Following the Green

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Following the Green
David Conrad + David Sherwin
AIGA SEATTLE | DESIGN BUSINESS FOR BREAKFAST
Following the Green | ©2015 David Sherwin & David Conrad

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We solve our client’s
business problems
by design…
MAKE WEBSITES F
DO PACKAGING D
DESIGN LOGOS F
CREATE APPLICATI
SKETCH TOUCH S
CRAFT EXPERIE
MAKE ENVIRONME
BUILD MOBILE APPL
RESEARCH AND DISC
CODE HTML PROTOTY
FILM ADVERTISEM
DEFINE BRANDS
DESIGN DIRECT MAIL
MAKE WIDGETS F

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But studio owners
have even more
problems to solve.
HIRE DESIGN STAFF
PAY TAXES QUART
SET FINANCIAL GO
SECURE NEW CLIE
ESTIMATE PROJE
NEGOTIATE INSURA
OVERSEE PROGR
RESOURCING UPCOM
PROMOTE AGENCY W
MENTOR DIRECT REP
GAUGE STAFF UTILI
INSPIRE STUDIO CULT
CHASE LATE INVO
SWEAT EXPENSES

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Most of them have
to do with money.
HIRE DESIGN STAFF
PAY TAXES QUART
SET FINANCIAL GO
SECURE NEW CLIE
ESTIMATE PROJE
NEGOTIATE INSURA
OVERSEE PROGR
RESOURCING UPCOM
PROMOTE AGENCY W
MENTOR DIRECT REP
GAUGE STAFF UTILI
INSPIRE STUDIO CULT
CHASE LATE INVO
SWEAT EXPENSES

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What We’ll Cover Today
1. How design studios make money
2. Ways design studios organize themselves
to support making money
3. A method for creating your own studio model
4. Design Commission’s story—and how it fulfills
its philosophies via their studio practices
5. Financials, including cash flow and managing
studio finances
6. Parting thoughts and QA
Following the Green | ©2015 David Sherwin David Conrad

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How Design Studios Make Money

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There are only a few ways
design firms make money:
• Bill for time via a fixed fee, hourly estimate, or retainer
• Resell services from vendors with a markup
• License IP related to your design services
• Sell things such as products and services you’ve created
• Give away thought leadership (for slender fees)
• Spin off side businesses from ideas incubated at work
• Zzzzzzz… make money in your sleep

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Bill for
time
Resell
services
License IP Sell things Give away Spin off Zzzzzzz
Great design jobs earn income
like this. In our dreams.
PROPORTIONOFREVENUE

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Bill for
time
Resell
services
Most design firms, however,
have a distribution like this.

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Bill for
time
Resell
services
Most design firms, however,
have a distribution like this.
MAKING MONEY ON
WHAT YOU CAN’T DO

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Bill for
time
Resell
services
Over time, your revenue streams
can change organically, based
on how your client base evolves.
WORKING
FOR EQUITY

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Bill for
time
Resell
services
But organic growth carries risk
if it’s not managed mindfully
year-over-year by business area.
EXPENSES MINUS
SALES SHORTFALL =
DRAG ON CORE SERVICES

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Here are some examples:*
• Solo designer
• Small studio (4 employees)
• Medium-sized local studio (12 employees)
• Large independent consultancy (60 employees)
• Big international consultancy (125 local employees)
*NAMES WITHHELD/INFO EDITED SO WE CAN PROTECT OUR SOURCES.
As studios grow larger, how
they earn money changes.

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Bill for
time
Resell
services
RETAINER
STOCK
CLASS
TEACHING
FILLS REVENUE
SHORTFALLS
SOLO DESIGNER
FIXED FEE
HOURLY
HOURLY CLASS
REVENUE AT RISK
STRENGTHS
Offers UI/UX, print design, art direction.
Works mostly with colleges media co’s.
Teaches classes on web design.
Expert practicioner with solid portfolio.
STRUGGLES
Hard to maintain profit margin
when market is volatile.
Not interested in self-promotion,
networking to new clients.
Taking work from staffing
agencies isn’t profitable.

