Running a small interior design business can be an emotional process.  So much of our personality and who we are as designers flows from our creative ideas and taste.  Therefore it can be emotional when our ideas are rejected by those who hire us or seek to hire us.  We try not to take client preferences or dislikes personally, but sometimes rejection can be painful.  The same emotional experience is true of any small business owner.  When you are everything to your firm from CEO to trash hauler, it is difficult to draw a line between personal feelings and business.  Add to this the fact that many designers work out of their own homes and the lines can blur even further.

This is why I was very thrilled to at least learn how not to get emotional about the business end of design.  I met Marc Molinsky, CEO of Designer Advantage, when I attended his lecture in New York City many years ago and had an “a-ha” moment there.  This awakening and lesson, one that I still use every day in my business, changed the way I look at my business and made me less emotional about business.

Marc’s advice was simple.  He told me to run my firm based on a target:  a percentage, a number or a goal.  For example, do you know what your Gross Margin should be?  Gross Margin, if you are not familiar with the term, is the percentage of Gross Receipts that you get to keep in your firm to pay for all of your overhead and salaries.  It is sometimes called Gross Profit Margin, because it is the profit you earn on goods or services sold before you pay your operating expenses.

Every business owner should know how to calculate their Gross Margin percentage.  With that number, you can see if you are earning enough revenue to make a net profit.  If not, you need to increase revenue or reduce expenses to improve your Gross Margin percentage.

Once you establish what you want your Gross Margin percentage to be, you will know each year, or even during a given period within the year, how well you are achieving your financial goals in your business.  By reducing your emotional decisions and gut feelings to actual number goals, the emotion is removed from business decisions.  Things become black and white.  You either are or are not meeting your percentage goal.  It’s that simple.  It’s just numbers and it’s just business.  No emotion.

I now have gone back and figured out my Gross Margin percentage for the last sixteen years. For all except two years I reached my goal.  The interesting thing is I didn’t know I was doing it. I didn’t know how to check it, and I didn’t know I was missing it when I didn’t achieve it.  Marc framed it for me in a way that made it simple and easy and very effective at quickly seeing how my firm is doing at any given period in time.

Each firm’s Gross Margin can be different due to type of design, billing method, and whether or not you procure product.  Once you determine your Gross Margin, you can guide your business on the right course and know when you are veering off course.  It’s a simple premise, but it made a huge difference to me.  Just follow the numbers, and your life will be less stressful and less emotional, at least in the business side of design.

Want to know more about how your business is doing?  Start using Design Business Benchmarking.  ASID members can register for free.  To learn more, go to www.asid.org/dbb.

Marcello Luzi, ASID is managing principal at Weixler Peterson Luzi, a small interior design firm based in the Philadelphia area that specializes in high-end homes, schools, and small scale offices. He is also head of a small interior design business consulting firm that specializes in counseling small design and architecture firms. Marcello currently serves as chair of the ASID Small Business Council.

The campaign seeks

• Public awareness of the interior design profession and how its benefits to society
• Global awareness of interior designers / interior architects around the world
• Social good, to inspire all interior designers in their local communities to show by example or through education and community service how we benefit society

The campaign also is showcasing the winning entry from this year’s IDEC student video competition, “Why Design Matters.” You have to see it to believe it.

Please click here to learn more about the campaign and to view the video.  While you’re there, post your comment on why design matters.

You are urged to join the campaign. Share the website link with others:  www.widm.org.  Promote it on Facebook, LinkedIn Google+, blogs and other social media sites.  Tweet about it, and be sure to include #WIDM in your message.

Mixed Conditions Across Industry Sectors

Billings were mixed across industry sectors, with the residential single family reporting the strongest gain, up another point from January.  Education, government and hospitality stayed about even.  But multi-housing, health care, office and retail all reported declines from the previous month.

Regionally, the South continued to move upward, rising nearly 4 points after posting a 10 point gain in January.  After a couple of months of decline, the Midwest also posted a 10 point gain. The Northeast and West reported declines after a bounce back in January.

When asked what national and economic conditions were most affecting clients willingness to start new projects, panelists most often cited lack of consumer confidence in the economy (36%), uncertainty regarding taxes or investments (26%) and the weak housing market (26%).

Reflecting on my first ASID President’s forum, I have one question still on my mind … “WHY?”

And more specifically, “Why are we [ASID] here?” ASID President Lisa Henry posed this question to the attendees at the forum and her response was that we are here to further the profession of interior design. Poignantly simple.

