1. They charge for their time.
2. They charge for their expertise (value pricing).
3. They skim off the top of retail sales.
4. They skim off the top of employees' hourly rate working in their company.
This is how all consultants or tradesmen make money. Look at how the plumber charges you for the service call (time), and parts (skim off the top of retail sales). Look at how the lawyer charges $1,000 for a last will and testament when it only takes them a couple of hours to draw up. This is because they have been formally trained how to draw up a will (expertise), they have helped many other people do this (expertise), and they have hired paralegals and secretaries to help make the process extremely quick (skim off the top of employee's hourly rate).
There are plenty of companies who make money skimming off the top of retail sales. This is why it is called retail sales! How do you think that Staples pays for the cashier and the salespeople? They are buying the products wholesale and then charging retail prices. Furniture stores do the same thing. They mark up their wholesale purchases by at least 100%. I know. I used to manage a small furniture and home accessories store. The five lamps the owner ordered would come into the store, delivered by Uttermost, and I would assemble one to go on the floor as a display. We would pull out our wholesale Uttermost price list. Say the lamp cost us $20. We would put a price tag on it for $45 to charge the retail customer. When the product doesn't move fast enough, we put it on sale. If the product moves fast, we marked up the price a little with the next batch of products--which sometimes made past customers who will remember the old price angry. Pricing is tricky business. If a store can hire an interior designer to do all this work and then give "designer" advice on top of this to lure customers into buying more, the designer is well worth the hourly wage!
So how to make sense of all this for hiring an interior designer?
A lot of interior designers are happy to meet the needs of your project on an hourly bases. Their billing rate could be anywhere from $40-100 per hour. Some cute girls who has an eye for design but not formal training may unknowingly charge much less than this. Some famous and certified designers charge much more per hour than this because of the brand they have built with many years of hard work. This gets a little into value pricing, but I'll explain that in the next paragraph. My sister-in-law was surprised that she could hire a local decorating store owner by the hour to march through her home and give her tips and ideas on how to improve her decorating. This is absolutely possible! Call the prospective designer, interview them. If you like their personality and their style, pitch them a service you need and ask how that would be priced. The designer will most likely just calculate how much time the service would take and plug in their hourly rate for a grand total. Better yet, already have how much you want to spend on their time and say something like, "We want our living and dining rooms to look so much better before we have our Christmas party. We don't have a lot of time to put into it. Could you help design the rooms, shop for items, and install them for around $1000?" Then there is some give and take with the proposition.
EXPERTISE (VALUE PRICING)
There are designers who have, say, really built a name for themselves on custom rug designs--because they are so good at it. They are great at interior design in general, but can draw up a fantastic rug that will make the room incredibly gorgeous. Their time for the rug design may only be a whopping 1 hr, but no one else could design a rug like this. The "value" for this design is huge, and not related to the time it took to make. This is how Theo Stephan Williams explains how value pricing works in her book The Interior Designer's Guide to Pricing, Estimating, and Budgeting.
SKIMMING OFF OF RETAIL SALES
I have talked to people who have bought furniture and used the decorating services offered by Bassett and Ethan Allen and they have had a really good experience. I am always shocked that no one complains about the catalog look they end up getting from the designer. BUT the look is better than what they would have gotten without the designer, and the furniture in general is good quality.
Also, a designer can set up accounts with picture framing, fabric, furniture, and accessory (etc) wholesalers. They suggest their products to a client. The wholesaler (or grateful retailer) sales the product to the designer for less than what the designer sells to the client, and then the designer sells the product to the client for the same (sometimes more) as what they could pay retail. The difference goes into the designer's pocket.
SKIMMING OFF OF EMPLOYEE'S HOURLY RATE
Most designers work on their own now, and so there isn't a whole lot of skim off the top of employee hourly rates. But, what happens here (like most consulting) is the company (owner) charges a client a certain amount for a project, which is more than what they are paying the employee per hour. This is understandable because the owner is providing an office, benefits, supplies, mentoring, etc to the employee. They still make a profit. They have to in order to make an employee worth the while. Paying their FICA taxes and taking on the liabilities of an employee are risky in general, and this profit serves as a reward for the risk. All of us who have worked for someone else can thank this process as helping them gain valuable experience.
I'm going to post soon about the best way to hire a designer: do as much of the leg work yourself and let them use their expertise to give you a gorgeous room! I call it a "Design Plan" and I will explain it in the upcoming post.