Are we earning less?

This week’s article justifies our collective feeling: we’re working hard and billing similar figures to previous, but we’re earning less.

It’s proof our earning capacity is not just about continually working harder and smarter. It’s about standing back to assess the bigger picture.

The bigger picture is inflation.

Inflation has had a huge impact on small business. Here’s how:

A 5 year picture: hourly rates

The Reserve Bank of Australia Inflation calculator shows a design agency with a base hourly rate of $150 in 2018 needed a rate of $177.97 in 2023 to cover inflation.

Yep, that’s an additional $27.97 for every hour you bill.

To put that into perspective: for one person billing 30 hours a week it equates to a $839.10 weekly addition to the bottom line. (Note this is cost rate – a contingency margin and profit should be added to that figure for a charge-out rate.)

A design agency charging $250-$300 per hour for strategy 5 years ago should now be billing $297-$356 for the same skillset.

For an agency billing 20 hours of strategy a week, that’s a $940 difference at the bottom of the range.
Someone billing at the top of the range would be $1,120 out of pocket if they had not adjusted their prices to keep abreast of inflation.

A 5 year picture: salaries

A junior designer starting on the minimum wage in 2018 was paid $719.20 per week, plus 9.5% superannuation. A salary package of $40,951.

The minimum wage in 2023 was $822.80 plus 11% superannuation making a salary package of $47,492. (Post-June 2024 the Super Guarantee percentage increases to 11.5%).

That’s a government stipulated wage increase of roughly $7000 in 5 years with realistically, no increase in skillset.

A 5 year picture – life

A coffee on the way to the studio now costs around $1 more — depending where you live in Australia.

In 2018 the uber to your client cost $40. In 2023 the same uber cost $47.46.

Yep, you could drive yourself but petrol rose from $119.20 per litre in October 2018 to around $194.9 per litre in 2023. (Again averaged across Australia).

The so what?

The idea for this article was sparked by a breakfast conversation with my treasured Design Yakers in Melbourne. We were talking about how to approach price increases with clients and whether an increase was warranted at all — especially for those loyal, long term clients who were more often interested in a retainer-discount than an annual increase.

Then I saw The Reserve Bank of Australia’s inflation calculator referenced in an article.

The calculator is hard evidence of why we feel like we’re earning less.

So it’s not us, it’s a bigger issue outside our control. But what we can control is our prices, and it’s proof that if we don’t increase our base cost rate annually, we’re actually earning less for the same work.

Bottom line: if we don’t increase our prices annually, we are going backwards.

 

References

Reserve Bank of Australia inflation calculator

Report on cover prices

Report on Petrol prices

 

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Want more?

Here’s more information on designers making change to stay head:
1 Mini case studies about designers doing new business well
2 5 areas where small tweaks make a big difference
3 The power of design thinking