The who, what, where, when and how that surrounds the “WHY” is what we—as boards of directors, staff, volunteers and members—all work together to create. That “WHY” of furthering our profession is the basis for everything, from why we seek membership (professional recognition) to why we participate in RealWorld DesignWeek (cultivation of future professionals). It is the current that runs through each of us and connects us as an organization, as peers and colleagues, mentors and students. I love the understanding that ASID is not about just you or me, but about what WE can do.

That feeling of “WE” persisted throughout the conference. On the first day the presidents and administrators were broken into small groups and participated in a Visioning Session to aid President-elect Barbara Marini. We were asked about all aspects of the Society from what the organization should focus on, to how information is conveyed to our membership and beyond.

Having spent many hours working on my own chapter’s strategic plan and goals for the current year, it was refreshing to share our chapter’s perspective and hear from other chapters. Some of the best discussion was a sharing of best practices for all aspects of running an ASID chapter. Some of those practices are intended for in front of the curtain and are changes you may see soon in your chapter. Many of the best practices were for behind the curtain and will help your chapter be more efficient in the years to come.

The “WE” of ASID was reinforced on the second day with further discussion in small groups. This time the focus was on our chapters and our experiences as presidents, furthering how we can learn from each other to meet our chapter and national goals to further our profession. Throw in a lively discussion on contract negotiation and exposure to the students and emerging professionals programs and it was a full day! My takeaway from day two was the amazing resources and tools that are available to ASID members and chapter leaders.

Even with all of the tips, tricks, knowledge and resources I was exposed to during the President’s Forum, the ultimate take-away was the opportunity to meet and hear the stories of other chapter presidents. It was a wonderful treat to hear about their triumphs and challenges, their families, businesses, careers and chapters. I was once again astounded by the amazing talent and personalities leading our organization. If you do not know your chapter leadership, I strongly encourage you to connect with them. They want to help you find the most value out of your membership with ASID.

Mary Curley, ASID, is president of the ASID Washington State Chapter and a former professor at Seattle Pacific University. She is a principal at 3D for All Visualization Studio and Sedign LLC in Redmond, Wash.

Improvement Seen Across All Industry Sectors
Billings were up and positive across all industry sectors, with the most gains reported in the commercial arena and government.  Residential single family jumped nearly 10 points to 56.9; multihousing was down after a very strong December showing but still positive (56).  Government billings rose sharply from 36.44 in December to 55.5 in January.  Office showed a similar increase (from 39.8 to 55.5).  Healthcare was up 10 points and most other sectors were up 5 to 8 points.

Regionally, the Northeast posted the biggest gain (from 39 to 52).  The West continued its rebound, up 10 points, and the South was up 10 points as well.   The Midwest declined slightly but remained positive at 50.

Financial Obstacles Still a Problem
When asked what problems were most affecting their business, respondents most frequently cited poor billings, slow payments, ability to secure financing, and unreliable service from vendors as the most pressing problems.

For more information, see the related ASID ICON article, New Year, New Approach.

• How many types of marketing do you use?
• Do you have a referral program that you actively and consistently use to market your business?
• Do you use an email newsletter to stay in front of your prospects, past clients, current clients and referral partners?
• Do you budget enough for marketing? More importantly, do you even have a budget for marketing?
• Do you spend at least at least two to three hours on marketing every day?
• Do you monitor the number of clients you get (as a percentage) of the calls or referrals you receive?
• Do you know the lifetime value of your clients?
• Do you have a website?
• Do you offer an incentive for web visitors to join your list?
• Do you get calls from your website, and if so, what percentage of your web visitors take action?
• Do you have a blog to build a relationship with your current, past and prospective clients?
• Do you use social media to build a relationship with your prospective clients and send them to your blog or website?
• Are you listed on Google Places and on the maps for the different search engines like Bing, MSN and Yahoo?

Gail Doby, ASID, has been a practicing interior designer for over 24 years and has over 34 years of total business experience. In 2008, she co-founded Design Success University, providing designers a shortcut to a more profitable and passion-filled interior design business.

What is benchmarking?
The simplest way to think about benchmarking is to ask yourself, is your business the best it can be? Could you be getting more business? Could you be making more profit from the business you have? To get the answers to those questions, you need to find out what is possible for you to achieve. That is where benchmarking can help.

Benchmarking involves looking outside your own business to examine how other businesses are doing in order to identify standards of excellence and best practices that can help you improve your business’s performance and profitability. You can use benchmarking as a way to improve the business you have or to set targets for growing or expanding your business.

