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Maximize Your Profits: Strategies and Tools for Increased Income

In our everyday practice of interior design our income simply comes from two sources; goods and services. It seems so simple but how does it become so cloudy? No matter how long I have practiced as a residential interior designer, discussions around this topic generate intense interest, debate and confusion. My goal with this article is to add clarity by addressing some strategies from my personal journey and share some tools that other designers provided me along the way.

A number of years ago, a sage remarked that potential clients come to us because they are unable to create the `design concept'. They know or think they know what outcome is desired but lack this particular skill set. The buying part is secondary as the primary goal is the design. Thus, my first rule is to charge for your concept. Use an agreement to spell out scope of work to be completed in developing the concept. I like to define our language using the terms:

Design designate placement, size, scale, style/shape Specify determine size, finish, color, shape Select choose the actual product or finish .These words and the tasks or steps involved integrate with the scope of work, the time to accomplish them and a retainer and payment schedule. Design work begins with a retainer (ideally one-half) and signed agreement. Whether a designer is fee or hourly based, the above elements are the critical ones.

The size of the project typically determines the length of time it takes to complete the activities. Ideally, the concept fee is fully billed and collected by the time the final selections are determined. The purchasing phase, if included in the services, comes next.

Using this methodology, an interior designer is paid for her/his value first. No client receives the gift of our creative skills without paying us at the start.

The second element of our income is goods or the products provided in our scope of work. In my agreement for services, I prefer to separate purchasing and recognize that in some instances clients may elect to personally acquire some or all of the selections. This is addressed by clearly stating in the agreement how I will markup the merchandise and materials obtained through my sources, the deposits required and any other specific terms related. Likewise, I indicate my fee to assist in any personal purchasing, shopping and consulting.

My markup acknowledges that I know my overhead expense and realize that my markup must to be greater than that number to achieve excess profit in my business. Many business books such as, "The Interior Design Business Handbook" by Mary Knackstedt address in detail the items to include in our overhead. Typically it is about 30% of your gross income. As a general tool, I add a multiplier of 1.43 to my wholesale cost as it represents 30% and then I know what additional mark up is necessary to increase my profits.

Profit margin reflects the difference between your cost of an item and the selling price of it. It is determined by dividing the cost by the selling price and subtracting from 1.00. An example:

20 sr of wallpaper @ $40 per roll = $800 With a 50% markup the client pays $60 or $1,200; your profit is $400 The profit margin is .33 just slightly above the overhead allowance

If you charged for the creative element in this process and allowed 1 hour of time it looks like this:

Cost = $800 Selling Price $1,200 + 1 hour = $1,325 The profit margin is .40

Why does margin matter? It insures that your project is profitable and that your firm is making money. As we have varying discounts in our purchasing it is important to be aware of our markup and our profit margin. Identifying or targeting a total profit margin for the entire project including the fee puts a designer on the path to increased income.

Without business profit a chain reaction occurs. Clients lose as our interest declines in an unprofitable project. Staff and resources lose as we lack funds to promptly meet our obligations. Designers lose as they fail to attract desirable and profitable projects. Profit is a measure of success for all kinds of business ---including interior design. A thriving interior design business maintains a strong financial profit structure.

On your current or next project implement some of these concepts and begin to plan a profit strategy for your business. Then you are on your way to a respectable income.

Faith Sheridan, ASID is the principal of Faith Sheridan Interior Design, LLC (FSID, LLC) a residential interior design firm with offices in Seattle, WA and Portland, OR. A professional member of the American Society of Interior Designers (ASID), Faith served as President of the Oregon ASID chapter. Her award-winning work is nationally published; she is a requested speaker and will soon be the featured designer on HGTV Designers' Challenge. Faith Sheridan's interiors tell stories about who her clients are; celebrates them and their passions, with the result that they love to come home. The place might be a city loft or log cabin, gourmet kitchen or master bedroom retreat, an escape in Palm Springs or Provence.. Faith offers complete interior design services ---one room or a turnkey project. Faith Sheridan ASID faith@fsidesigner.com www.fsidesigner.com 1.866.348.3743 toll free