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.
Every industry has specific profit drivers that determine delivery efficiency and impact how much is available for overhead budgeting.
Architecture and interior design companies join the other creative industries with the main driver, the ability to control the hours spent on design while ensuring the quality of the outcome. Easier said than done because there are 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. It is especially difficult to monitor labour hours in a creative industry, where quality and precision of output is more important than time spent.
What are profit drivers for architecture and interior design companies?
It really depends on what the business is specialised in. However, the most important one in your industry is the ratio of hours sold vs hours worked. In other words, divide the hours worked by the hours sold per project. This ratio should be closer to 1, and whether it’s trending towards 1 or higher across projects and over time will determine the overall profitability of the business.
How do I monitor profit drivers? Install a traffic light system for project data
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. A lot of businesses have systems in place to draft a proposal with time estimates, but few follow up with actual time spent on the project, once finalised, to learn the lesson and improve the estimate in the future.