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Bill for
time
Resell
services
SMALL STUDIO (4 EMPLOYEES)
PROJECT
NO CLIENT WORK
FOR TWO MONTHS =
NO MORE COMPANY.
PROJECT
PROJECT
PROJECT
PROJECT
PROJECT
PROJECT
PRINTING
STRENGTHS
Offers print design, branding,
and publication work.
Focus mostly on nonprofit work.
Deep expertise and portfolio.
Clients all come from networking.
STRUGGLES
No online presence.
No thought leadership.
Projects keep getting smaller.
Uninterested in exploring
new areas of ignorance.
REVENUE AT RISKFollowing the Green | ©2015 David Sherwin David Conrad

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MEDIUM-SIZED LOCAL STUDIO (10 EMPLOYEES)
RELICENSING OF
CUSTOM PHOTOGRAPHY
SHORES UP LOWER BILLINGS.
Bill for
time
Resell
services
PHOTO
SHOOT
PROJECT
PHOTO
LICENSING
ARTICLES
PROJECT
PROJECT
PROJECT
PROJECT
PROJECT
PHOTO SHOOT
BLOG ADS
STRENGTHS
Offers print design, branding,
and small-scale website design.
Eclectic, arty portfolio.
Fortune 1000 clients.
People you like to work with.
STRUGGLES
One client provides most
of the revenue.
More production focused.
Not following market trend
to interactive services.

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Bill for
time
Resell
services
MEDIA
LARGE INDEPENDENT CONSULTANCY (60 EMPLOYEES)
PROJECT
APIsPROJECT
PROJECT
PROJECT
PROJECT
PROJECT
STOCK
WEBCASTING
ARTICLES
BLOGS
PRODUCTION
STRENGTHS
Full-service agency with strengths
in broadcast and webcasting.
Known for ingenuity of thinking.
Broad portfolio, but not deep
across industry verticals.
STRUGGLES
Expertise in company spread thin
across different business lines.
To show creativity, some projects
must be fulfilled at a loss.
Estimates can be higher than
market average.
INDEPENDENT
REVENUE STREAM.

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Bill for
time
Resell
services
MEDIA
BIG INTERNATIONAL CONSULTANCY (125 EMPLOYEES)
PROJECT
EXTRANET
PROJECT
RETAINER
RETAINER
METRICS
NO MEDIA,
NO PROFIT,
NO STAFF.
ARTICLES
BLOGS
HOSTING
METRICS
PLATFORM
BOOKS
CLOTHING
ONLINE
TV SHOW
STRENGTHS
Full-service agency with access
to partners across a global network.
Extraordinary portfolio.
Top ranked in their market.
STRUGGLES
Media placements must
equal time billed. Or else.
Expectations are high, causing
constant staff churn.
Estimates aren’t competitive.

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What did you notice?
Most common methods of earning money:
Bill for time via fixed fee, hourly estimate, or retainer
Resell services from vendors with a markup
Supplemental revenue streams:
License IP related to your design services
Sell things such as products and services you’ve created
Give away thought leadership (for slender fees)
Spin off side businesses from ideas incubated at work
Unlikely, but you never know:
Zzzzzzz… make money in your sleep

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There are always notable
exceptions to the rule.
Bill for
time
Resell
services
MEDIA
PROJECT
PROJECT
PROJECT
PROJECT
PROJECT
PROJECT
HOSTING
PRODUCT
TEMPLATES
PRINTING
PRODUCT
SUBSCRIPTION
PRODUCT
WEB
MAGAZINE
PRODUCT
IDEAS
PRODUCT
PRODUCT

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A Design Studio’s Greatest Expense

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INSERT
TALENT
LOGO 25¢
$
We’ve talked
about money from
a 10,000-foot level.
Now, let’s briefly
talk about people.

