Most design firms are profitable in theory, but only because the owner is underpaid, overworking or floating cash.

Case in point: In 2014, one of my clients and her husband came to me for a deep dive into her strategy and finances. As we were crafting a more profitable financial model, her husband (also self-employed) said that since he “hated to pay the IRS,” he reinvested his profits in his business to “hide the money” so he didn’t have to pay taxes. Unfortunately, this strategy wasn’t growing their wealth, or even paying the bills, which is why she came to us in the first place. We talked about their scarcity mindset, which was deeply rooted in fear. By the end of our conversation, I assigned a very difficult task to her. Keep reading to discover what it was.

But first, a quiz to get you thinking about your own financial strategies.

1. How much does it cost each month to keep your firm’s doors open and your team
paid?

2. How much is your net profit every month? (Net profit is the money left over after you pay for products and overhead. You can calculate your net margin percentage by taking net profit, dividing by total revenue, then multiplying by 100.)

3. Do you have a healthy pipeline, meaning four to five times your monthly overhead? (Overhead includes rent, payroll, insurance and other expenses.)

4. Do you have at least three months of “free cash” in reserves? (Money that is available beyond what you owe for your payables like credit cards and vendor invoices.)

5. If you file taxes as an S corporation, do you pay yourself as much or more than your highest-paid employee?

6. If you file your taxes as an LLC, do you take draws every month, and is that amount more than what you pay your highest-paid employee?

7. Do you pay interest on your credit cards? (If so, you’re probably delaying the payment until a big deposit comes in. That’s a sign that you’re short on cash.)

8. If you wonder why you don’t have much money in the bank and you have maxed out your credit cards, are you spending all your net profit each month or year? (If so, you may be using your clients’ money, which is a very dangerous practice.)

9. Are you working lots of hours without tracking your time or billing for all client-related work?

10. Do you feel guilty charging what you’re worth, or dread sending out time bills because you don’t want to upset your clients?

The Task
At the end of our session, I told my client that life happens, and building a financial cushion is important—then gave her the task of doubling her billable rate. As it was, she was grossly undercharging her clients. In fact, once she started with a client, she never raised her fees—even after several years of working together. Her eyes were as big as saucers when I assigned this task. She asked how to talk to her clients about it, so we scripted her conversation. She promised she would do what I asked.

The initial results were, contrary to her expectations, overwhelmingly positive. The first client immediately agreed to her new rate. The second one said he had been wondering when she was going to charge what she was worth. The third asked, “How did you come to this decision?” She told him she hired a business consultant, and she had no option but to do what I said. He replied, “Huh … I should do the same thing!” By the end of the year, she had $100,000 in reserves.

Then, life happened. She became critically ill. We didn’t know if she would make it, but she did. When we talked later, she told me that she had saved enough to keep her business running, pay her employees and herself, and even have money left over. Now? She runs a multimillion–dollar firm, and is well on her way to financial freedom because she knows how to be profitable.

What the Data Tells Us
According to Bizminer, in 2024, the average interior design firm billed $1,396,358 and earned 7 percent in net profit. If the average firm operated as an LLC, that net profit was the entirety of their compensation, plus reserves and money to pay taxes. If the average firm operated as an S corp, the founder likely paid the essentials every month, and the net profit also covered their additional compensation and reserves.

A good business coach can show clients how to earn multiples of 7 percent. We’ve had clients net between 30 and 41 percent on millions in revenue. You can earn a high-six-figure or even seven-figure income in this industry too. But to start, you need to get hands-on with your firm’s books.

You’ll never get a handle on your finances if you don’t understand them, so review your numbers with your bookkeeper regularly—not just P&Ls but also balance sheets—and have them work with you to create a cash flow projection every month. Even if the numbers don’t make sense at first, they will with consistent effort.

Then work on the individual numbers, beginning with increasing your hourly rate to charge what you’re worth. Start with your new clients: If you’re charging $150 to your current clients, charge the new ones $175. Every three months, raise your rates until you sign less than 50 percent of the qualified prospects. Next, raise your markups. Do it incrementally. For example, if you’re marking up by 25 percent for new clients, go to 30 percent. And be sure to set aside 10 percent of every payment you receive in a savings account—and don’t touch that money.

Lastly, market, market, market. That’s your number one job.

A Cautionary Tale
Years ago, another designer I work with asked me why she didn’t have any money. I looked at her balance sheet. She had maxed out her credit cards and her line of credit, and she had little cash in the bank. She was insolvent. In the end, she had to sell her building, lay off her staff and start over. It turns out she traveled constantly, enjoyed spa days and lived extravagantly. She ran a $2.5 million firm and had 20 percent in net profit—but only on paper. And because she didn’t understand her numbers, she didn’t realize something was wrong until it was far too late.

That brings me to one final piece of advice: Never spend or draw more than half of your net profit during the year. Save the rest for taxes and reserves lest you become the next cautionary tale.

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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.