Interior designers are naturally creative. On top of that, not every business (even a successful one) is fully planned out from start to finish. The result of these truths? Many designers set their revenue goals based on hope, rather than data or math. If you feel stuck in the “feast or famine” cycle and that your business runs you more than you run it, you’ll want to keep reading. In this article, we’ll start with a revenue goal, in this case, one million dollars. Then, we’ll lay out how to design a plan that gets you there. When you do meet your goal, you’ll realize reaching that target was because of a system, not a miracle. Let’s get started on your action plan, so you can start the new year with a clear vision.
Step 1: Define Your Financial Components
A revenue target is one thing, but it’s meaningless if you don’t know how much of it you actually keep. So, start this exercise by writing down your current revenue.
Cost of Goods Sold (COGS) is how much money you spend on goods, materials, and services that are directly billed to the client. This is essentially your investment in each project. Next, calculate your Overhead, which makes up your fixed monthly expenses such as rent, salaries, subscriptions, marketing, and insurance. These costs are relatively unchanging and are a baseline that you must cover before you can make a profit.
After determining those costs, subtract them from your revenue. This is your profit, or how much you keep after all is said and done.
If you’re feeling up to the task, try to do this same math under the assumption that you have $1,000,000 in revenue. Consider additional employees you would need to hire or office space you would need to rent, and factor that into your Overhead. For COGS, you can keep it simple by scaling up this number by the same percentage as the difference between your current revenue and your revenue target. However, also keep in mind that you might be able to lower your material costs by buying at scale, so factor that in if possible. Then, determine what changes you need to make to hit the million-dollar goal that you’re not doing now.
Step 2: Find Your Capacity
You can’t know if you’re able to hit $1M unless you know how much capacity you have for projects. Analyze your last several successful projects and determine how much money you actually made with your current fee structure. How much did you actually bring in per hour, or per week? Assuming you were somehow fully booked with average projects, would that be enough to hit your revenue goal? If not, this may be a warning sign that you need to raise your rates, alter your fee structure, or seek better projects.
To help determine how much capacity you have, try to calculate how many billable hours you and your team have available. You will need to keep in mind the non-billable hours that are necessary for everyone on the team, so make sure you don’t include those.
Combining these two pieces of information, you can see how long the average project takes and how much time you have to work with. That determines the maximum revenue you can bring in, assuming your team is at full capacity. The next step is to close the gap by increasing rates, adding staff, seeking better clients, or implementing some other solution.
Step 3: Close the Gap
Method A: Raising Fees and Raising Value
If the math isn’t adding up to you reaching your new revenue goals, you might need to change your scope. Perhaps you’re not reaching high enough! Rather than taking on more small projects (which may involve more non-billable hours and overhead), look for more large-scale projects like whole-home renovations. Additionally, understand and articulate your value, and leverage your CEO mindset to justify higher fees—you deserve it!
Knowing your worth also means knowing when to say no. Move out of the desperation mindset of accepting any work that comes your way. Turn down jobs that don’t meet your minimums (and yes, you should be setting minimums).
Method B: Optimize Your Business with Systems
If you want to effectively scale your business, you can invest in the longer-term strategy of creating and optimizing systems. Identify the 20% of tasks that take up 80% of your time, and see what you can offload or outsource to someone else. Make sure that your hours, and those of your top designers, are as free as possible from busy work. These billable hours are valuable, and you should be maximizing them.
Document and template every task, including welcome packets, fee schedules, contracts, and processes like client communications. This will speed up every aspect of your workflow and help reduce some of those non-billable hours. Overall, it will make your process that much more efficient.
Your Non-Negotiable Roadmap
Your $1M revenue goal is simply a matter of capacity, fees, and billable hours. Figuring out the best way you can maximize these three factors in your business is the key to achieving your goals and even going beyond them. Now, you need to create a roadmap and stick to it. Whether you need to hire more staff, increase rates for new clients, or acquire more projects, you need to take these actionable steps if you want to succeed. Make this plan non-negotiable!