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In any design studio,
time and money are two
sides of the same coin.
+ $
MEANINGFUL
EFFORT
WORK =

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But people are the true
currency of our profession.
Revenue always reflects this.
= PROCESS
$ PEOPLE + TOOLS

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“Design businesses are little more
than a collection of people. Assets
come in the door in the morning
and go out the door in the evening.”

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There are many organizational
models for design studios
to empower their people…
Chain of command
Coaching
Associate
Incubator
Boutique
They are reflections of revenue and philosophy.

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CHAIN OF COMMAND ORGANIZATIONAL MODEL
Where it works:
• Specialized functions for employees
(a.k.a. assembly line work model)
• Can be modified to encourage
cross-department collaboration
Where it doesn’t work:
• Small to mid-sized studios
• Multiple principals
• Poor management
ACCOUNT
DIRECTOR
CREATIVE
DIRECTOR
UX/UI
DESIGN
LEAD
ACCOUNT
MANAGER
ART
DIRECTOR
GOFER +
LACKEY
UX
DESIGNER
VISUAL
DESIGNER
PRODUCTION
ARTIST
YOU WILL DO
MY BIDDING.
PRINCIPAL
ACCOUNT
DIRECTOR
ACCOUNT
MANAGER
ACCOUNT
DIRECTOR
ACCOUNT
MANAGER
DEVELOPER
DIRECTOR
OF TECH.
DEVELOP-
MENT LEAD
JR.
DEVELOPER
SOURCE: CAMERON FOOTE
YESSIR!

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COACHING ORGANIZATIONAL MODEL
Where it works:
• Team members are stronger
than the principals, own projects,
see the big picture
• Studios with 25+ people
• Principal doesn’t delegate
• Team isn’t rewarded for
greater ownership
Poor coaching just
creates a chain-of-
command model.
GO TEAM GO!
SENIOR
DESIGNER
ACCOUNT
MANAGER
ART
DIRECTOR
INTERN
JR.
DESIGNER
PRINCIPAL
CREATIVE
DIRECTOR
ART
DIRECTOR
ACCOUNT
MANAGER
FLASH
DEVELOPER
ULP…

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ASSOCIATE ORGANIZATIONAL MODEL
Where it works:
• Creative leads take stake
in company, earn comission
and/or profit
• Principal earns less profit
year over year, but business
is supported more by staff
• Principal doesn’t delegate
properly to associates
• Lower-level staff isn’t
promoted to associate
Also known as a collective
when there is no talent pool.
ACCOUNT
MANAGER
INTERN
ART
DIRECTOR
JR.
DESIGNER
WELCOME
TO THE CLUB.
PRINCIPAL
ASSOCIATE
PROJECT
MANAGER
ACCOUNT
MANAGER
DEVELOPER
ASSOCIATE ASSOCIATE
TALENT POOL

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INCUBATOR ORGANIZATIONAL MODEL
A design studio that also
functions as a product +
service incubator. Often
split 50/50 between
personal and client work.
Where it works:
• Studio is structured to
earn revenue from apps,
sites, ads, products, etc.
• Proper balance between
billings and studio projects
• Overhead for product
isn’t covered by billings
• No business plan or
acumen outside selling
design services
DESIGNER/
UX/SITE
ADMIN.
ACCOUNT
MANAGER
INTERN/
KEEPER OF
TWITTER
ITUNES APP STORE,
HERE WE COME!
PRINCIPAL
BUSINESS/
APP GURU
DEVELOPER/
TECH
SUPPORT
ACCOUNT
MANAGER
DESIGNER/
ACCOUNTING

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BOUTIQUE ORGANIZATIONAL MODEL
Small design studio that can
mix, match, and experiment
with various other models.
Where it works:
• Tight-knit, collaborative staff
• Low head count
• Willingness to experiment,
test, and iterate models fast
• Skin in the game
• Initial revenue streams
of the studio aren’t strong
• Lack of shared responsibility
• Burnout if treated too much
like a startup
INTERN,
ETC.
JR.
DESIGNER
DESIGN FIRM INGREDIENTS
PROFIT
SHARING
COLLECTIVE
LEADERSHIP
PRODUCT
INCUBATION
FREELANCE
STAFFERS
FLAT
ORG
EVENT
PRODUCTION
ART
GALLERY
STOCK
CREATION
FANCY
CUPCAKES
PRINCIPAL PRINCIPAL PRINCIPAL

