Latest / Really Renée / Ep.3 - The Number Nobody is Talking About
Transcript
- Sam Struck: Revenue versus profit, what they actually mean, how to actually calculate them, how to feel comfortable. Because remember, revenue is the number we all say at parties, but profit is what pays your mortgage. So how do you know the difference? How do you feel good about the difference? How do you navigate your profit margins? That's what we're gonna be talking about today. All right, so this is the scenario that all small businesses, especially interior design companies, have gone through like year after year, many times over. You make two hundred thousand dollars in revenue. You're super excited about that. You get to the end of the year, you're like, Yes, I made two hundred K. And then you calculate all your expenses and everything out of there, and your CPA tells you that you made fifty thousand dollars. And you're like, holy shit, how did I get to 50 grand? And you realize like there's there's something going on here. And how do I figure that out? So today I'm gonna talk about that a little bit. I feel like money is one of those conversations that people typically avoid. It's not something that people want to talk about. It's uncomfortable. But I think it's you know, it's one of those things that if we can all just be honest about it and talk about what's worked and what hasn't worked, then it's better for the community. So I will tell you up front, we do ⁓ over a million dollars in revenue every year. That's like the glamorous number that everyone hears. Like, ⁓ Studio Renee, million dollar studio with three employees. ⁓ that's the that's the party number. But in terms of profit, the goal is after my salary, which I can talk to you about that in a minute, that the business also makes an additional 300K on that. All in all. my total out of that million is about 40% of it. ⁓ so that that's like the number that you want to target, that you want to figure out that you need for yourself. So, how do we get to strategizing our businesses and like building our foundations around profitability, margins, understanding all those things? So, if we're talking about the real math. Of revenue versus profit. You need to start to look at like what your overhead expenses are. You have to start to get familiar with what's coming out of the business really, really quickly and acutely. So, you know, for example, those things are your salary, your health insurance, ⁓ your rent if you have that. It would be subcontractors, any costs of goods sold, you know, software, which is like the death of the thousand cuts of $40. you know, it's gonna be like samples, drive time, car, you know, maintenance, any of that type of stuff that is part of the cost of running a business. And I think oftentimes we just look at the top like buckets, right? Rent, salaries, but then there's like 5,000 other things below that marketing, photography, all of that. So ⁓ you know, once you take all of that and you add it up, you can start to come up with what your monthly need is in terms of overhead. And then start to think about what you want to make on top of that. That's the framework for how you can start to build your business around profitability instead of just the bottom line and figuring out like, you know, making revenue and not knowing how to actually pull profitability out of what you're doing. So highly recommend that you, you know, get a good bookkeeper, get aware of those items on the list, and then start to work backwards. I also want to talk about hourly rates and expertise for a second. So one of my good friends, I think I mentioned this on another episode, but one of my good friends and I were talking many years ago about this idea of expertise and how you charge for it because you know, when I started out doing CAD ten years ago, ten plus years ago, ooh, I think it's like let's see, I'm how old am I? 37 and I started doing CAD when I was 14. So 20 plus years ago. Wow, I'm old. Anyways, when I started doing CAD 20 plus years ago, you know, to do house plans took me, you know, 20 hours. Versus now it would probably take me 10. So, but my expertise is better too, and my experience is better. So, how are we charging for that? There's like this idea of You know, making sure that you're charging an hourly rate. And honestly, even if I did charge an hourly rate that did that, it wouldn't cover the expertise in there. And so, you know, it's like setting flat fees for things that you know you should charge more for or that you know you're worth. And ⁓ those need to be set higher than than like your hourly rate, you know? And then because you're charging for efficiencies. So when you have items that you're like, capitalizing on efficiencies, those items are super profitable. And they become kind of the the mainstays that make sure that you can mix in those items in addition to your hourly rate so that you can maximize profitability. So ⁓ that would be like one tidbit that I think that you need to just like think about when you go into strategies around pricing and whatnot. ⁓ I think flat fees can be super profitable if that's, you know, if you're able to like really Stay strict and have boundaries around how many revision cycles you offer and things like that. So ⁓ I think there's like things you can do on the front end to make sure that you are being as profitable as you can within a certain degree of certainty. And then you want to start to think about how you can also get Away from the mindset of like, I just need more clients. If I had more clients, I'll be more profitable. So there's this mind shift mindset shift that needs to happen when you think about your business and strategizing around profitability that ⁓ helps you move away from I just need more clients, I need more projects, to how do I make more on a per project basis? And how do I increase profitability efficiencies? And