Designer Advantage

Interior Design Industry Update – First Quarter 2010

marcmolinsky — Tue, 25 May 2010 13:45:52 +0000

As a positive sign that the economy is improving, the gross revenues of interior designers’ businesses were up 11% in the first quarter of 2010 as compared to the first quarter of 2009.

US personal income, which drives consumer ability to pay for interior design services, rose 1.1 percent in January 2010 compared to the same month in 2009.

Homeowner Improvements to Improve in 2010

According to the Harvard Joint Center for Housing Studies, homeowner improvement spending is likely to reach a cyclical bottom in the current quarter and steadily increase through 2010.

“It appears we may be near the bottom of the current remodeling cycle,” says Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “With signs of stabilization in the national economy, homeowners are once again planning home improvement projects.”

Remodeling industry fundamentals are generally beginning to turn positive. “Sales of existing homes are on the rise and home price declines are moderating in most markets across the country,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies. “Financing costs are also favorable, although credit availability remains tight for many households.”

Cash Crunch

Interior design businesses continue to struggle with cash flow management. Even though most firms have reduced their office staff and overhead expenses to account for the decline in business, managing cash flow remains the biggest problem that designers are facing today. Interior design clients are making decisions more carefully and slowly and they are expecting to negotiate lower fees given the market conditions.

More Hourly Fees & Downward Pressure on Product Markups

There is a trend occurring in the interior design market where interior designers are charging more hourly fees for services and less on product markups. Interior designers are cutting back on staff and office overhead to allow them to be more flexible, competitive and creative in the methods they are charging for their fees. More than ever, clients are challenging the amount and basis of product markups. Time will tell whether this is a short term reaction to the financial crisis or a permanent change in the way interior designers charge for their services.

Interior Design Businesses: What Does Your Markup Cover?

marcmolinsky — Mon, 29 Mar 2010 13:44:04 +0000

In these difficult financial times, it is more important than ever to clearly explain your fee structure to prospective clients. In one of my prior blogs, we established that a typical interior design business needs between a 20-30% of markup JUST TO BREAK EVEN on office overhead expenses. Therefore, given that average markups range between 30-35%, it is essential for an interior design business to charge design fees in addition to their markup. These design fees should range from 10-20% of the total budget of a design job if the designer is going to earn a reasonable profit on the job.

Here is what I advise that you state in your agreement what your markup (or preferably called “purchasing administrative fee”) compensates you for:

Client invoicing and financial reporting
Purchase order preparation
Purchase order tracking
Vendor correspondence regarding purchasing of product
Purchase order bill payment and filing
Overhead required to manage purchasing process (ie. Staffing costs, insurance, supplies, etc)

All other activities such as design planning, sourcing, delivery & installations, on-site meetings should be compensated by your hourly rate.

The combination of your design fees and your markup should result in job profit margins in the range of 35-40%. Our interior design client have had a lot of success with this billing structure.

Best Performing Interior Design Businesses in 2009 Relied on Referrals

marcmolinsky — Tue, 02 Mar 2010 13:42:36 +0000

DesignerAdvantage recently examined the interior design businesses that performed the best during 2009 to find out why they outperformed the rest of the market. What we found as the common variable is that nearly all of these designers’ business came from previous client “referrals.” In a tough economy as we are in now, it is even tougher to get quality leads from outside marketing activities – so the most effective marketing every interior design business can do now is GREAT WORK and GREAT SERVICE!

As far as the most effective marketing activities for interior designers, on-line marketing is proving to be the most cost-effective and successful marketing tactic. We are seeing our clients get more and more of large projects from web-based marketing such as Google Adwords and Search Engine Optimization.

If you have any questions about this posting, please do not hesitate to give me a call at 617.953.3134 or email at marc@designeradvantage.com.

When Managing Purchase Orders – Systems are Key

marcmolinsky — Wed, 10 Feb 2010 13:40:35 +0000

Interior designers face many challenges when it comes to managing the endless financial and operational variables that exist on a project. From client receivables and vendor payables, to the status and production of purchase orders, and to meeting tight client deadlines – among others — it is quite an undertaking to run a successful interior design business!

We’ve done our homework on every accounting and project management system available to interior designers. Neither Design Manager nor Studio IT software offer the comprehensive online purchase order status database that DesignerAdvatage has created to interface with QuickBooks. DA clients have online access to real-time Purchase Order data which includes estimated ship dates, the most current vendor status, and a detailed log of every call made among other important information.

