Every industry has specific profit drivers that determine the efficiency of delivery and impact how much is available for overhead budgeting. For Architecture and Interior Design companies, similarly to other creative industries, the main profit driver is the ability to control the hours spent on design while ensuring the quality of the outcome. Easier said than done because there might be a million reasons why design projects do not turn out as planned. You cannot rush the creative spark, and reality does not bend to ideas.
What are profit drivers?
Profit drivers are specific indicators that come out of operational and financial data, and their trend indicates whether your business is going in the right direction. In retail, the inventory turnover – how fast the products sell and the level of inventory available/needed, along with their cash implication – can make or break the business. Construction companies need to monitor materials and waste per project to run a profitable business. When it comes to services, time to completion determines the outcome and drives the cost.
What are profit drivers for Architecture and Design companies?
It really depends on what the business specialises in – if heavy on design, the ratio of hours sold vs hours worked will determine project profitability most of the time.
In our experience, architecture and interior design businesses face several challenges:
- Balancing the fixed project pricing requested by the market and the need to control the number of labour hours required by the project to stay profitable
- Ability to accurately estimate the time effort of a project at the proposal stage to avoid having to renegotiate project extensions with clients
- Difficulties in monitoring labour hours in a creative industry, where quality and precision of output is more important than time spent.
How do I monitor profit drivers for my business?
The profit and loss of businesses in architecture, refurbishment or design differ depending on whether they are more material or labour intensive and whether they rely on outsourced or full-time labour. The gross margin per project will reflect the unique selling point of each business and will determine how pricing and breakeven points are calculated.
Project profitability demands a different approach in data collection from the usual financial data that a company has. You need a project by project data collection template, usually by assigning job codes, and the discipline to follow through whenever you collect data generated by projects.
Find out more
We’ve created an online workshop for business owners of companies in Architecture and Design, on 19 May at 10:00am. Our places are limited to 15 per webinar, we want to have a small number of people so we can have personalised responses to questions and ensure space for sharing. Only 9 places left.
What to expect?
- What is an ideal and benchmark for project gross margin, and how to monitor it for each project?
- Which financial and operational data and reports help with making decisions and how?
- What are the profit drivers of an architecture and interior design business, and which data helps monitor them?
Register here>> https://costmanagementmasterclassarchitecture.eventbrite.com
Have a question – please feel free to get in touch today!