streamline things. And so ⁓ I think a great ⁓ kind of topic around that in terms of like business systems and operations is integrating AI in some of that. ⁓ we have an episode coming out in a bit that I think is going to be really fascinating and intriguing around AI in the interior design world, but just in brief, for us. We use AI for efficiency models. So it helps us with our procurement. It helps me with my ⁓ emails, as in like it's die, you know, dissecting and digesting our emails and helping me come up with drafts so I can reply more quickly. we use AI for marketing efforts so that we can get connected to the right client, not necessarily more clients, but the right ones. ⁓ We use AI to I use it to like scan the market and see what permit data is going on. So I can see what general contractors are working in the area and I can look for more industry contacts to reach out to. So there's all of these ways that we use AI to have essentially made our team more efficient to the point where the two and a half of us, they just hired somebody a few weeks ago. And but it's halfway through the year. So I'll say two and a half people this year are able to do what my team of five did in terms of revenue ⁓ when I had a team of five a few years ago. And so that alone tells you that profitability is going up because my overhead for salaries and expenses for sure are down on two and a half employees versus five. So ⁓ the way we've been able to do that is with AI. But aside from that, It is AI leveraging the systems and processes that we have really dived heavy and hard into developing over the last several years to make us efficient. So AI can't just like make you efficient. you really need to have efficiency models and SOPs, standard operating procedures in your business that help you run like a well-oiled machine. So that looks like defining whose role it is. To communicate or liaison with a client or what time windows you are gonna reply to clients versus not. ⁓ you know, whether or not you're gonna get communication on your cell phone, or for example, we only use Slack for team communication. We don't email each other. There's no me emailing Sorop or Kenzie about this, that, or the other. It's all done on Slack. Same is true with texting. We don't really text each other about products, our projects. We just do ⁓ communication via Slack. So it's like defining how the business is running down to the minutiae so that everyone's on the same page about it. And then it's also defining the design process. So, you know, walking your team through how I want to get a client onboarded to offboarded. And then you ⁓ you know, you also want to look at What are the pain points in the process that drag you down that make you hemorrhage money? ⁓ for us, that's like field visits during construction when trades and subs have not reviewed their material packages or the details that we have submitted. So we are having to go and troubleshoot with them, even though we've issued drawings that are relevant to these things. So, you know, we started just being like, Please review the drawings before we're gonna come out. ⁓ we used to be a little bit nicer, right? Anytime they'd call us, ⁓ you you know, we I need help with this. Can you guys come? We'd be like, Yeah, sure. now we don't. Now we say, no, you need to review the drawings and then let us know if you've got any questions before we're gonna come out. ⁓ and I think that that's like, you know, for us, that was like received as a little bit harsh, but also who cares? Like it's it makes us more efficient. So I think that that's one of the things that you, you know, you need to evaluate your standard operating procedures both on the business side and then in the design process itself and define things with consistency and clarity so that it's repeatable, it's executable from anyone on the team, and there's no questions. We're not like reinventing the wheel every time we onboard a client. And then in terms of like, Higher efficiency systems, we also use AI at this point to do all of our proposals and estimates. I have agents that I've trained that I can give a scope of work to. It will generate a proposal fully branded. it will generate project estimates fully branded. I review them, of course. I'm never gonna rely fully on AI to like send anything out, but It does the prep work for me. That that saves me hours. So the whole reason I've been able to invest in this podcast, in being able to have the margin to consider new things is because we have been so efficient. And yet my output on the, you know, in the design studio is essentially still the same. I'm still the creative director of our projects. I'm still overseeing. all of the creative direction, the material selections, all of those things for our clients. And I'm still the one doing all the design presentations because our clients want to see my face. So I just want to kind of encourage all of you. I can't give you like a magic golden ticket to solve this problem, but you have to be able to look at what you're doing and then figure out what it means to kind of squeeze more juice from each orange rather than trying to add more oranges to your plate. Hey, so if you're finding this content helpful or informative, I would so appreciate if you could consider subscribing to us and leaving a comment or a review just so that we can reach more people, reach more designers, and help elevate the design community. Thanks for tuning in. Hopefully that like inspires you to think about How you can change things or optimize things in a way that like helps reduce stress but increase profitability. That being said, I also think that one of the bigger areas of profitability that we miss time and time again is procurement. I'm gonna come back to that over and over and over again because it is the thing that has, you know, brought us to over a million dollars in revenue and is also