They're doing the math. And when that math results in a total that feels disconnected from what they actually experienced, because maybe your process was efficient, maybe the project ran well, maybe you solve problems quickly because you're good. They're sitting there thinking they got a deal. Which sounds great until you realize that means you left money on the table.

Or the opposite. The opposite happens. Okay. The project gets complicated. Things take longer than expected. Suddenly the invoice feels high relative relative to what they can see. Because what they can see is a finished room, and what they can't see is everything that you manage to make that room happen. And now you're left in a justification conversation that you never should have to have.

And then finally, in order to make the same amount of money that you'd be making today with AI when you're faster tomorrow, how do you justify $500 an hour or more to this corporate attorney who might only be billing $350? So a flat fee removes all of this.

The client knows the number going in, they've agreed to it, the project goes well, it's a great experience for everyone. The project gets complicated, you handled it because that's what they hired you for and that's what they paid you for. There's no conversation about hours, there's no calculation running in the background. There's just the work and the result.

So I want to tell you about my first value based fee. Because I think I well, you might have already heard it, but I'm gonna say it again. First of all, it scared the hell out of me. I'm not gonna pretend otherwise. I was sitting there and it felt like I was peeing down my leg. I was so nervous, okay? So when you've been building invoices by multiplying hours by a rate, switching to a flat number that you have to stand behind feels really vulnerable. What if I'm wrong?

What if the project takes twice as long as I expected? What if I just gave away a ton of work for a number I pulled out of nowhere? Okay, or the flip side. I was also wondering, what if this is too much? What if he doesn't agree to it? Okay, but honestly, that first one, y'all, it was so underpriced. my god, it was so underpriced. I just cringe thinking about it now. I didn't trust the model. Okay. So I underpriced it because I didn't fully trust the model yet. I didn't trust myself.

To price it correctly. And I was so uncomfortable quoting a flat fee that I hedged. I went low enough that I felt like I couldn't lose, which also meant that y'all, I totally didn't win. Okay. But I learned from it. The second one was better. The third one was better than that. And when I figured it out over time, it's that the discomfort of pricing a flat fee is not actually about the fee. It's about

Not having a clear enough picture of what a project actually costs you to deliver. So when you know your numbers, your real cost, your overhead, your time investment at a project level, what your margins need to be selling the furniture. Okay, building a flat fee becomes a math problem, not a guess. It's still a judgment call, but it's an informed one.

And when you're getting faster and faster and faster with AI, here's the thing. Your profit margin goes up because you're getting the work done faster and you're still billing the same amount.

So the designers that I talk to who are most resistant to value-based fees are usually the ones who don't have clear visibility into their project. Okay, or into their project economics. They can't see what a project actually costs them. So they can't build a fee that they can trust. So they default back to hourly because at least that feels like something that they can track. It's a hamster wheel.

So the problem is that tracking your hours doesn't tell you whether you're profitable. It just tells you how much time you spent. So so again, coming back to AI, right? Because this is where

I'm that person who's been preaching value-based fees. And now I'm gonna start pleading with you. Because again, y'all, AI is compressing production time. Parts of the process that used to take hours are moving faster, and this is already happening. It's only going to continue. The question that I want you to think about is this.

How do you justify your hourly rate for work that takes less time to produce? Because if a task that used to take you three hours now takes you one hour and you're billing hourly, you just lost two hours of revenue and you're delivering the same thing.

Multiply this across a project, across a year, that adds up to a number that should make you uncomfortable.

So here's here's here's what here's what gets me and what I hope that you hear. The efficiency gain. The fact that you're doing the same quality of work in less time, that's not something that your client handed to you. You have invested in tools, you've learned how to use them, you've built them into your process. Under a value-based model, like I just said, your efficiency is yours to keep.

Your profitability goes up, your capacity goes up, you can take on more or work less, or both.

Under hourly, every hour of efficiency you gain goes straight to your client. You did the work to get faster. The financial benefits flow directly away from you. You've invested in making yourself better and your billing model has structured it so that someone else profits from this investment. I don't know how to say this more plainly than that.

So this is why I I I included this in our AI series, because instead of just suggesting that value based fees

Are the solution? I want to make a case as strongly as I know how to make it. Because the hourly model was always working against designers. And now we're in a moment where the case against it is impossible to ignore. So if you've been waiting for a clear reason to make the switch, y'all, AI is that reason.

All right. Let's take a minute because I want to explain what a value based fee actually means in practice. Okay, because it does not mean just picking a big round number and hoping the client agrees. What you're doing is you're pricing the outcome. It means understanding what a project involves, what you bring to it.

What the client is actually getting, and building a fee that reflects all of that in a way that you can stand behind and explain. Now, there are a few things that have to be in place for this to work. You need to know your costs, not a vague sense of what things cost, actual numbers. Get with your bookkeeper, get with your accountant. Okay, what does it cost you to run your firm?

What does it cost you in real terms to deliver a project of a given scope?

What does your overhead look like? Without that clarity, you're guessing, and guessing is what makes flat fees feel terrifying. Okay, overhead could include everything from your

your subscriptions. How many subscriptions do we have to run the business? We've got one for our procurement software. We've got one for our marketing software. If you've got one for your your CAD drawings.

I that's just off the top of my head. I know there's a whole bunch more. Okay, insurance, you have to have insurance. Like these are the things that you need to know and understand what your overhead looks like by project. So get with your bookkeeper, get with your accountant, and get those numbers together. That's the first thing. Next, you need to be able to scope the project accurately. Value-based fees require you to have a real conversation with a prospective client about what the project actually involves before you name a number.

