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Improving Profitability

Achieving profitability is never easy. Even in the good times such as we have right now, realizing a profit from your efforts is not automatic. It's too easy to suddenly find that the profit planned on a small office remodeling project is gone when it took longer to design than your flat fee estimate. Perhaps the client continually asked for changes to the living room redesign requiring hours of extra shopping and specification writing.

There are many ways that an expected profit can vanish. Good business practices also provide solid ways to maintain potential profits. Here are some strategies that you can use to help get a handle on your business practices and potentially enhance profitability.

* Always have a signed contract before you begin. Sounds logical, but far too many interior designers are still working without a contract. In today's litigious society do not begin interior design work without a clearly written and detailed contract signed by the client. A clear scope of services is a critical part of the contract. Disagreement over what was to be done is right near the top of the list of ethics complaints by clients. A vaguely written scope of services can also lead you to do more design work than is covered in any fee stated in the contract. Be clear about what you are going to provide. It is your best protection. A contract—or letter of agreement if you would rather call it that—does not have to be legal sounding. It can be written in straight forward language. Your attorney should advise you on what should be in your contracts. The ASID and IIDA also have form contracts that you can utilize to protect your firm. * Only begin work on the project after the client returns the contract. Also sounds logical but many find it tempting to begin research or sketching plans while waiting for the agreement to be returned. Please, resist that temptation! Don’t give away design concept ideas at initial meetings either. What happens if the client doesn’t sign? Let’s say you spend six hours sketching a plan and the client goes to someone else. Those six hours cannot be billed since the client never agreed to pay you in the first place. * Accurately record and bill design time. Too often I have heard “I’m too busy to record my time!” from designers with whom I have consulted. Failing to consistently and accurately record time and then billing for that time can cost you thousands of dollars a year. Let’s say that you charge $150 and hour and you miss just three hours per job. That is $450 per client. Even if you are only doing 20 jobs a year that is a $9000 loss of revenue. If you have legitimately worked on a client’s project, assuming you are charging a design fee, you should get paid for that time. In case you are not charging a fee for services, wouldn’t you find it helpful to know how long it takes to work on your various projects? Recording time is the only way you will know that. As the old saying goes, time is money----one way or another. * Eliminate uncompensated changes. Your contract should clearly explain how many and what kinds of changes to plans are included in the stated fee. It should also explain any fees or charges for work beyond that number or for additional work not originally part of the contract. Time and again a statement in the contract concerning the number of changes included in the fee encourages clients to make a decision. Changes after a client sign-off should always be chargeable. Of course, we are assuming they understood what they signed-off on! Also be sure that your staff understands what a “free” change is and what is chargeable. * Understand your expenses. Expenses are not all created equally. Expenses directly related to working with clients are called direct expenses and technically are all chargeable to the project. Those expenses needed to “keep the doors open” are overhead and are your responsibility. Keeping an accurate recording of direct expenses helps you know how much it actually costs you to complete a project. You can bill the client for direct expenses such as long distance phone calls as you research products or even for the cost of making prints of drawings—there are many other kinds of direct expenses. When they are actually billed to the client they are more commonly thought of as reimbursable expenses. Designers frequently write off many kinds of project expenses (except travel) as overhead. Talk to your accountant about which direct expenses you might want to add to your reimbursable clause. You need to include information about any reimbursable expense billings in your contract in order to be able to bill the client for those expenses. * Learn to delegate! How does delegating relate to profitability? When you work on tasks that can also be done by assistants or a part-time employee, your time can be spent on higher value revenue generating activities. Obviously, the more time you spend on revenue generating activities, the greater your company’s potential profits. Yes, sometimes it takes more time to explain how to do things to an assistant than to do it yourself. However, you can work that out by determining the types of tasks that you should let go and then find the right assistant to do those tasks. Sometimes this assistant is an entry level designer but many tasks for which help is needed---especially for the small firm owner---is in office management. An entry level interior designer who really wants to design projects does not generally make the best office management assistant.

These strategies are commonly neglected by busy practitioners. However, they are business practice strategies that even the very busy practitioner should embrace. It is important in this competitive industry to take your responsibilities as a professional business practitioner as seriously as you take your life as a creative professional. Clients are more sophisticated today. They are more willing to question you and how you do the business side of your practice. Focusing attention on your business procedures can make a difference in the profitability of your company and the achievement of business goals.

Christine M. Piotrowski, ASID, IIDA, provides business coaching and consulting to interior design practitioners who are looking to manage their interior design practices more effectively. Christine is the author of the award winning texts Professional Practice for Interior Designers and Becoming an Interior Designer as well as other interior design texts. Piotrowski worked in commercial interior design and she is a former profession of interior design. Christine has given seminars on business topics at NeoCon and to ASID chapters. Her articles have appeared in chapter newsletters, Sources & Design—a Southwestern US trade magazine and ASID Report. Ms Piotrowski is a past-president of the Arizonan North Chapter of ASID, has served as chair of the NCIDQ Communications and Multiple Choice committees and was on the board of the Interior Design Coalition of Arizona. Ms. Piotrowski can be reached in Phoenix, Arizona at 602-953-5671 or via email cmpiotrowski@qwest.net.