Too often designers think that they’re doing well in business if they know how much money they make and they can cover their expenses. But what you may not understand is that you aren’t actually making money at all! That’s where knowing your margins is critical.
I know you know this, but just to review – your profit margin is the percentage of money left over after you deduct expenses from your income. A real A-HA moment for me was when I realized that charging for my consulting time is almost 90% profit. But, my margins on selling product are much smaller.
That doesn’t mean you stop selling furnishings! But it does mean that you need to pay attention to the products that you can charge more for, and that bring in a higher margin.
I remember sitting with a colleague a few years ago when she did the math for the first time on her business income vs. expenses. She was completely shocked when she realized that her profit margin was only 6%. Basically, she was working for nothing, because she wasn’t even paying herself a salary! (Yep, I’ve done that!)
If you aren’t paying yourself, or you aren’t tracking every single hour in every single project, then you won’t ever have an accurate picture of how your business is really doing! You can fool yourself into thinking that you’re doing really well if you’re bringing in $500,000 a year. But if your expenses are $450,000, your profit margin is only 10%. A really good margin to shoot for is 40% or more.
If you haven’t been tracking this accurately, don’t worry! Now is the time to get everything in order and start making the money you’ve always wanted to make! Download my 1st Quarter Business Review Template to get at the heart of how your business is doing, and what you can do this year to make it even better!
And be sure you’re meeting regularly with your bookkeeper or accountant to stay on top of how your business is REALLY doing!