When we talked to interior designer Heather Peterson in the Fall about what the future holds for her eponymous firm, Heather Peterson Design, she told us she’s excited to be transitioning her own role from principal designer to creative director. The move will allow her the time and space to focus on honing client services and building the business she loves so much.
“I have to say that for a long time, I never thought of myself as an entrepreneur, but I actually really like running the business, and I’m excited in this moment of transition,” she told us.
I was reminded of Peterson’s comments on a recent plane flight when I took some time to dive more deeply into the results of the 2023 Interior Design Business Survey. (Aren’t plane flights the best for catching up on reading?)
Several sections of the survey fielded by the Denver-based interior design business consultancy Pearl Collective talk about how too many designers aren’t optimizing the business side of their business.
Of course, some run very profitable firms. One-fifth earned between 11% and 20% in 2022, according to the survey. But about one-third earned a profit of less than 10% and, alarming to both the Pearl Collective and Design News Now, about one-fifth didn’t know or were unsure how profitable their firms had been last year.
In a related question, the survey inquired about the financial management tools designers use. About one-fifth use QuickBooks and another fifth use Studio Designer to manage income, expenses, billing and other financials. But more than a third answered “other” or “none of the above.” “This could be a contributing factor to the fact that nearly a fifth of designers are unsure about their income and profit margins,” the report says.
We must assume that most interior designers are in business to make money. It’s not a hobby or volunteer project, right? But some are not giving the business side the attention it deserves.
As we head into the coming year, are there things you could be doing to improve the profitability of your firm? Here are some areas of your business you might want to address in 2024:
* Assess your financial management tools. Over the years, have you cobbled together several systems for managing finances and projects? Getting a new system up and running can take some time and money, but a streamlined system, particularly one specialized for the design industry, can help you better control expenses and project income.
* Plan along the way. Set aside monthly and quarterly planning days and, as part of that process, review the profitability of previous projects and refine expense and profitability estimates for those ahead.
* Develop a relationship with a mentor. Successful people are often more than willing to share their knowledge and experience with others. Building a relationship with another interior designer you admire in your area — or across the country — can help you to see new ways of looking at your operations, fee structures and client relations. Offer to buy them lunch at an industry event or set up a monthly coffee date. Your mentor, of course, doesn’t have to be another designer, but they will likely best understand your challenges.
* Multiply your power. Consider joining a coaching program geared toward designers. It will give you personalized guidance, as well as the benefit of the experiences of many others. Another option: Join a buying group to make purchasing furniture and accessories more cost effective.
* Expand your staff. “While having a larger staff is no guarantee of business success, the strongest correlation we found to higher revenues was firm size,” the Pearl Collective says in its report. “Having more staff allows firms to take on more projects, to offer a wider variety of project types, to capitalize on the strengths of each employee, to improve their business operations and to delegate tasks so that owners or principals can devote more time to client acquisition and management.”
* And hire high-value talent. When you decide to add staff, it may be tempting to hire administrative help or a junior designer. But adding, say, a senior designer might build your business more quickly. “Our survey results … indicate that the step up from a lower-level staff member to a more experienced and skilled staff member is not a big one,” the Pearl Collective report says. “Considering the greater revenue-generating potential of the more senior staff member, the better investment would be to hire up, not down.”
* Raise your rates. Taking on more and more projects to boost revenue can spread your firm too thin. The answer then is to raise your fees or markups, as Becky Charton, president of Table Setters Inc. in North Little Rock, Arkansas, has done. Consumers are understandably tired of inflation, but they’ll accept rate hikes if handled carefully.
“The No. 1 key to success in this process was face-to-face communication,” Charton explains in the Pearl Collective report. “As I shared with each client why, when and how we planned to increase our pricing, their comments surprised me! I found my clients wanting to talk about how they, too, could do this in their business!”
Keys to helping clients understand and accept fee changes include carefully planning out increases, being transparent about changes and taking time to meet in-person with clients to explain and answer any questions.
And don’t feel like you have to limit price increases to covering your own higher costs for materials, furnishings and contractors.As Courtney Thomas, principal of Courtney Thomas Design LLC in La Cañada Flintridge, California, says in the report: “I’ve also raised my hourly rate as I’ve become more experienced. I know it can be hard to say, ‘I am worth that much,’ but, in the end, the billable time is an important reflection of our own value-add and worth. The right clients will agree and send a check.”