5 benchmarks for a creative business
Like to know how your creative businesses compares to others?
Not sure of the areas that need your energy and those to leave alone?
Here’s 5 benchmarks you can use to assess your creative business’s sustainability.
Disclaimer – benchmarks are not dissimilar to bloodtests. None should be considered in isolation, the sum of the parts is greater than just one because each one impacts another. They are necessarily general but that said, they’re valuable checks for overall healthiness.
Benchmark 1: Revenue
Aim to earn $220K revenue per person.
Generally, if everyone earns $220K revenue (not profit) you’ll run a profitable, sustainable business. If that’s not happening, don’t just assume it’s a productivity issue; reduced revenue could be for a multitude of reasons like: not be enough work, or misaligned skills and tasks.
Read: How to identify a good client
Read: Finance in a studio – a designer’s guide to studio finances
Do: Happier, Healthier Business Canvas analysis: start at viability, maybe move to model and services.
Benchmark 2: Profit
The majority of Australian design businesses return a 7 – 20% profit. 10% is a median.
Small business is notorious for low profit margins (the ABS cites the average small business makes a 5% profit and many no profit at all). While money is not the only factor why people run their own business (think flexibility, independence and leadership), remaining viable is important.
Read: Margin vs profit article
Read: Shitty profits article
Read: Finance in a studio – a designer’s guide to studio finances
Read: Bookkeeping for designers – a DIY guide to doing your own books
Do: Happier, Healthier Business Canvas analysis starting at cost/price, and viability then pillars.
Benchmark 3: Salary
Salaries* should be no more than 30% revenue and no more than 70% of expenses.
It is absolutely mandatory to reward people for their labour, but if salaries exceed these ratios, your business will be unsustainable in the long term.
*If you have a large component of consultants, subcontractors and freelancers, include their fees in the calculation.
Read: Finance in a studio – and ebook explaining (among other things) how to read a profit and loss
Read: What’s a fair wage? An ebook benchmarking rates (fulltime and freelance) for 26 roles in a creative business.
Do: Use your annual Profit and Loss statement to analyse the ratio. (Unsure? Read Finance in a studio 😉
Do: Happier, Healthier Business Canvas analysis starting at business model then viability or cost/price.
Benchmark 4: Productivity/utilisation rates
Utilsation rates are not about checking how hard everyone is working — business owners use them to assess capacity; of whether there is enough work in the business to keep everyone occupied: and skillset; whether the right people are doing the right work.
That said, here’s the generalist productivity rates. They are valuable signposts to deeper issues.
- Juniors: 80-85%
Juniors commonly have higher productivity to others because they tend to be more ‘on-the’tools’, more directed and have less meetings and management responsibilities. - mid 75-80%
The reduction in productivity could be from attending more meetings and assuming increased management duties. - seniors 60-70%
The role of a senior usually includes increased management and leadership responsibilities. - client service 50%
Although meetings and project management are billable, there are still many tasks like mentoring, supervision or inhouse management that take time and may not be directly billable to a client. - owner 50%
Future forecasting and general mentoring and management activities reduce an owner’s billable time.
Read: Is your business fit for purpose?
Read: What’s a fair wage? An ebook about ways to reward staff — it’s not just about money.
Do: Happier, Healthier Business Canvas analysis starting at productivity.
Benchmark 5: Win:lose ratio 70:30
Consistently acquiring new business is the lifeblood of a creative business – it brings in new work, new people and new challenges. Pitching to get new work is a necessary evil.
A ration around 70 wins to 30 loses is balanced.
Win too many projects in the competitive pitch arena and chances are your prices are too low.
Lose too many pitches could mean your offer, or your pitch may not have clarity.
Read: Can you specialise in Australia?
Read: An ebook detailing how creatives can use LinkedIn to get new business
Watch: Can you specialise in Australia?
Do: Happier, Healthier Business Canvas analysis starting at pitch – move to pillars and positioning.
So what?
Comparing ourselves, our work and our business to peers is human. We all do it, but sometimes it’s not helpful because we’re comparing apples and oranges.
DBC work with many creative businesses across Australia, from single operators to large firms from Tasmania to Perth and Cairns. We’ve been combining the data and knowledge we’ve gathered over the past decade into a new roadmap/ecosystem for creative businesses: that’s why they’re top of mind and have morphed into an article.
Carol Mackay
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Want more?
These articles talk more about working in the creative industry:
An article about shitty profits
Don’t waste your out-of-office message – here’s some that will put a smile on your client’s face
About Carol Mackay
After 30+ years running a design studio, I accumulated a pretty special network of fellow designers. One thing most have in common: a need for more information about the ‘business’ side of design. Most are impatient with any task competing for time spent doing what they love – designing so they wanted more info about how to work more efficiently and effectively.
Not me. I love that intersection between design and business. I built a career working with Ombudsman schemes, the Emergency Services sector and the Courts. My special power has always been an ability to use design to translate the difficult to understand or the unpalatable message.
I now use exactly the same skills with creative business owners. I translate the indigestible into bite-sized chunks of information. I share insights, introduce tools and embed processes to help others build confidence business decision-making skills. More confidence makes it easier to grasp opportunities. More confidence makes it easier to recognise a good client from the bad.
Outside DBC I have mentored with Womentor, AGDA The Aunties, and most recently Regional Arts NSW.
And I’m a proud volunteer and board member of Never Not Creative.
Always happy to chat, I can be contacted here.
