Busy may not = profitable

Busy and profitable are very different things

A busy diary can be one of the most dangerous indicators in a design business.

You can spend weeks preparing proposals, attending meetings and pursuing opportunities and still have a profitability problem.

Activity feels like progress.

Keeping an eye on some key metrics tells you whether progress is real.

Here’s just two key business metrics worth measuring – and what the benchmarks look like for high-performing Australian design studios.

1. Profit margins

Aim for 20%. Most studios sit around 10%. With inflation running at 4% that margin means you’re barely moving forward in real terms. Many studios working hard and feeling successful are effectively going backwards.

Profit margin is the clearest indicator of business health. If you’re not tracking it monthly, you’re flying blind.

Questions to ask yourself:

Is my costing process capturing all of the expenses in the business?

Have I put a realistic margin on my cost price?

Is my mark up sufficient to get a 20% profit by end of financial year?

2. Billable productivity

A broad brushstroke benchmark is 70% – meaning 70% of your team’s time is billable. Juniors typically sit higher, managers lower. That’s not a problem unless you’re charging everyone at the same rate regardless of how they spend their time.

Understanding productivity by role is what makes your charge-out rates accurate rather than optimistic.

Questions to ask yourself:

How many non billable team members do I have?

Are there ‘hidden’ costs that mean I’m doing work for a client and not billing it?

Do I have enough work to maintain a minimum 70% productivity?

It’s a continuous process

Profit margins and productivity are not simple mathematical formulas. They are part of a broader process to establish a costing, pricing and profit policy in your business.

Measurement doesn’t need to be complex and the info you can get from trends is gold. Problem is many studios don’t start measuring because they think it’s too hard. That’s why we wrote the Costing Pricing Profit toolkit – to simplify what seemed complex.

As always, happy to discuss further, just email Greg

Greg Branson

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