Why should I benchmark?
You may be thinking to yourself, I pay my bookkeeper or accountant to look after my business. Or, my business is unique and works for me; what do I care what other designers are doing? No question, if you are satisfied with your business, whether you feel it’s the best it can be or you’re content with how it is now, benchmarking will not appeal to you. On the other hand, if you’ve asked yourself any of the following questions, then benchmarking can help provide the answers you’re seeking:

• Are my fees and/or prices set at the optimum level?
• Do I have the right mix of fees and other sources of revenue?
• Am I earning what other designers at a comparable level of talent and experience are earning?
• Am I putting enough hours into my business to get the return I want or need? Or, conversely, am I putting too many hours into my business for the return I am getting?
• Am I paying too much for outsourced services?
• How could I reduce my overhead?
• I’d like to add another designer to my practice; what type of salary and benefits should I offer?
• Would I be better off outsourcing, collaborating or using freelance help than taking on an employee?
• I’d like to expand my business or add another area of practice to my business. What are the best opportunities for me?

How does benchmarking work?
Let’s say you’re trying to figure out a way to reduce your monthly expenses. Where do you cut? Of course, you could go through your list of expenses and determine what you think you could live without or with less of and come up with a number. But will cutting affect productivity or quality? By cutting those expenses now will you also be reducing revenue down the road? Six months from now, you may be pulling out your list and trying to decide what else you can cut. You could also ask the advice of some trusted colleagues or financial professionals. But what information are they drawing on to formulate that advice?

Now, suppose you could look at the expenses and profitability of a dozen, or multiple dozens, of firms—firms that are like yours (in size and level of business) and firms that are different—and quickly see how you compare to them. You might find that you are paying more for your office space than three-fourths of the other designers in your area, or that your technology costs are high for the number of employees in your firm. By benchmarking, you could possibly save thousands of dollars without compromising your business.

What is Design Business Benchmarking?
Design Business Benchmarking is a tool exclusively created for ASID that allows you to benchmark your interior design business on some 20 different metrics, including revenue, fees, salary, benefits, expenses,  and firm size and scope.  You can narrow or broaden your comparison by using preset filters.  The results show you how your firm stacks up on each metric against other firms that match your criteria and against the median (the point at which half the firms fall below and have the firms fall above the line).  Results are expressed as a percentile (where groups cluster along a scale from 0 to 100 percent).

As an example, you may want to see how your firm’s revenue compares to other firms in your state of the same size that do a similar number of projects.  After using the filters to narrow your search to just those firms, you get a result like the one shown below.

In this example, you can see that the median for all the firms that match your criteria is $43,472.  Your firm is at the 65th percentile. In other words, your firm earns more revenue than 65 percent of the other firms in your state that do a similar amount of business as yours does, and it earns less than 35 percent of those firms. If you’re curious as to why that other 35 percent is earning more, you can look at the other metrics to see where else your firm differs from theirs. Perhaps they are charging higher fees or selling more product. Without benchmarking, how would you know?

The more firms that participate in Design Business Benchmarking, the more valuable the information becomes. You can return to the tool anytime to rerun and fine tune your comparisons. By entering data for multiple years, you can also benchmark your own performance year over year.

Even if you are a sole practitioner with a small practice, Design Business Benchmarking can benefit you. Compare your firm with like firms to see where you stand on fees, product markup, labor and outsourced services, and operating expenses.  You may not want to take on more business, but you could be keeping more of the money you are earning or earning more for the hours you are working.

To learn more about Design Business Benchmarking and view a video demonstration, go to www.asid.org/dbb.

I just returned from the annual ASID President’s Forum. The experience was full of great people, wonderful food and fabulous showroom parties! And of course, we also accomplished a lot and gained invaluable insight on where the Society is today and where it is going.

I arrived in Houston early Wednesday evening to find presidents, chapter support team members and ASID staff in the hotel lounge; it was great to have a chance to refresh my memories of these colleagues and put names and faces together before the meetings started!

The event officially began on Thursday, with an update from ASID President Lisa Henry, FASID, LEED AP. She addressed many of the issues and discussions going on at the national level, including the hot topic of the new Associate membership category. She clarified the strategy behind this change: “By including others in our discussions we all have opportunity to grow.” So far, those applying for Associate membership are people like a nurse who is now working full-time with designers to help them understand the best approach to design a clinic or senior living facility so that the staff may safely perform their daily duties. I think it is important to broaden our discussions, and I view this as a positive move! (In fact, I found out when I returned home, that our chapter has its first Associate member!)

We also participated in a great interactive session, brainstorming about tactics and ideas to implement the strategies that form the Society’s strategic plan. The national board recently had their first round of planning and the timing was perfect to ask for our input. This was a very intense session and it was fantastic to see the ideas that came from 60-plus people putting their heads together!

