The 2023 Interior Design Business Survey found that many designers decided to pursue more projects as part of their strategy to increase their revenue. Some kept their rates the same or even lowered them to book work.
Unfortunately, keeping your rates static or decreasing them may result in new projects that don’t make money for you. At the end of the year, when you see the financial results and you have little to no profit, you won’t feel very good about that decision.
Have you done the math recently to assess how profitable your firm is? Calculate how much profit you’re making on your fees by tracking and subtracting your team costs. Then calculate your profit margin on your product sales to your clients.
For example, if you generated $200,000 of product revenue, and your cost of goods sold for those products was $160,000, you generated $40,000 gross profit. Divide that by the revenue and then multiply by 100 to get your gross margin:
($40,000 ÷ $200,000) x 100 = 20 percent gross margin
If your cost to operate your business is 40 percent, you actually lost 20 percent on your product sales. That’s why it is important to understand how to build a profitable business model and pricing strategy.
If you did the math and don’t like what you see, here are four steps to increasing your profit.
- Raise your rates every year. Your rates must go up more than inflation or the cost of living to result in more net profit. For example, if inflation increased by 3.5 percent, increase your prices by at least 5 percent. Your employees will want and need pay boosts to keep up with the cost-of-living increases, so it is essential for you to raise your rates and markups to generate enough money to pay them.
- Widen your net. Focus your attention on marketing strategies that attract better clients. Develop a marketing plan and stick to it.
- Shop smarter. Build relationships with vendors that offer better discounts—shopping at High Point Market is a great place to start. The more you spend with a brand, the better margin you’ll be able to negotiate, and the more you’ll be able to profit from your firm’s sales.
- Learn how to make more money within your project budgets. List all of the products you intend to sell to the client, and apply your standard markup. Then apply a higher markup and look at the net dollar increase in profit. If you are courageous enough to raise your markups, those additional dollars can be used to grow your business or increase your salary. Decide you are worth it, and then ask for more.
Remember, signing more projects isn’t always the best path to increasing your income. You need to charge more for your products and your time—that’s how you “widen the net” profitably. Stay strong and ask for the rates you need to be profitable. You deserve to make more money.
For insights and analysis on how designers across the country run their firms, download the 2023 Interior Design Business Survey report, presented by Pearl Collective, Interior Talent and Business of Home.
____________
Gail Doby is co-founder of Pearl Collective (formerly Gail Doby Coaching & Consulting), an interior design business consultancy that helps designers, architects and other creatives increase their profitability. Doby ran her own design firm in Denver for nearly 20 years and has a degree in finance and banking. Since 2008, she has been helping designers scale their businesses profitably and reach financial freedom. As a coach, mentor and business transformation specialist, she shares innovative ways to overcome the roadblocks, challenges and detours creative entrepreneurs face. She is also the bestselling author of Business Breakthrough: Your Creative Value Blueprint to Get Paid What You’re Worth. Her goal is to empower design industry clients to differentiate themselves, drive measurable results, achieve business projections, and create personal satisfaction through game-changing strategies and business practices.