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Alignment
between revenue
and staffing
is critical!
SENIOR
DESIGNER
ACCOUNT
MANAGER
ART
DIRECTOR
DESIGN
INTERN
JR.
DESIGNER
PRINCIPAL
ART
DIRECTOR
ACCOUNT
MANAGER
PRO-
GRAMMER
Bill for
time
Resell
services
PHOTO
SHOOT
PROJECT
PHOTO
LICENSING
ARTICLES
PROJECT
PROJECT
PROJECT
PROJECT
PROJECT
PHOTO SHOOT
BLOG ADS

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SENIOR
DESIGNER
ACCOUNT
MANAGER
ART
DIRECTOR
DESIGN
INTERN
JR.
DESIGNER
PRINCIPAL
ART
DIRECTOR
ACCOUNT
MANAGER
PRO-
GRAMMER
Bill for
time
Resell
services
PHOTO
SHOOT
PROJECT
PHOTO
LICENSING
ARTICLES
PROJECT
PROJECT
PROJECT
PROJECT
PROJECT
PHOTO SHOOT
BLOG ADS
So, how do
you balance
the two?

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CREATING A STUDIO MODEL
Determine what your design
studio experience should be:
1. Identify your design philosophy. Know where
your passion lies in what you do.
2. Determine the tasks required to live
by your philosophy.
3. Shape an organizational model that
maps back to those tasks.
4. Determine the process and culture that maps
back to your values and philosophy.
This may evolve over time.
5. Pursue the clients that support your philosophy.
6. Ensure your portfolio supports your philosophy.

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The elements of
design studio experience:
TANGIBLE
INTANGIBLE
FULFILLMENT
PORTFOLIO
CLIENTS STAFF
PROCESS CULTURE
MARKET
NEED
CAPA-
BILITIES
PHILOSOPHY
Design studio as a business Design studio as a practice
DESIREProfit-oriented ($$$) Fulfillment-oriented (time)

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The elements of
design studio experience:
TANGIBLE
INTANGIBLE
PORTFOLIO What impact will
our work have on the world?
FULFILLMENT
PORTFOLIO
CLIENTS STAFF
PROCESS CULTURE
MARKET
NEED
CAPA-
BILITIES
PHILOSOPHY
STAFF: Which employees will
strive to create our best work?
CULTURE: How will we work
together successfully?
CAPABILITIES: What skills do
we need to achieve our goals?
PHILOSOPHY: What values
drive our daily practice?
DESIRE
PORTFOLIO: How will our
work fulfill desired outcomes?
CLIENTS: How will we work
together as thought partners?
PROCESS: How will we
fulfill work profitably?
MARKET NEED: What skills
do we need to be hired?
PHILOSOPHY: What values
drive our daily business?
Profit-oriented (MONEY) Fulfillment-oriented (TIME)

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It all starts with your
design philosophy.
TANGIBLE
INTANGIBLE
FULFILLMENT
PORTFOLIO
CLIENTS STAFF
PROCESS CULTURE
MARKET
NEED
CAPA-
BILITIES
PHILOSOPHY
DESIREProfit-oriented ($$$) Fulfillment-oriented (time)

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It all starts with your
design philosophy.*
Write down on sticky notes what you’re doing right now
as a designer.
Filter those sticky notes into two categories: what you
are loving, and what you’re hating and could live
without. (Personally, I hate doing the dishes.)
Add to the “love” area things you want to do as a
designer. These may be goals for the future and areas
of interest that you’d like to explore. (Use a second color
of sticky notes for these.)
*ADAPTED FROM AN ADAPTIVE PATH ARTICLE BY PAM DAGHLIAN, READ IT HERE:
HTTP://WWW.ADAPTIVEPATH.COM/IDEAS/GOAL-MAPPING-IN-A-NUTSHELL/

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Now, organize your thoughts.
Cluster your loves and hates.
Identify big-picture themes and values.
Distill these into a philosophy for your creative business.
Try to keep it to a few words—not a manifesto.
Your philosophy and themes will help guide you
in how you create a growth path for your business
in the short-, mid-, and near-term.
It will also serve as a North Star in how
you make important fiscal decisions.

