116. Booked Out, Busy, and Still Not Profitable Enough?

Speaker A: What if your design business is not actually struggling because you need more clients? And what if the problem is not that money is already coming in, but that it is quietly sneaking out in places that you are not tracking? And the extra meeting you did not charge for? Maybe it was that third round of revisions that you absorbed because you wanted to be helpful. Maybe it was the sourcing hours that never made it in and you just decided to give those away. Well, the procurement issue your team solved for free wasn't free either. And and the client emails that turned into an entire afternoon because they just didn't understand. Maybe it was the owner level decisions you keep making because it feels faster than training someone else actually inside your organization. And don't get me wrong, none of this feels dramatic in the moment, but what happens is it really eats away over time. In fact, it may feel like good service or you've been really responsive or you're getting done what needs to be done. But when you add all of these things up, it can be the difference between a business that looks successful to everyone else and a business that is actually profitable. And those are two different things. Today we are talking about where your interior design business is quietly losing money and how to start finding those profit leaks before they start eating at your margin and your capacity and your energy. Because revenue is never the whole story. The real question is what are you keeping? Welcome to Success by Design where I give you the real talk and a big reality check about you needing to stop treating your business like a hobby. Let's turn it into a profit generating machine. All ah while doing it in a way that works for your life. I'm Katie Decker Erickson and I am taking what I learned by building a multi million dollar coast to coast design business and sharing it with you right here. If you are wanting to generate more profit and not be burnout and possibly even have a dream design business, you are in the right place. Welcome back to Success by Design. I'm Katie Decker Erickson, your host and I am so glad you are here today because we are talking to the designer who has booked. You're busy and you're still wondering why am I not keeping more money than I thought I was. And I hear this all, all the time in my coaching business because the revenue looks good. I had a coaching client who was making almost a million dollars and the projects she was doing were beautiful and her clients are very, very happy and her calendar is full. But behind the scenes the numbers just didn't add up because she took home $75,000 of that million that came in her front door last year. And she wasn't happy about it. And I don't blame her. Her cash flow felt unpredictable. She was working constantly, even on weekends. And the business still fe fragile to her, even though she's been doing it for decades. This is such a common place for designers to land. And if you're there today, I want you to know you're not alone, especially if you're beginning to scale. This is so easy to feel, this place, because most designers are not watching for revenue once they begin to grow. They know what they've sold. They know what the project fee was. They know the client paid the invoice. But what they're not seeing is the margin. And there's this mystery in the margin, as I call it. But the reality is that mystery in the margin is the difference between having a business and making money at a business. Perhaps you're not charging what it really took to deliver the project in time. Labor, team involvements, revisions, mistakes, procurement and owner oversight. And all of that really adds up. And that's where a lot of money can disappear. And it's not usually one big financial mistake where someone embezzles tens of thousands of dollars from your. It's these slow little leaks, or as I like to call them, death by a thousand paper cuts that end up hurting that margin. That is really the difference between having a successful business and not. It is those tiny, repeated decisions that no one is tracking. And I want to be abundantly clear, this episode is not about shame. We've all been there. Instead, we're going to take those invisible leaks and we're going to make them visible on this episode. Because you cannot fix a ah, leak you cannot see. Let's walk through this scenario because it may sound familiar to you. You booked a great project, you're super duper excited about it, and it has a healthy budget. The client's excited, the scope seems clear, and you sign the proposal and go, wow, this is going to be a great project. And at first it is. But then the little things start. The client asks to see, well, more sofa options, so you say yes. And then they want to revisit those dining chairs, so you say yes. Then they ask if their spouse can join the next couple call, and you guessed it, you say yes. And then the contractor has another question. A vendor sends the wrong finish. Your team ends, um, up spending more time on it, and the client sends a link and ask, could this work instead? And by then you're probably Ready to pull out your hair. If that's the case, you're not alone. Someone researches it, explains why it will not work, sends two better options to could this work instead? And you're starting to hemorrhage cash flow. You're starting to hemorrhage your time, and you're starting to hemorrhage that process that you work so hard to hone to guarantee that quality outcome. Because no one's tracking the time, no one's tracking those extra meetings or the extra sourcing or that communication load. And most importantly, the emotional drag that can often be hard to commodify but can be one of the biggest leaks in a company. Then the project wraps up, and the client is happy. They're feeling good about it. The photos are beautiful. You post it online, and from the outside, again, it's looking like a, uh, win. But here's the kicker. When you go to your bank account, it does not feel like the win that you thought it would back when you signed the contract and they had a healthy budget. And that is the moment where I see a lot of designers getting confused. And you're not alone in that. They think, how did we charge that much and still not keep more? And I'm going to be really honest with you. The project costs more to deliver than you thought it would or that you're calculating for. And because you're not tracking those hidden costs, the leaks stay invisible. And this repeats project after project after project until you're left