9.5 ways for interior designers to make more money (profit)Posted: 18 September, 2009
Following on from my last article I’m continuing the trend of unusually numbered lists. So, today’s list is: “Nine and a half ways for interior designers to make more money.” The list is at the end of the article so you can skip the next few paragraphs if you want but the list is not a summary of what I am writing about so you will miss some pearls of wisdom by so doing!!
Isn’t profit a terrible word for some people? They’re almost ashamed to use it. In some design companies staff are angered about large profits. Well its profits that pay your wages, even if you work in the voluntary sector your funding comes from someone else’s profits and even if you work for government your salary comes from taxes which in turn come from profits. So now we’ve got the socialist utopianism off our chests let’s talk money.
Here it is in simple terms: “You have to sell more and spend less” and you might want to make your profits more certain by “reducing risk”. However you dress it up that, pretty much, is business. Customer service is important but it is just a way of cross-selling more products and increasing customer retention. Fun is nice, but you rarely get paid for having fun.
So moving into a little more detail but still keeping it at quite a high level.
For starters, you know your business better than I do. But I’ll bet it follows the Pareto Rule – that’s the one that very many businesses follow regardless of the industry they are in. It’s not really a ‘rule’ but it essentially says that 80% of your ‘stuff’ or outputs usually comes from 20% of inputs. So 80% of your sales will probably come from 20% of your customers, 80% of your overall costs will probably come from 20% of your cost items and 80% of your business risk from 20% of your activities and so on. Use this ‘rule’ to focus your activities when you try to improve your design business.
So, with that at the front of our minds, we go on for some ‘quick wins’. Focus on the big ones, the easy ones, if you like.
A. Sales: Cherish, nurture and retain your biggest customers, they need great levels of service and must not be taken for granted. BUT event the richest client will run out of houses for you to work on after a while…you have to have an additional strategy in place for bringing on the new large customers of the future. These will be the ones that drive the profitability of your business tomorrow. You should be able to analyse your customers/prospects by their size in terms of profitability to you and their growth potential as a client. Ideally, you need a nice balanced mix o present day ‘cash cows’ and future ‘rising stars’ for you to class your business as healthy. Next make sure you organise your sales resources to squeeze all revenues from and make profit on those mature accounts; allocate proportionately more sales and service on the growth accounts and maybe on those small, futureless accounts you just say thank-you, goodbye and re-direct the time you have freed up. If your mix of customers is not well balanced then you have highlighted a risk to your business. Make a plan to change and innovate.
B. Costs. Your building and staff are probably your biggest costs. Maybe also transport, utilities and some marketing expenses like exhibitions. Reducing costs is tricky, made more tricky if you are a nice person who doesn’t put the business first. Your building lease has a fixed term so you probably can’t renege on that too easily and save money and even if you could there would be the costs and disruption associated with moving, your business landlord will also know that and will of course try to make rents higher at renewal. That’s your first dilemma.
More tricky still are your staff costs. It’s always best to lead by example and set expectations of high levels of delivery from everyone in your organisation. People need to be more productive whilst being creative. If your business is growing set the expectation of harder work rather than new recruits. New recruits increase overheads; management, training-up, the risk of them being an unknown quantity. If your business is stable or declining take a realistic look at where you are at today and then you might try outsourcing and sub contracting as a means of reducing headcount and overheads, it could make your business more straightforward to run and more agile in its response to opportunity. Sometimes you have to let people go, yes even the people you like who don’t contribute as much as those you like less. It can be a hard world sometimes but harder for you if your business goes under.
C. Risks. Few people in the design industry systematically review risks. Take a ‘risk register’ of what you think the major risks to your business are. Clients or suppliers going bankrupt? Key sales people leaving? Web site being hacked? Losing your prospect database? Specific fixed price projects? and so on. Most risks have two general elements 1. the likelihood of them happening and 2. the impact of them if they do happen. So an asteroid falling on your office is catastrophic…but unlikely. I would focus firstly on the most likely ones and work out what you might do if that risk materializes. Review your risk register, say on a quarterly basis. ,You will probably not catch all the risks but you will at least have the right mindset for methodically thinking of risks and you will probably also identify a few of the big ones that you knew existed but didn’t really want to deal with yet.
OK here’s the list, I could go on but I knew you were getting impatient:
1. Outsource: Outsource anything that is not core to your design business: accounting, IT, admin, some marketing but probably not sales.
2. Automate: Automate everything that you don’t outsource from voicemail, to invoice production, to invoice chasing, to order fulfillment, to customer service, to sales, to marketing campaigns.
3. Subcontract: subcontract key design resources where you have to: make a key resource freelance if mutually beneficial. You could try partnering as a means of getting access to certain resources but partnerships, in my experience, confusingly, always seem to end up being a one way road.
4. Negotiate realistically with suppliers. Your biggest and least risky savings will come from your biggest, longterm suppliers rather than by trying to eek out every last cent/penny from new, small suppliers (who will dump you as soon as a better customer comes along). But you will only benefit is there is a win-win. We are fabric suppliers. If you ask us for a discount on your first purchase from us you won’t get one! The best way, in general, for suppliers and purchasers to both win is if you negotiate an annual rebate deal based on certain levels of business. I will then know that, as your supplier, you are bonded in some way to me for 12 months. I know I’m going to get repeat business so what will I do? Probably give you even better service. The deal you negotiated will save you money but make me money overall as well because I get more sales from you than I otherwise would have done. Win-win. This is much better than individual deal-based discounts and many companies in our industry to not discount on a piecemeal basis in any case.
5. Increase productivity. Expect everyone in your organisation to increase their product by 50%. Yes really, do that. It would be nice to be disappointed if they only deliver 40% wouldn’t it? Your part of the deal is to give them the resources they need without the stress they do not need.
6. Add-on sales. What extra services can you provide around your core offering? If you just do design, offer a product selection or procurement service as well, or at least get an introduction fee from a partner who you recommend to do the bits you cannot.
7. Great employees. Keep the best, lose the rest. You know it makes sense. It’s a hirer’s market at the moment but never go too far.
8. Continually or quarterly re-visit how you deliver. Re-design how each of your internal processes work (ie how you work on a job) to minimise variable costs or maximise customer service – whichever is best for each process. In general the parts of your activity that the client sees should be structured to provide good customer service, for the bits they do not see, it is not so important: so cut the costs there if possible.
9. Innovate. Try something new and don’t be afraid to fail once in a while. Most top athletes in most competitive sports lose A LOT but they don’t shy away from the opportunity of trying again to win and neither should you. I’ll bet Usain Bolt lost a lot when he was younger.
9.5 Relax; have coffee, a spa day, a late start once in a while.
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