very profitable. So You know, in I would say for every dollar sold, we make twenty-five cents. So 25% on anything we've sold. And if I can sell half a million dollars in product, you know, then 25% of that is for sure straight profit or more. But typically it that's like the minimum is is 25%. So I would say, you know, if we can close a sale, then for sure. Profitability is there. And by the way, we've already done the design to make the selection. We've already charged for the design of like the layouts, the elevations, all of the details that go into it. So everything up until pricing it within our company is billed to the client as design time. And then once it's, you know, asked to be priced, from that point it becomes part of the procurement arm. And It's not being billed to the client, but we've already spent the time to define it. So why wouldn't we go forward and close that sale and do it that way? Right. Because it just doesn't make sense to hand off that profit to somebody else. So ⁓ if you're if you're a designer that hasn't been really heavily diving into procurement, I highly recommend it. I think it is like the biggest unlock for our business. And we're gonna do a whole episode later about procurement specifically. downstream. So ⁓ definitely be on the lookout for that one. And ⁓ I would be so interested in hearing what you guys think about that because I do think many of us are doing procurement, but we're not doing it in a way that's profitable. And we're not figuring out the ways to like leverage ⁓ the sale itself in in a way that maximizes how much money we can make on it. So ⁓ that conversation's gonna be really exciting. I'm really passionate about that. And then the other side Profit ventures that you can like, I'm just throwing it out there, that like helped our business was warehousing, receiving, and then obviously furniture and material installs and delivery. So all of those are like really great value added and they're add-ons to existing projects. So you're already in them, you're already in contract, you're already helping somebody. It's so much easier to get a client to say yes to you on a service that you're offering in addition to your design services. rather than ⁓ getting a new client in the door. So ⁓ my my goal over the last several years has just been how do we squeeze more squeeze more juice? How do we squeeze more juice? How do we squeeze more juice out of the same orange? Because I don't want to fight for 20 more oranges. So ⁓ I don't know if that's helpful, but I mean I would love to hear what all of you guys are doing for profitability. And I know that so many of the designers out there That are like huge names are able to be obviously very profitable because they have their name behind them. But for the vast majority of us designers that are like floating in this industry that don't have huge, huge names behind us to be able and endorsements to be able to like make money off of all of these other things, these are the ways that you can like leverage your knowledge, leverage your skills and your services to help make more money. ⁓ I think another really good just as a side, another good area to offer to clients and also be very profitable is with renderings and visualization. And this was like pre Nano Banana Pro, which by the way, we don't use ⁓ AI for any of our design at ⁓ at this moment. We don't use it for visuals or anything like that because our team is very heavy on architectural detailing and AI just is not at the point where it actually replicates a rendering or creates a space based on the actual architecture proportionately. So we don't really dabble into that sphere a lot. But I was an early adopter to renderings because I lived in Singapore when I back in 2012. And 3D visualization in Singapore was industry standard there. And it was done for a very low investment to the client. And so when I came back to America later in 2012, that was like a huge, huge thing that I invested early, early on to offer to clients at a lower rate. And the way I was able to do that was through freelancing. So that's a service that I hired through upwork. I paid somebody, you know, their hourly rate somewhere else in the world and was able to offer renderings at a much lower rate than the people that are doing 3D renderings right now. Like this, I mean, no, no dig at Duke Renders or Paragon or anything like that. They are incredible renderings, but I think that you're gonna have a really small amount of clients that are willing to spend $2,000 on just kitchen renderings. And so ⁓ we were able to offer renderings to the mid average consumer or client or price point. that like blew their mind and they loved it. And we were able to mark those up significantly because just like I would for an employee of mine, I would mark up the hours. So, you know, if it took the renderer 10 hours to do the renderings, I would do them at my billable rate, which was $175 an hour. So we would charge, you know, $17.50 for a handful of renderings, mind you, not just like one, two, but it would be like 10 renderings. And ⁓ we would be able to buy those for literally a couple hundred dollars. So that was like a no brainer. I don't need to learn how to do that. I just need to teach somebody what why what I expect in terms of delivery and hold them to that. So in terms of my time, it was maybe an hour of like management, back and forth, editing, that kind of stuff, but a highly profitable item for me. So ⁓ those are like Think creatively about like what your market needs. What are the, what are the things that people in your area are looking for that you can leverage to be able to charge more for? And then figure out how to do that. Because those are the things that, like, like I said, they just drove a ton of profit to our business, not just revenue, but profit. And so if you can get to those items and services where you're you know, making 