It's not a ballpark based on the hours you estimate it, based on just the general square footage. It's a real conversation. Like, what are they trying to accomplish? What are the complications? What are the challenges? What are the timeline? What does their decision make making skills, what does that look like? So the more clearly that you can define the scope, the more accurately you can price it.

So there's a lot of work to be done on the front end before they even sign the contract.

And then you need to be able to explain the fee in terms of what the client gets. Not a list of deliverables. Okay, I think we talked about that deliverable trap in episode one. Let's talk about the outcome. What does their home look like when this is done? What did you manage on their behalf that they couldn't have managed without you? What problems did you prevent? What relationships did you bring to the table? When you can articulate that clearly.

The fee has something to attach to. It's not just a number. It's a representation of real value. And clients who are the right fit for your firm, they can see that. The others just thank you, please drive through.

Y'all. I've heard all of the pushback.

Okay, let's run through the most common pushback I get from designers on this. Because I let's like let's just push it on its nose. What if the project runs long and I lose money? Okay, this is the one I hear most often, and my answer is always the same. You need better scoping and a solid contract. Value-based fees don't mean that you absorb unlimited scope creep.

They mean that you price the defined scope and have a clear language about what happens when that scope changes. See it's not unique to flat fees. It's just good business practice that you need whether you're billing hourly or not.

Another one? My clients expect to see hourly. All right, some do. And some clients also expect to negotiate your fee, expect you to revise endlessly, and expect you to be available at all hours. Y'all, client expectations are something you manage, not something you're oblig obligated to meet.

When you present a flat fee with confidence, explain what it covers and what it doesn't. And don't apologize for it. Most clients will adjust to it. The ones who can't are often telling you something important about whether they're the right client for your firm.

Also known as you're dodging a bullet. Okay. another one is I don't know how to price a flat fee. And that's usually the most honest. Okay, it's the one that I have the most respect for because at least it identifies the real issue. The answer is to get clear on your numbers. Once you know what a project actually costs you to deliver, the fee becomes a math problem. Like one of my old bosses used to tell me the numbers will tell you what you need to do.

Okay, so it's a math problem with some judgment layered on top. No emotion. Okay, it's not easy, but it's learnable and it's worth the effort.

Hourly feel hourly feels safer is another one that I hear. And I understand. I understand why it feels that way, but I also want to push back on it because hourly doesn't protect you. You still do work that does not get invoiced. You still have scope conversations. You still penalize yourself for getting better and faster. The hourly model spreads the risk differently, but it does not eliminate it. And again, the the the whole purpose for this series.

Is now with AI in the picture, hourly actively exposes you to a new kind of risk that value-based fees don't.

Because right now the familiar choice and the safe choice are not the same.

So if you've been listening to this and you're ready to make the move, but you're staring at your current fee structure and not sure how to get from here to there, I gotcha. Okay. Start by looking at your last three to five projects and figuring out what you actually made, not what you invoiced, what you made.

Factor in your overhead, your time, your costs. What was the margin? If you've been on hourly, I will bet you that that number is lower than you expected. And for some of you, it's going to be genuinely alarming. That exercise alone, when you take pencil to paper, that's usually enough to make the case.

Then look at what those projects would have been worth under a value-based model. What did you actually deliver? What problems did you solve? What access and expertise did you bring? What did those clients get on the other side that they could not have gotten without you?

What number would have felt right for that outcome? And I'm guessing it's higher than what you invoiced. That's the gap of that's the gap. It's the cost of hourly billing. It's not a billing software problem or a client problem. And it's not even that you're tracking all of your hours. That's that's a whole other conversation because it's almost impossible to track all the hours that we think about a project. Okay. It's a model problem.

So of course, if you want to work through this with someone, it's not a course, not a module, not a workbook to fill out on your own. I do this work with designers and private coaching. We can take a look at your actual numbers, your current fee structure, your market, the kind of projects you want to be doing, and we figure out together what a value-based model looks like for your specific firm.

It's a real conversation. And y'all, it is one of the most clarifying conversations designers have had in a while. So if that's where you are, come find me at the designbakehouse dot com private coaching. the I'll I'll put the link in the in the show notes.

So know that I made the switch in 2015. My first flat fee was embarrassing, embarrassingly underpriced.

But I would still make that same switch in a heartbeat. Because even at an underpriced flat fee, that taught me more about what my work was actually worth than a year of hourly invoices ever did. And the designers I know who have made this transition, and I've coached hundreds of them, none of them have gone back. Because once you experience a business model that's actually aligned with what you bring to the table.

Going back to billing by the hour feels like a step backwards that you can't justify. Now I'm not saying everything that I bill is billed on a flat fee. There's there's a place for retainers where you bill by the hour, okay?

But in regards to your design fee, you've probably known for a while that hourly wasn't quite right. I've been saying it for years. But AI has just made the case so damned clear that I really can't understand waiting any longer.

So next week, I think we'll probably be wrapping up this series by talking about your systems. Okay. And specifically how the back end of your business either supports the value that you're charging for or works against it.

My intent, and I still haven't finished the outline, but my intent is that it ties everything in this little mini-series together. And I think you're gonna like it. So thanks for being here. Share this with a designer who needs to hear it. Drop a review wherever you're listening to your podcasts. It really does help the algorithm. And I'll see you next week. Thanks so much for spending time with me. I I do wanna say if something in today's episode

resonated with you, share it with another designer. This is the kind of conversation our industry doesn't have nearly enough of. And I'll be back next week. In the meantime, keep build something worth owning.