How to make confident business decisions

Designers make decisions every day.
Confidence in the decisions is based on knowledge.
Knowledge is based on facts: data, information and trends.

Here’s four reports design studio /agency owners should monitor, and why.

1. Salary report

It’s not brain surgery: salary is intrinsically linked to earnings.  The more a person earns for a business, the stronger the argument for a salary increase.

Only financially successful businesses can afford to reward their design team well. On the other hand, it is not financially viable for struggling creative businesses to pay high employee salaries, especially when many business owners are not taking sufficient wages themselves.

Benchmarks:

Wages should not exceed 60% of total expenses
Wages should not exceed 22% of total revenue.

If either of these ratios are unbalanced, action must be taken quickly. Increase revenue by increasing prices; reduce expenses or as a last resort, reduce wages by moving fulltime employees to part time.

2. Productivity report

Productivity is often maligned as the antithesis of creativity. Our view is design studios/agencies must remain commercially viable and productivity is one way to measure viability.

Benchmarks:

Mid to senior employees should bill three times their salary. Again, the more a person earns for the business, the stronger the argument for a pay rise
Aim for $200,000 earnings per (mid or senior) designer per annum (which is a fraction over 70% billable)
Less than $100,000 earnings per person per annum means employees are under-productive and warrants further investigation.

It is important to note under-productive does not necessarily mean slack. Could be there’s not enough work, could be designers are getting ‘stuck’ and need more mentorship, or it could be there are bottle-necks in the workflow.

Designers ‘on the tools’ often have highest productivity. People managing others may have lower productivity but remain viable because they are billed at a higher value. No-one (except perhaps finance/bookkeeping) should be a cost to the business.

3. Client profitability

Use an ‘Income by client’ report to identify which clients make you ‘busy’ and which make you profitable.

You want to see invoices (billables) compared to cost to the studio (studio cost rate + all external costs like sub-contractors).

The difference is profit.

Benchmarks:

Aim for a 30% profit margin for all clients.

This report will help identify the valuable clients. Those who generate the greatest profit are generally those worthy further investment like working to a tight deadline or a proactive pitch. The report will also help assess whether retainers are viable – often they’re clients who keep the studio busy, but not necessarily on valuable, profitable projects.

3. Expenses

This report has become increasingly important as studios move from employees to external contractors.

Use a report listing all expenses (external costs/purchase orders):

the cost price
the sell price and
the profit made.

It’s a valuable checklist to ensure all expenses are billed to the client.

Benchmarks:

Aim for profit margin of a minimum of 15%, preferably 30%. Any lower and you would need to question why you are supplying the skill.

Summing it all up…

Creative business owners make financial decisions every day. Decisions about estimating, pricing and costing, decisions about not enough or too much work and decisions about client viability.

The more clarity, the greater understanding.
Understanding leads to knowledge and
greater knowledge delivers confidence in decision making.

These four reports will help build confidence in decision-making.

Together they prove the value of studio management software because the easier reports are to access, the more often they can be used. Any of these reports are easily pulled from a good system, remembering the data you get out is only as good as the data entered. And the true value is in the trending — you’ll be able to track the results of making small tweaks to your business.

Some of the changes we’ve helped studios make as a result of diagnosing reports like these:

a change to the traffic flow. Instead of one designer following a project from start to finish, one studio changed their workflow. Now each designer specialises in one area – the task they do most efficiently.
introducing an inhouse university. Designers are allocated time to upskill each other so the studio uses less external specialists
an agency dropped a long-term retainer once they recognised it kept them busy, but not profitable. They only need to spend half the hours on a more profitable client to return the same profit.

Want to continue the discussion? Email Carol.

Carol Mackay

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About Carol

After 30+ years running a design studio, I accumulated a pretty special network of fellow designers. One thing most have in common: a dislike for the ‘business’ side of design. Most are impatient with any task competing for time spent doing what they love – designing.

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 and most recently with The Aunties.
And I’m a proud board member of Never Not Creative. Ask me about internships

Always happy to chat, I can be contacted here.

For a short while, an archive of my design work at mbdesign.com.au.
My current work can be viewed at designbusinesscouncil.com and designbusinessschool.com.au.