3 Types of Architecture Invoice Structure

In order to get paid for your work, you need to send an invoice.

Sending invoices without the right structure can:

• Confuse your client
• Delay your payment
• And even cause arguments about the amount due

The right architecture invoice structure  can help you get paid faster and with fewer hiccups.

Here are the top 3 ways to structure an architecture invoice.

1 - Fixed Fee

Also called lump sum or stipulated sum. 

Fixed fee is the most popular architecture invoice structure.

AIA's 2020 Firm Survey Report found that 37.7% of architecture invoices sent in 2019 were fixed fees.

With a fixed fee invoice, there is a total fee for the entire project that you negotiate before the project begins.

The fixed fee amount will then be broken up into percentages based on design phases:

• Schematic Design
• Design Development
• Construction Documents
• Procurement
• Construction Phase

Each phase will cost a percentage of the total stipulated sum.

For example, you can distribute 15% to Schematic Design, 20% to Design Development, etc.

Each invoice will show a percentage of the design phase completed.

For example, if you have completed 50% of the Schematic Design phase, you would send an invoice for $2,500. 

This is 50% of the total fee of $5,000 allocated to the Schematic Design.

Fixed Fee Invoice Example

As an example, say you are under contract to do a residential home.

The owners have a clear view of what they want and the project is relatively simple.

You work out that it would cost $30,000 for you to finish a complete set of drawings and do the construction oversight. 

This number includes your:

• Costs 
• Typical expenses 
• Profit 
• Extra insurance costs

You break up the project into 4 different phases:

1. Schematic Design 
2. Design Development 
3. Construction Documents
4. Construction Phase

You assign each phase a percentage of the total fee of $30,000. 

For example,

• Schematic Design - 15% - $4,500
• Design Development - 20% - $6,000
• Construction Documents - 45% - $13,500
• Construction Phase - 20% - $6,000

In this example, once you had completed 50% of the Design Development, you would send an invoice for $3,000.

Pros

• Everyone knows what they are spending/earning from the beginning
• Simple
• No contention over hours
• Often More Profitable for Architect
• Easier for Owners to Secure Financing

Cons

• Least flexible invoice template
• Architect takes on all the risk
• Need to have enough experience to know that fee is adequate
• Often more expensive for Owner
• Need to watch for scope creep

2 - Percentage of Construction Costs

When structuring your invoice based on a percentage of construction costs, you’re simply charging a fee that is a percentage of whatever the building will cost to build.

What percentage should you charge? : This will be dependent on you and the client. Most architects charge between 8% and 15%. Some go as high as 20%.

This is the least popular architecture invoice structure. 

Only 10% of invoices sent in 2019 were percent of constructive costs.

Similar to the stipulated sum structure, here you assign each phase of the project a percentage of the fee.

Percentage of Construction Costs Invoice Example

Using the example project in the fixed fee sample, say the building will cost $300,000 to build. 

You set your fee at 10%. This means your total fee will be $30,000.

Next, you would set up the architecture invoice with each phase earning a percentage of that $30,000 just like thefixed fee example.

Pros

• Easier to sell a small percentage than a big dollar amount
• Simple
• No contention over hours
• No need to track hours
• Reduced risk for Architect

Cons

• Some uncertainty for the client
• Less flexible invoice template than hourly
• Architect can be tempted to push for more expensive designs, which can strain client relationship

3 - Hourly (By Role/By Activity) 

Hourly billing is the most popular invoice type among small firms.

According to the 2020 AIA Firm Survey Report:

• 41% of small firm billings were hourly. 
• Compared to 18% of all architecture invoices sent in 2019 were hourly.

An hourly structure means that you’re getting paid for each hour worked. 

Hourly invoices are typically broken down by role or activity.

1. Breaking down by role simply means that you list out all of the employees who worked on the project. Each employee has their own hourly rate. Then you multiply that hourly rate by the number of hours they worked during an invoice period.
2. Breaking down by activity is similar, but you separate out each activity that was being done like design, planning, admin tasks, etc. This is best for small firms where everyone does a bit of everything.

Hourly Invoice Example

For example, say you have a principal, a senior architect, a junior architect, and an admin employee.

Your principal and senior architect both worked 5 hours on a project at $120 and $100 per hour. 

Your junior architect worked 16 hours at $75 per hour. 

And your admin employee worked 14 hours at $50 per hour.

The total invoice you would send to the client for that period of time would be $3,000.

Pros

• Highly flexible
• Clients can see what you spent your time doing
• You’re more likely to be paid for overtime or scope creep

Cons

• Every employee needs to accurately track hours
• Hours could go over the client expectations
• You may be outbid by architecture firms with fixed fee price

Architecture Invoice Template

To recap, here are the 3 basic architecture invoice structures:

1. Fixed Fee
2. Percentage of Construction Costs
3. Hourly

By using the right invoice structure, you can reduce your risk and make invoicing simpler.

Using all of this, you now know which architecture invoice structure is right for you and your project.

The next step is to create your architecture invoice. You can download our free architecture invoice template to start.