It wasn’t all fun and games, we also covered some of the less inspiring—but still essential—topics such as chapter contract negotiation and insurance programs. Did you know that ASID has some of the best individual and small business policies for our members? We need to do a better job of getting this information out to people! Paying the relatively small premium now could save them untold headaches in the future.

Overall, the weekend was a whirlwind of activities. Although this is not my first term as president, each year and each event is different and these retreats are always good for building friendships, networks and ideas. Besides learning more about the Society business, I always gain insights and lessons that apply to my life and my business—an invaluable experience!

Mary Knopf, ASID, LEED AP BD+C, is president of the ASID Alaska Chapter and a former member of the Society’s Board of Directors. She is a principal at ECI/Hyer Inc. in Anchorage.

Despite the year-end dip, ASID firms expect business conditions to be better in the future. In December, the ASID Business Outlook Index was 74.3, up from the prior quarter’s index of 56.4.

For more details, go the ASID website.

Based on the inquiries I receive, determining fee structures and setting fees is undoubtedly a major question for many interior designers.

It’s particularly relevant for today’s market, at a time when more than half of all interior designers need more business, and external pressures are greater than ever.

Consider just a few of these external factors:

• Consumers shop you on the Internet and lose trust once they find something that looks similar for much less money.
• Consumers’ emotional attachment to their money is greater than ever because they must make decisions not to invest in a car, a vacation or even a child’s education in order to make improvements on their home.
• Budgets are smaller because consumers homes are worth less, and they don’t want to over-invest.
• Funds for projects come from savings, and because the stock market and real estate values are down, consumers don’t have the “extra” cash they used to have.

Is it all bad news?  No.

It just means that you need to adjust your thinking to offer your services in ways that consumers want. Our survey also showed that almost 80% of all consumers want a fixed or Value Based Fee. Do you only offer hourly fees + a mark-up? If so, you need to learn how to serve your clients the way they want to be served.

We created a financial model that shows you can actually earn more money and work less hours when you work with Value Based Fees. I myself stopped selling products five years ago because I evaluated the true profit contribution of product sales versus fees. 60% of our time was devoted to expediting, problem resolution, paperwork, accounting fees, etc. and it didn’t result in significant profit.

What really matters is not how much you sell, but how much money you keep from the work that you do.

I shared an example during a recent talk in Las Vegas:

• Say you work 40 hours a week x 50 weeks = 2,000 hours per year
• Your gross sales including products and services = $200,000
• Your effective rate is $200,000 ÷ 2,000 = $100 per hour … or is it?
• Your bottom line profit is 10%. That means you earn $20,000 after paying for goods, services and overhead.
• $20,000 profit ÷ 2,000 hours = $10 per hour
• You paid yourself $40,000 in a draw or salary ÷ 2,000 = $20 per hour
• $20 + $10 = $30…your true effective rate per hour

Shocking, isn’t it?

Let’s look at what’s even more likely today, when many designers work at least 50 hours per week.

• $20,000 profit ÷ 2,500 hours = $8 per hour
• You paid yourself $40,000 in a draw or salary ÷ 2,000 = $20 per hour
• $20 + $10 = $28 … your true effective rate per hour

Another shocking statistic?

Most owners of companies bill less than 50% of their time, and if you don’t charge for shopping and the purchasing management process in addition to your mark-up, then you’re working many hours for little money.

Say you have 6 projects and all you provide is design, drawings and specifications, but no purchasing.

• 6 projects x 100 hours = 600 hours
• Project fees = $10,000 x 6 projects = $60,000
• Since you don’t do purchasing,  many of the costs associated with the projects such as overhead for accounting, etc. are not necessary
• You make the same bottom line, and though you still have some accounting to do, it is simple, and you don’t have the other issues to manage. Now you work a total of 1,000 hours per year
• $60,000 ÷ 1,000 hours = $60 per hour effective rate

You’ve doubled your effective rate and worked half of the time you did last year. You have more time for marketing, improving your skills and even spending time with family and friends … or to take care of yourself

Which would you prefer?

About Gail Doby, ASID co-founder and Chief Vision Officer of Design Success University, your online shortcut to a more profitable and passion-filled interior design business. Gail has a BSBA in finance & banking and an interior design degree. She built her firm to almost $900,000 in revenue in the year 2000 with a team of 8 and now mentors and coaches over 10,000 interior designers globally. Download your complimentary copy of DSU’s 2012 Interior Design Fee & Salary Survey eBook (a $179 value).