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Next, determine your capabilities
and identify your market needs…
TANGIBLE
INTANGIBLE
FULFILLMENT
PORTFOLIO
CLIENTS STAFF
PROCESS CULTURE
MARKET
NEED
CAPA-
BILITIES
PHILOSOPHY
DESIGN TO GUIDE
A BETTER SOCIETY.
DESIRE
DESIGN TO GUIDE
A BETTER SOCIETY.
Profit-oriented ($$$) Fulfillment-oriented (time)

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Understand your capabilities.
Write all the tasks you can fulfill with your current skill set.
Note what you’re really good at, and what areas you
want to grow into. Map them by project lifecycle.
Project
Commission
Resource
Allocation
VIsual
Design
Coding
Scripting
Compat-
ability
Testing
Launch
Accessibility
Content
Population
Database
Design
Functional
Specification
Copywriting
+ Editing
Concept
Development
Business
Analysis
Content
Strategy
Information
Architecture
Asset
Preparation
Technical
Specification
Usability
Testing
Code
Debugging
Search Engine
Optimization
Acceptance
Testing
Accounting
Maintenance
+Improvement
INTANGIBLE
SWEET SPOT GROWTH AREA
TANGIBLE
NOT A JOB FUNCTION

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Compare to your market demand.
Here’s how Design Commission forecasted—based on
their current staffing—what specific tasks are supported
by their staff. It also identifies gaps for future staffing needs.
Project
Commission
Resource
Allocation
VIsual
Design
Coding
Scripting
Compat-
ability
Testing
Launch
Accessibility
Content
Population
Database
Design
Functional
Specification
Copywriting
+ Editing
Concept
Development
Business
Analysis
Content
Strategy
Information
Architecture
Asset
Preparation
Technical
Specification
Usability
Testing
Code
Debugging
Search Engine
Optimization
Acceptance
Testing
Accounting
Maintenance
+Improvement
AVI:DAVE:
BREADTH OF SKILL SET CAN EQUAL HIGHER UTILIZATION ACROSS A PROJECT

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Once we get to process
and culture, things start
to get complicated…
So let’s look at a
real-world example.

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Design Commission
in a nutshell:
Founded in 2004 by
David Conrad and Jay Dokken
Currently 8 full-time employees
Specialization in Interactive Design
(a.k.a. “We design and build websites”)
Located in Pioneer Square in a
street-level gallery space within
the Tashiro Kaplan Building.
Come say hello!

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The world
as Jay
and Dave
see it…

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We are fascinated by technology
and the way it disrupts
existing economies.
Our philosophy from
a studio perspective...
This definitely guides our
daily financial decisions.
As a rule, we look for disruption
in markets. There’s a pretty good
chance that there will be some
money hanging around.

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Be as resourceful as humanly
possible in the name of solving
problems for our clients.
This guides our
daily financial decisions:
Don’t be too frugal—
buy the tools that help you
do more and/or better work.
Our philosophy from
an operations perspective...

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• Start-up costs
• On-going overhead
• Utilization
• Clients
• Quality of work
• Culture
• Resource composition
• Process
Words we’ve
had to learn:

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Common startup costs:
• Rent
• Office Furniture
• Computers
• Phones
• Internet
• Sharpies
• Office Snacks
• Property Insurance
• Health Insurance
• Dental
• Retirement Plan
• New shirt for meetings
• Parking
• Conference Dues
• Paychecks

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What we actually had:
• Property Insurance
• Health Insurance
• Dental
• Retirement Plan
• New shirt for meetings
• Parking
• Conference Dues
• Paychecks
• Rent
• Office Furniture
• Computers
• Phones
• Internet
• Sharpies
• Office Snacks

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Cultural
overhead
to boot...