Systems are an important part of running an effective and profitable interior design business; if you’d like to discuss our recommendations for order tracking or back office management, or if you’d like to learn more about DA’s many services, please feel free to contact us via e-mail or call our CEO, Marc Molinsky at 617-953-3134.

Interior Design Business Industry Update: Fourth Quarter

marcmolinsky — Fri, 29 Jan 2010 13:33:25 +0000

Quarterly Gross Revenues Still Down, Difficult Fourth Quarter

Gross revenues for interior design businesses were down 32% in the fourth quarter compared to the same period in 2008. While the third quarter showed a slight improvement in the revenue trend (down 25% compared to Q3 2008), the fourth quarter’s dip yielded revenue numbers closer to those in the first two quarters (Q1 at 33% below and Q2 at 31% below 2008 figures) . Cumulatively, 2009 year end revenue numbers are down – on average — 30% from 2008.

Design Fees Increase in 2009

Design Fees as a percentage of gross revenue increased over 5 percentage points in 2009, to 20% from 14.3% in 2008. This statistic is calculated by dividing total design fees for the year by the total client billings for the year. The increase in design fees provided additional profits to help designers finance their office overhead throughout a difficult year.

Homeowner Spending to Increase throughout 2010

With the U.S. economy showing signs of stabilization, researchers at Harvard University predict homeowners will begin to plan for and will engage in home improvement projects throughout 2010. According to a report published by the Joint Center for Housing Studies (Harvard), steady sales of existing homes, more consistent pricing, and favorable financing options are indicators that industries like remodeling – e.g. interior design – will being to experience growth throughout 2010.

Wall Street Bonuses – Interior Designers May Pick Up 30 – 40%!!

The impending Wall Street banking bonus season will yield noteworthy spending in 2010. According to CNNMoney, recipients of the potentially record-setting payouts will invest significantly into real estate, be that second homes, vacation spots, or apartments. It is expected that these real estate monies will also be spent revamping primary or existing residences. As was published on CCN’s website January 12th of this year:

“A makeover by a well-respected interior decorator can run at least $150,000 — but usually is more like 30% to 40% of the bonus. Think: Charlie Sheen hiring Daryl Hannah to give his new condo — and life — a high-rent makeover in the 1987 flick ‘Wall Street.’”

Vendors Prices on the Rise

Compared to 2008, DA data suggests that “trade only” showrooms have increased merchandise prices by an average of 11.2%. In particular, furniture prices are up 15.5%, with fabrics and wallcovering 10.5%, and lighting up 8.1%. Further, many showrooms are dropping lines and compared to 2008 stock, there have been significant discontinuations across the board.

Price Points

The following chart shows what “net price” points designers are paying for product in 2009:

Designers’ Future Outlook Survey

Based on DA data, designers are optimistic about the next 12 months; most believe their business will continue to grow. However, designers are working harder for such growth, with a majority feeling that negotiating favorable terms with their clients in regard to pricing and budgeting is increasingly difficult. Clients, similarly, are putting up a tougher fight when it comes to paying invoices and agreeing to new items.

Interior Design Business: Why Outsourcing Is The Future

marcmolinsky — Thu, 28 Jan 2010 13:30:30 +0000

In early 2010, a survey of American executives performed by Accenture illustrated the growing trend of outsourcing of “non-core” business functions across all major industries. Outsourcing is rapidly becoming a new business “norm” because it offers significant efficiencies, cost savings and other competitive advantages.

Research suggests that interior designers spend nearly 70% of their time on administration (non-core activities), which is viewed as the least “valuable” role from their clients’ perspective. It has been proven that interior designers that devote a greater of amount of time and money towards providing great service to their clients and less on administration consistently run more profitable businesses and have a higher quality of life on the job.

Interior Design – A Complex Business

The interior design business is one of the most complex small businesses to manage due to the endless amounts of paperwork and sophisticated systems necessary to manage cash flow, project requirements, and client relationships. To further complicate the industry, there have historically been no CPA’s, consultants, or business service providers that understand these endless intricacies which are essential in helping interior designers run better businesses.

