I thought I would share some information with you about what designers earn, and how they earn it from recent surveys done by Designing for Profits and ASID. We all have had the gut wrenching experience of reevaluating our financial positions in the past several months. I bet none of us entered design to pour over profit and loss statements and mind numbing Excel sheets, but we do have to face the music. Michael Behrens, Director of Research for ASID, says ” We are looking at the worst design market in 20 years.” So let’s see what our peers and competition have to say about it and what some of the strategies are to survive.
Both surveys were conducted before the implosion in the 4th qtr. ASID surveyed 1600+ members between September 23 and October 14, 2008. Designing for Profits conducted their survey in the late summer of 2008. Both concluded the same thing, close to half of their respondents said revenues would be down in 2008 and in a third of the cases by as much as 50%. NO KIDDING- we all know that. What does that mean? One thing is that project sizes have decreased followed by declining product sales. The good news is that remodeling and upkeep is still viable with kitchens and baths the most requested. Start brushing up on the K and B skills.
Survival Strategy- Switch gears and start making connections in places where you can reach these clients. Short of hanging out in Home Depot or Lowe’s, start by dusting off the old client list. Ever thought of hooking up with a home inspection service or offering After Care like James Swan. ( see my post, The Business of Design)
Investigate the healthcare, hospitality and government markets- work is steadier and though it has its issues, it can be profitable. Hotels might not be doing major building but they do do periodic refreshes and I wouldn’t sneeze at a 100 bedspreads& blackout drapery project.
The traditional pricing model of a charging a small percentage for your time and a larger percentage for your product is no longer valid. It is getting harder to maintain product margins and differentiate yourself from all the ”design marketing” noise. Clients can always find it elsewhere; our secret sources are no longer secret; plus if you don’t return their call ASAP they quickly move on.
51% of the designers surveyed by Designing For Profits said less than ½ of their total sales comes from products. Designers said if they had to choose only one pricing model; it would be hourly billing over flat fees and retail product sales.
72% require a retainer upfront before starting a job – the front end loaded concept- and 34% of the most successful designers hold the retainer until the end of the job while invoicing throughout.
Survival Strategy- Look to service-centric; not product-centric models. By focusing on billing for your expertise and time, the model shifts to become more front end loaded. In other words, you get paid up front rather than taking a 50% deposit; using it to pay for the work and then having to wait to get paid for your time and your profit at the end of the job.
Given the economic uncertainty, 94% designers also said they will maintain or increase prices in next 12 months.
Survival Strategy– Raising your prices should NOT be related to the economic conditions, but to your unique product/service bundles and brand. Lloyd Princeton says it best, “The economy may be down, but your services are still worth what they were worth before the decline. Don’t drop prices. Instead consider repackaging your services and charging more to attract a different clientele.”
According to Designing For Profit’s survey, pressure on profit margins during the next year will come from two sources:
1. Direct to consumer and internet shopping (25%)
2. US and world economy will put downward pressure on their billing rates (41%)
The survey results showed nearly half of the designers surveyed had average markups on products of 20-40%. This was followed by another 15% of designers who operate on markups of 1-20%. How do they survive? This brings up an interesting point. Designers regularly confuse markups and margins and this misunderstanding can dramatically affect their business. Looks like we all need a crash course in retail math.
Tune in tomorrow when we talk abot the changing consumer, niches and take a look at the future.
Got an opinion? comment? Feel free to weigh in.