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Our gallery...
This isn’t about maximizing
money earned per sq. ft.
It’s about designing our
studio’s culture as part
of an artistic community.

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We make money based on the
value of the problem we are solving.
Find more valuable problems,
make more money.
Time is a component to this process,
but it shouldn’t be the only factor—
and it isn’t the the most significant one.
So, how do we
make money?

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Resource composition
Plan your finances around the intersection
between need and opportunity.
Project
Commission
Resource
Allocation
VIsual
Design
Coding
Scripting
Compat-
ability
Testing
Launch
Accessibility
Content
Population
Database
Design
Functional
Specification
Copywriting
+ Editing
Concept
Development
Business
Analysis
Content
Strategy
Information
Architecture
Asset
Preparation
Technical
Specification
Usability
Testing
Code
Debugging
Search Engine
Optimization
Acceptance
Testing
Accounting
Maintenance
+Improvement
AVI:DAVE:

58
Weekly Utilization
DC 93%
JD 150%
ZZ 90%
SH 100%
AE 48%
JO 58%
89%
We target a blended
utilization rate at 70%.
This includes designers,
administrative staff,
business development
staff, and partners (who
are the managers at DC).
Staff utilization

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There is such
a thing as
“GOOD
ENOUGH.”
Quality is always important,
but budget is often a
constraint any design
studio must deal with.
To define “good enough”,
communication with the
client at every step in
the process is critical.
Quality of work
The bottom
line is…

60
Process
We’re always optimizing and refining what we do.
• Reducing the number of creative concepts to one
• Fewer, shorter meetings with only required participants
• Not including senior-level talent when they aren’t needed

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Now, Let’s Talk About Money

62
“I’m not a businessman.
I’m a business. Man!”
—Jay-Z
1. Weekly management
2. Monthly management
3. Yearly management
4. Financial, operational,
and marketing metrics
5. When things go
sideways (with money)
$ Following the Green | ©2015 David Sherwin David Conrad

63
1. Weekly financial management
Individual project reports: Comparing budget
to actual expenses on a project-by-project basis
Aging summary: What billed work has not been
paid by your clients
Cashflow projections: Based on your aging summary,
how much money will be “banked” over time
Work in progress: Represents work which has been
contracted but not billed.
Opportunities: Theoretical future revenue that may be
earned from new business efforts, including proposals
being reviewed by existing and possible new clients

64
Project reports
1. WEEKLY FINANCIAL MANAGEMENT

65
Client Name 0–30 Days 31–60 Days 61–90 Days Over 90 Days
MegaCo $100 $500 $1,000
LittleCo, LLC $50 $50
Mom-n-Pop $25 $25 $500
Total $175 $575 $1,000 $500
Are you asking for payment up front?
Withholding credit if the client
has major invoices long past due?
Providing a discount if the
client pays within 30 days?
Aging summary

66
Cashflow projections
Take a look at the example spreadsheet:
http://bit.ly/FollowtheGreenXLS
(link is case-sensitive, btw)

67
Work in progress

68
Opportunities
Client Name Projected Revenue
New Project for MegaCo $2,000
Updates to last year’s LittleCo project $800
Total $2,800
Remember that this is theoretical! You won’t
close every opportunity that’s presented to you.

