We tapped designers, business coaches and industry pros for fast, easy ways to manage your firm’s money smarter.
Rethink your pricing promise.
The internet has turned clients everywhere into price-hunting detectives. As a way to soothe the sleuths, some designers promise their clients that they’ll never pay more than a listed retail price for anything. That, says Jeff Stracka of bookkeeping and accounting firm ID Bookkeeper, is a mistake. “A retailer might give you trade pricing of 20 percent, but that’s not going to pay the rent. Plus, when stores have sales or tax-free weekends, you’re going to work yourself into a fit trying to figure out what you charge your client,” he says. “I think that by making that promise you actually get into the trap of having clients shopping you on the internet—it gives them something to look for.” Instead, Stracka recommends having a clear conversation with clients upfront. “Explain to the client that you don’t want to make design decisions based around the markup or how much money you’re making—of course they wouldn’t want that! Choose what’s best for the client. Maybe it is from RH and it saves them a little money, but you have to get your markup somehow. So what if it’s over retail?”
Stop giving away your time.
If you charge hourly, be honest: Do you bill the client for every hour? Underestimating time when invoicing a client is an understandable impulse, but the experts say it’s cutting into your firm’s profitability. One way to push back against the urge to trim hours: Try looking at smaller chunks of time. Hours can be easy to round up and round down, but it’s harder to be fuzzy with minutes. Kimberly Graff, the COO of Texas-based Charbonneau Interiors, says that her firm became far more profitable when it started charging for design time in 15-minute increments. “Before, we would have fees associated with certain items—like, this many hours for a custom sofa—but we weren’t following every minute we spent on them. Now, we’re pretty strict about it,” she says. “Do we still give some time away? Yes, we give a lot. But less than we did before.”
EXAMINE YOUR ESTIMATES.
For designers who charge on a flat fee basis, a lot of interior design pricing is (educated) guesswork. Much of a firm’s profitability can slip through the gap between estimated costs—the hours and dollars you think it will take—and actual costs. The only way around that, says Ruth Ann Janson of Texas-based consulting firm The Dove Agency, is to constantly examine your estimates. “Designers need to ensure they’re billing for hours worked—that means tracking time monthly by project, even if you’re charging flat fees. Detailed analysis often reveals unbilled hours,” she says. “Also, estimates used to capture shipping, receiving, storage and installation should be reviewed against the actual charges incurred. Given the supply-chain delays and inflation, it’s unlikely that estimates from even a few months ago are adequate. It’s essential that designers have a process in place to compare estimates with actuals.”
TAKE EMOTION OUT OF THE EQUATION.
Settling on the “right” amount to charge can be an emotional endeavor that factors in everything from years in business to the local rate for design to the level of imposter syndrome you’re currently dealing with. But according to Bay Area–based business coach Sean Low, none of that matters. “When a designer is not making the money they wish to make on a project, the answer is almost always that they are pricing from the bottom up, or by trying to figure out how much they can make by way of fees and commissions,” he explains. “What they should be doing is pricing from the top down—calculating how much they need to do the work.” Low asks his clients to determine three key numbers: how much money they need to live the life they want, what it will cost them to get it (that’s overhead), and how much they want to work. The result, devoid of emotion, is how much each project should net. For example, imagine you want to make $150,000 a year, you have $50,000 in overhead and you want to take on two projects. In that scenario, your price is simple: $100,000 per project. If you can handle four projects, it’s $50,000, and so on. The secret is that how you charge that $50,000 or $100,000 matters far less than the amount itself—any combination of flat fees, hourly rates or margin on product sales that gets you across that threshold guarantees that your firm has met its financial needs. “Let intrinsic value win the day,” counsels Low. “Get what you need—no more, no less.”
Don’t eat credit card fees.
In a business where the relationship with the client is everything, it’s understandable that designers will sometimes “eat”—in other words, pay—the fees on credit card or ACH transactions. Better to swallow that cost, the thinking goes, than be perceived as a nickel-and-dimer. But Christine Froelich of accounting firm The Designers Bookkeeper says that it’s a dangerous habit. “I understand that clients may attempt to push back on those fees, but they add up, and fast— especially with large transactions,” she says.