50, 60, 70% on that item because the client values what you're delivering. They are excited about the the end result, the delivery, and they're willing to pay that price point because it looks like a good deal, then you have yourself like a winner service that you need to like market the shit out of and leverage it and sell as many of those things as you can. So ⁓ be creative around How you consider your services, how you consider your, you know, your offerings and try to work in those high profit items and sell them. The other thing too that I want to say, again, just like as a random, is in the procurement world, there are several design companies that are very anti-selling cabinetry, anti-selling flooring, anti-selling plumbing fixtures. Mostly from a risk standpoint, I think. ⁓ but I'm a big believer of like no risk, no reward. Cabinetry is one of those items that is a high profit item. So if you can get into architectural detailing and really understand millwork packages and really understand case goods and casework, then you can make a shit ton of money selling that. And I can give you all the ways to do it if you're curious. Send me a DM, reach out. And I can tell you more about that because I have been selling cabinetry for seven years. It's a big part of what we do. People come into our office. We say that we are design first, sales second. So we're not a sales showroom. You're not gonna, if you walk around my studio, you're not gonna see boards of tiles everywhere. That's not the message. The message is what do you need for this home? And then we like soft sell every client on the products that we have in our studio. So if you can set your model in such a way that you're not just doing procurement actually. You're not just like picking a couch and putting it on a project, but you're actually selling literally everything that goes into a project. Then you're like, you've hit the jackpot on how to keep a client happy, how to keep your general contractor happy, and how how to like maximize your profitability. So ⁓ I do think that designers can do those things, but I also will say Do not sell caveat or do not sell cabinetry. Do not sell flooring, do not sell plumbing unless you are very well rehearsed in construction integration and detailing, which we'll talk about construction fluency in a whole nother episode. But those two things go hand in hand. If you are have a high level of construction fluency and architectural detailing, Then you can sell really high profit items with little to no risk and you can do it confidently. And I'll say, like, even when we do cabinetry, there's always one or two like things you have to reorder or tweak, but they are so profitable that it keeps it worth it for us to be able to do it time and time again. And we are truly selling product that is unique to this market, that our clients like, they come in, they see it, they're like, yes, that's what I want. So, And it doesn't even matter. It doesn't matter what the lines are. ⁓ I don't need to like post that I'm a dealer. I don't need to put those things out on blast. Like, you're not gonna walk in and see like stickers all over the showroom. It doesn't matter. We say we're design first, we are design first, but we also are really good at connecting clients to product that we feel confident about and we feel good about selling. So ⁓ I hope that this is helpful to kind of navigate the world of like profit versus revenue. There's no like specific nuts and bolts to this episode other than strategies that have worked for us, how we have gotten to be more profitable, and how you can kind of work towards ⁓ more confidence in your pricing and strategies around how to be profitable. So if you've got questions, comments, thoughts, I'd love to hear from you. I love talking about money. I love talking about profitability. I feel very, very grateful to have kind of ridden the wave of like high profit years, low profit years. And, you know, I just I feel like we all need to be more confident talking about money, especially women in this field. And I think it's important that we literally just take a second and think about how we can increase that profit. I used to be somebody that was like so anxious looking at my numbers every month and being like, ⁓ my God, were we profitable? I don't know. And this was part of the massive burnout that I felt when I laid off my team, when I really needed to take a second and kind of reevaluate and realize, like, ⁓ shit, I feel like I'm working for them. They're not working for me. So why? Why am I doing this and why am I stressing in this way if I'm also not gonna be super profitable? So I really got like specific around how to maximize profit, really dove into the numbers. And I hope that this information just kind of sparks curiosity, helps kind of pique your interest and help kind of also take away some of the like shame and insecurity around what what works and what doesn't work. It's okay. I did not grow up with any financial literacy. I grew up in a home with a lot of fear about finances and scarcity mindset. And I think that those things are difficult to navigate as business owners. And so, ⁓ like I said, You got questions, you want to know more about any of the things that we've talked about, drop a comment, send a DM. I would love to hear from you. I'd love to know what you guys are interested in learning more about. If it's like I want to learn more about cabinetry and how profitable that specific thing is and how to minimize my risk, let me know. I would love to talk about that. So if you if you got anything you want to contribute, let me know. Reach out. Thanks for tuning in and I just so appreciate all of you and it's it's been really fun to have these conversations. So ⁓ let me know what you think. Thanks. We're dreamers. Don't care what other people say. We live it like this could be a final day. We're dreamers.