69
2. Monthly financial management
Review and send client statements: All clients with
active billings and/or work showing open items
receive a statement noting what payment is due ASAP
Profit and loss: Represents the finances of the firm
over a given period of time, most typically year over year
Net income is most important; it’s what is divided among
shareholders/partners and taxed
Balance sheet: Represents the value of the business
Look at budget: Review both year-over-year and month-
to-month financial picture

70
Dear MegaCo,
For your records, below you will find a current account statement.
Current Account Balance Invoice Project Due Date Amt Due
31–60 DAYS PAST DUE
January 1, 2009
Invoice
724
Website
Design
Due:
January 31, 2009
$100
61–90 DAYS PAST DUE
December 1, 2008
Invoice
721
Website
Design
Due:
December 31, 2008
$100
Outstanding Balance $200
Client statement
2. MONTHLY FINANCIAL MANAGEMENT

71
Profit and loss statement

72
Balance sheet

73
Budget

74
3. Yearly financial management
Set goals: Write them down. Be realistic. Don’t overreach
what your staff is realistically capable of fulfilling…
“Next year we want to grow
the studio by X number
of people, increase revenue
by XX%, and add X benefits…”

75
Financial
• Income distribution
• Client mix
• Utilization
• Calculating rates
• Other things to watch
Operational
• Backlog
• Staff composition
• Records for six years
• Employee reviews
• How much to save
Marketing
• Bid/win rate
• Lowering your rates
• Estimate and
proposal terms
4. Metrics, oh my!

76
55% Payroll/Benefits
15% Marketing
10% General Overhead
10% Facilities
10% Profit
Industry-standard income distribution
4. FINANCIAL METRICS

77
Memorize this. Pin it up to your wall:
No single client should account for
more than 25% of a studio’s business.
When it happens—and it will!—immediately
draw up a list of new potential clients to call…
Client mix
a.k.a “account vulnerability”

78
Typical studio utilization rates:
Calculating Utilization
52 WEEKS PER YEAR
– 2 WEEKS SICK-LEAVE
– 3 WEEKS OF HOLIDAY
= 45 WEEKS PER YEAR
x 40 HOURS A WEEK
= 1,800 HRS/YEAR
/ 65% DC UTILIZATION RATE
1,170 HOURS PER YEAR
YOU CAN ACTUALLY
CHARGE YOUR CLIENTS
Utilization
80% Creative direction
80% Design
80% Production
80% Project Management
30% Marketing
10% Administration
60% Overall blended rate

79
Labor cost
Fixed overhead
Debt
Taxes
$50,000 PER YEAR
+ $90,000 ($270,000 / 3 PEOPLE)
+ 0 (WOW, YOU’RE LUCKY!)
+ $7,900 (MINUS 15.8% OF SALARY)
= $147,900 PER YEAR TO EMPLOY THIS PERSON
/ 1,170 HOURS
= $126 PER HOUR BASE RATE FOR AN EMPLOYEE
Your costs per employee:
Where does profit fit in?
Calculating rates

80
Calculating rates
Targeting 15%–25% profit across 3 employees
Total labor cost
Fixed overhead
Debt
Total taxes
Profit margin
Total profit
Total resource hours
Base rate
Final billing rate
$150,000 ($50,000 PER YEAR FOR 3 PEOPLE)
+ $270,000
+ 0 (WOW, YOU’RE LUCKY!)
+ $23,700 (MINUS 15.8% OF $150,000 IN SALARY)
= $443,700 PER YEAR TO EMPLOY THESE PEOPLE
x 20%
= $88,740
/ 3,510 HOURS (3 PEOPLE AT 1,170 HOURS A YEAR)
= $25 PER HOUR
+ $126 PER HOUR BASE RATE FOR AN EMPLOYEE
= $151 PER HOUR

81
Mark-ups: Should always be at least 15-25%. At DC,
they charge 20%.
Minimum fees: At least 2 days for any project.
For in-progress work, DC charges in full hour incre-
ments. (Use this fee with discretion.)
Cancellation fees: Time worked or 20% project fee,
whichever is higher.
When to invoice: No later than the Friday following
the completion of work. If project is delayed, invoice
after 45 days.
Always avoid cash: It’s not trackable.
Set dollar limits: On all staff spending approvals.
Other things to keep an eye on

82
Backlog
4. OPERATIONAL METRICS
DC maintains
a 3 week backlog.
This is the amount of time that the studio is booked for,
running at full capacity. The industry average is 2–4 weeks.