Put yourself in a client’s shoes.
For Virginia-based interior decorator and business coach Monique Nicole Holmes, being profitable is about targeting the right client with specific services. In her Employee to Designer coaching program, she challenges her students to answer three questions to unlock profitability: What solution do you offer? Who do you offer your solution to? How do you offer your solutions? The goal is to articulate what’s unique about your firm— and then charge a premium for that specialty by connecting with clients who value it. One designer going through the program segmented her ideal client into three categories, then created a custom offering for each: e-design for busy professionals, full-service moving and interior design for new home-owners, and a budget-minded materials selection package for real estate investors who need professional help with their flips. “People don’t buy services; they buy solutions,” says Holmes. “Ask yourself, ‘Who needs my gift the most and what are they willing to pay for it?’ Answering this question will help design professionals discover who their ideal client is and develop a clear and marketable design solution that client is willing to pay for.”
Slim down your vendor list.
Shopping from dozens of vendors is one way to ensure variety in your work, but it can also keep you from realizing your full earning potential. By shopping from a concentrated pool of brands, designers can tap into bigger discounts and capture more revenue from every sale. For Omaha, Nebraska–based designer and coach Nikki Klugh, stream-lining sources has another upside: It leads to a more defined style, resulting in clients who seek you out for a certain look and jobs that have a much shorter sales cycle. “When a client searches you out for a specific style, you close the deal a lot faster than if you are a generalist,” she says. “Plus, those projects provide you with a bigger profit margin.”
Truth: Every client is unique, and every project is special. Another truth: The design process for all of them should be the same. “Most of the designers I meet who are struggling to make money also struggle with standardized processes in their business,” says Dallas-based designer and coach Michelle Lynne. She encourages firms to develop a system for everything, from vetting clients to defining the scope of work for a project to calculating a profitable flat fee. “Having these systems in place reduces scope creep and eliminates the need to bill ‘indefinitely’ by the hour, and thus, the client has already agreed to the overall investment,” she says. “The elegant simplicity of the processes are easy to follow and have empowered designers to charge what their services are worth.”
Eliminate loss leaders.
Grocery chains often offer steep discounts to attract new customers and encourage shoppers to spend more once they’re in the door. It’s a marketing strategy aimed at stimulating sales for items with better margins—but it’s not a winning solution for your design business. “Every service model a designer offers has to be profitable,” says business coach and body language trainer Nancy Ganzekaufer. It might seem like a good idea to lure in new clients with lengthy free consultation sessions or low-priced “designer for a day” services, but Ganzekaufer says you’ll end up regretting them. Other bad behaviors to nix: shaving hours off your invoice for full-service work because you’re afraid to upset clients with a big bill, or letting your margin on furnishings cover your time for ordering, tracking, handling delays and damages and installation instead of keeping the margin as profit and charging a project management fee. “Whenever you feel resentful—a nagging sense of, ‘They are taking advantage of me,—it could be an indication that you are undervaluing yourself.”
DON’T SHARE YOUR DISCOUNT.
When she was first starting out, Nashville, Tennessee–based designer Sandra Funk mustered the courage to ask fellow design professionals how they were profitable. “Girl, we triple shit,” was the reply she got. (It was a cocktail party, and everyone was a few drinks in.) But today’s climate—where savvy shoppers can scour the internet for deals—has made how designers charge for product a potential minefield. Funk now leads a six-session course to share how she created a financially successful firm in this new landscape, with a focus on transparency, clarity and standing up for yourself. One of the most crucial moves, she says, is to stop sharing your discount with clients. “Increasing profit on product can be the simplest, most effective way to increase profit in a design firm,” says Funk. “Any trade discount you are given is exactly that—a discount meant for you, the trade. Keep what is meant to be yours.”
Homepage image: In addition to boosting revenue, shopping from a smaller pool of brands helped Nikki Klugh hone a specific look—which, in turn, attracts clients who are an aesthetic match. | Jim Brady Architectural Photography