Interior Design’s Best Kept Secret

DesignerAdvantage, Inc. (DA) has been offering a comprehensive, business management service to interior designers for over ten years. Working with firms of all sizes, DA is rapidly gaining a reputation for helping interior designers maximize the efficiency, cash flow and profitability of their firms.

Over $1 Million Invested in Process, Technology and People

DA has invested over $1 million into establishing the interior design industry’s best systems, hiring the brightest people, and employing the most efficient, effective processes for interior design businesses.

Call DesignerAdvantage today at 617.953.3134 or e-mail us for more information.

Interior Designers: Are You Maximizing Your Profits?

marcmolinsky — Wed, 13 Jan 2010 13:28:35 +0000

DesignerAdvantage, Inc. has been managing the bookkeeping and back office operations of interior design businesses throughout the country for over ten years. Over that time, we have proven — with our existing customers — that an interior design business with annual gross revenues in excess of $400,000 should be achieving a net profit equal to 25% of gross revenues.

Here are target net profits for design businesses of various sizes:

Annual gross revenues	$2m	$1.5m	$1m	$750k	$500k
Net profit after all business expenses	500k	300k	250k	188k	125k
Profit as % of gross revenues	25%	25%	25%	25%	25%

We have been able to achieve this 25% average profit percentage for our customers by working hard to keep overhead as low as possible, by projecting profit margins at the high end of market rates, and by studying the financial statements of our customers every month to ensure they are on track to meet their financial goals.

If your firm is not producing an annual profit in the range of 25% of your gross sales, call or e-mail DesignerAdvantage to find out how you can get there!

1099′s: An Interior Design Business Overview

marcmolinsky — Thu, 07 Jan 2010 13:23:50 +0000

Here is a little more background information on 1099′s, in case you are unfamiliar with what they are:

The basic idea of a 1099 is that the IRS requires that you report income paid to vendors which do not have an established business (that would file it’s own return). A 1099 is essentially a W-2 for independent subcontractors who aren’t strict employees, but also aren’t incorporated businesses.

The forms need to be mailed to your vendors by January 31, and a 1096 (summary) form needs to be filed with the federal government by March 1. Penalties for failure to file 1099′s on-time are $50 per 1099-vendor, so they can be substantial if you have a lot of subcontractors.

Here are the criteria for determining whether a vendor should get a 1099:

Vendor provides a service to your business (as opposed to selling you a product)
Vendor was paid at least $600 (total) over the course of 2009
Vendor is not incorporated

All three of these criteria have to be met for a vendor to need a 1099, so if a vendor fails any one of the above tests, they do not need a 1099 sent to them.

DesignerAdvantage happily manages all 1099 processing for clients; if you are interested in this topic or in DA’s other interior design business services, please feel free to e-mail us today!

Are your interior design business’s accounting records accurate and up to date?

marcmolinsky — Tue, 08 Dec 2009 13:16:44 +0000

If you do not have access to real time, accurate financial reports, you are running your interior design business with blinders on. You must hold your bookkeeper accountable for providing you weekly reports on accounts payable, accounts receivable and cash flow as well as monthly profitability reports. If you are not getting this information on a weekly and monthly basis, you MUST make a change. Our research suggests that the average interior design firm loses between $50-75k a year in profits simply because they are not monitoring their business and its numbers closely enough.

With DA’s bookkeeping service, we guarantee that our interior design clients routinely receive up-to-date, accurate financial reports so that they have the necessary information to make intelligent business decisions. Contact us today for more information on your books and start 2010 on the best foot possible!

Interior Designers: Are You Maximizing Your Profits?

marcmolinsky — Wed, 04 Nov 2009 13:24:37 +0000

DesignerAdvantage has been managing the bookkeeping and back office operations of interior design businesses throughout the country for over ten years. Over that time, we have proven with our existing interior design customers that a design business with annual gross revenues in excess of $400,000 should be achieving a net profit equal to 25% of gross revenues. Here are target net profits for design businesses of various sizes:

Annual gross revenues	$2m	$1.5m	$1m	$750k	$500k
Net profit after all business expenses	500k	300k	250k	188k	125k
Profit as % of gross revenues	25%	25%	25%	25%	25%

We have been able to achieve this 25% average profit percentage for our customers by working hard to keep overhead as low as possible, project profit margins at the high end of market rates and studying the financial statements of our customers every month to ensure they are on track to meet their financial goals.