83
Staff composition
Staff composition at most design studios is:
70% Creative/billable
30% Admin/non-billable

84
Keep your records for 6 years.
Don’t include the current year when you count to six.
Audits often don’t happen until 3 years after your filing date.
Audits

85
Do your employee reviews
every 6 months.
Make sure that you clearly document them.
Employee reviews

86
How much to save
Target 2–3 months of your
operating expenses.
But you should really save as much as possible.
Nothing that you do as a business owner will give
you more peace of mind than a big savings account.

87
Bid/win rate
4. MARKETING METRICS
Your bid/win rate should be
at least 50%.
DC captures about 55% for new clients, but they have a mix
of repeat clients and ongoing work.
If you aren’t getting above that number, you may want to re-
evaluate your proposal process.

88
Lowering your rates
Use line-item costs
to show a discount.
Don’t reflect a discount in lower hourly rates
or in less estimated time. This will help you
keep your books straight.
This should be a last resort to win a project.

89
Estimates and proposals
shouldn’t take more than
1–2% of a project budget.
David C. spends 3–5 hours on a proposal
once a project has been qualified.
Make sure your estimates and proposals
are noted as being valid for up to 30 days.
Use the same rate for all clients and all projects.
Estimate and proposal terms

90
5. When things go sideways (with money)
Client challenges value of work
Late or non-payment

91
If you hear from a client after a project has been
delivered that they are not satisfied with your work,
you have two immediate options:
1. Apologize for their dissatisfaction, and explain
why it’s not a possibility to budge on your fees.
2. Apologize for their dissatisfaction, and ask
them to talk to you more about how the
problems may be fixed.
Each option has a cost.
Choosing #2 may cost you money.
Choosing #1 may cost you your reputation.
Client challenges to the value of work
5. WHEN THINGS GO SIDEWAYS (WITH MONEY)

92
Communicate before you litigate.
You have options:
• Always include a mediation clause
in your contracts
• Discuss payment options (credit
cards, loans, equity, trades)
• If that fails, send the case to
collection, which may be able
to claim a fraction of your fees
• Document correspondence
and get signatures on everything,
including past payments—
which legally signal intent
to pay for services rendered
Late or non-payment
5. WHEN THINGS GO SIDEWAYS (WITH MONEY)

94
“Your budget is a
reflection of your
philosophy.”

95
Know how big you want
your studio to be
when it grows up.
SENIOR
DESIGNER
ACCOUNT
MANAGER
ART
DIRECTOR
DESIGN
INTERN
JR.
DESIGNER
PRINCIPAL
ART
DIRECTOR
ACCOUNT
MANAGER
PRO-
GRAMMER

96
To create a sustainable business,
never depend solely on organic growth.
Bill for
time
Resell
services

97
Be proactive, not reactive.
Clients will respect you for it.
“TWO PM!”
“I’LL CALL YOU IN
TWO DAYS TO DISCUSS
THE WEBSITE CHANGES.
WHEN IS GOOD?”

98
Be paid well to be creative.
Know where money truly fits
in creating a sustainable future
for your business.

99
Tools and resources
• Konigi Cost Estimator:
http://konigi.com/tools/schedule-and-cost-summary-calculator
• Harvest Time Tracking
http://getharvest.com
• Pulse
http://pulseapp.com/
• Quickbooks Online
• Creative Business
• AIGA Center for Practice Management
http://cpm.aiga.org/
• Cameron Foote’s books
• Google will help you find form/contract/document templates

100
David Sherwin
david@changeorderblog.com
davidsherwin.com/success
@changeorder
David Conrad
david@designcommission.com
designcommission.com
@davidconrad
Find all of this information and more
in Success by Design: The Essential
Business Reference for Designers
http://davidsherwin.com/success
http://bit.ly/successdesignbook
No reproduction or distribution without permission of the authors.
The advice provided in this presentation is no substitute for financial
and legal advice from professionals, so stop reading this and go find
a great accountant, bookkeeper, and/or laywer for your business!

Following the Green

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