Hi there! I hope you are well. I want to focus on finance today. There has been a lot of movement in the industry, especially as it pertains to billing models and profit. We all want to make and keep more money. But how do we do that? How do you know where you’re making money and where you’re losing it? These are the tough questions that Principal Interior Designers must face every day. Ultimately you’ve got figure out the formula for becoming as profitable as possible. There are 3 components to a healthier bottom line; efficiency, financial awareness and a high revenue to man hour ratio. Mastering these components is the winning formula for financial success.
The First Component is Efficiency
We’ll start with the most elusive of the three components, efficiency. In this service business, efficiency IS money.
In fact, efficiency or lack thereof, is the number one silent killer of profit. The first rule of efficiency is; do more with what you’ve got! First, identify areas you need to tighten up efficiency. In which of the following areas are you losing money?
Top 5 sources of inefficiency and a weak bottom line:
Inadequate structure: Without the proper systems and processes, workflow is disjointed and efforts are not optimized. Every team member needs to know what needs to get done and who is responsible for it. The average poorly structured, 3 person firm spends about $18,000 in extra payroll and over $20,000 in opportunity costs each year due to inappropriate tools, roles and task assignments.
Disorganization: Without a place to centralize information it is difficult to coordinate and quickly find important information when and where you need it. The average 3 person interior design firm wastes over $4,500 a year in extra payroll costs just looking for things!
Poor delegation: Leverage your time; dedicate it to activities that truly require YOUR attention. Spend your billable hours on billable tasks or other revenue generating activity. Having better systems will facilitate you being able to delegate and get quality and timely results from your team members or contractors. Developing your ability to perform well through other people will increase capacity and productivity which translates to a stronger bottom line.
Interruptions: Strive for prolonged periods of high concentration. This is the most productive state. Every time you and your team) get interrupted you lose a few minutes of productive time. The start and stop mentality is an epidemic in this industry and it costs the average inefficient 3 person firm over $10,000 in extra payroll every year!
Firefighting: Time is wasted fixing things, repeating efforts or redoing something. These disruptions redirect time and resources and indicate that you do not have adequate control of your processes. Proactive 3 person interior design firms save an average of 30,000 a year in actual payroll costs over firms that are in reactive mode.
This is all cash that could flow straight to your bottom line!
Keys to Efficiency
- Proper organizational structure: roles and responsibilities, even if it’s just you and a part timer or two
- Centralized information that streamlines processes. We strongly recommend Studio Webware for this. See www.studiowebware.com
- Strong delegation skills and a weekly team sync meeting
- Appropriate technology choices for your firm
- Simple to use, easy to maintain systems, tools and methods
- Well-structured and documented workflows
- Eliminate redundancies and duplicated efforts
- Having these foundational elements will facilitate the next two components falling right into place.
In the meantime, take a look at your efficiency measures. How efficient are you? Identify key processes that need improvement and feel free to be in touch if you’d like some help.
Can you guess what the second component of increasing profit is?
Expecting great things!