By Marcello Luzi, ASID
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.