making that million dollars and taking home 70,000. So where are the leaks happening? I want to look at the most common places that I see leaks in the businesses that I am inside of, um, graciously through my coaching clients. And the first one is untracked time. I know. I see you. I hear you. You're rolling your eyes like I just did in the car while you're driving down the road. You're like, I know I'm supposed to be tracking time, and I tracking time. Let me twist this a little bit for you. If you're not tracking time, you're losing money. So every minute you don't track is costing you money. When I put it that way. Does tracking time get more exciting? I know it does for me. You literally are losing money by not tracking time. And even if you charge a flat fee, I want to be really clear, time still matters. Because if you're out there and you're going, man, a thing, I'm a flat fee, or, uh, hang on just a second. Because time matters more with flat fees. Because once the fee is set, every unplanned hour reduces your profit margin. In our firm, my people have to tell me exactly how many hours are going to spend on that project, and they cannot do one ounce more. Because your design time is labor. Your team's communication is labor, Your sourcing is labor. Your revisions are labor, Your procurement is labor. And really, your problem solving is just as much labor too. If you're not tracking it, gosh, you don't know what service actually costs to deliver. So what does this actually sound like? Well, can we just look at one more option? Or can we hop on a quick call? Or can we just add the powder bath? Or can you just weigh in on this contractor question? Unless we all know this, but let's be abundantly clear, nothing in design is ever just. It's usually like a domino. It's the first one that falls, and then everything else falls behind it. Sometimes the most profitable decision is not fixing the wrong project. I'm going to be really honest. It's not taking it in the first place. See, that is where you end up losing so much money. The second link I want to talk about is Scope Creep. And this is disguised as being nice. It sounds like, can we just look at one more option or hop on a quick call? One of my most frustrating aspects of our industry is that we do not account for Scope. Creepy. Scope creep is real. In fact, it should be encouraged. And then you should make more money. The client is trying to give you more money into a bigger project. Why do we view Scope creep so negatively in our industry when it is the most empowering thing? If you have a contract that allows for it, provides for it, in fact, plans for it. If you don't have that contract, head on over to my website. It's AccessByDesign Coach, and I have a contract there that makes every email legally binding and an amendment to the contract so you don't have to constantly be shoving new addendums and new signatures in front of your client for their approval. Okay, the third leak I want to talk about is revision loops. And this happens when a client does not fully reject the design. But you know how it is. They start tweaking something here and they want one more change here and they want a warmer white and then a cooler white and then they want a different rug. And I feel like I'm on Mr. Toad's wild ride of design. If your contract is also not limiting the number of revisions, you are going to be stuck in the dark doom loop. Of revisions. And you can lose so much money in this phase because suddenly, your whole entire team is stuck there. It's not just about you. And revisions are really expensive because they're gonna delay the decisions, they're gonna extend the timelines, they're gonna drain your creativity, and then they steal capacity from truly profitable work. And I want you to be really, really careful about that. The other place I see profit leaking out of so many good businesses is when it comes to poor project fit. And you want to take the project. I am guilty of that. In fact, a few years ago, I had a client who coincidentally doesn't live far from where I live. And they said to me, oh, Katie, we know you only work on commercial projects, but we have this lake house, and we'd really love help with the art up there. And so I started rationalizing, okay, I don't do residential design. That's single family, but it's art, and we do do art, so how hard can this be? And then it started with the wife getting on the phone in addition to the husband, and then they both had opinions. But then I realized their opinions didn't agree. And then I remembered why I stopped doing residential design and moved to commercial design. And needless to say, it was the most frustrating project. And full disclosure, folks, I should have never taken that project. I have been in business 15 plus years, and I love the idea of procuring art for them, but the reality is, like, good gosh, that was a nightmare project. And eventually I just said to them, I don't think I'm your right person. And let me refer you to a residential designer that is more capable of handling this. In other words, a marriage therapist that could take on their differences of opinions. Okay, the fifth leak I see is owner over involvement. Let's be frank for a minute. You hired your team because you thought they could do the job that you hired them to do. Awesome. If you are trying to scale, I just want to say right now, this is extremely important, because if you're reviewing every email and team question and solving the vendor issues, guess what? Your business is losing money. Now, don't get me wrong, I had to deal with a vendor issue just last week. With a vendor. We've never really fired a vendor. Um, but we had to straight up fire this vendor. And I will tell you, it was a horrible experience. But my team did a fabulous job handling it, uh, before it ever reached my doorstep. And by the time it did, I knew exactly what was happening and was prepared to make a decision because Your time, again, is the most exciting, expensive time in the company. I want to say that again for you that are questioning this. You think you're being helpful being involved in every decision. But your time as the owner is the most expensive time in the entire company. So use it wisely and rely on your team because you're leaking profitability. If you are overly involved in your business, your time is not just free because it doesn't show up as payroll. Be very clear. Your time is not just free because it shows up or it doesn't show up as payroll. All right, the sixth link I want to talk about is underpriced procurement. Sometimes we get so excited to close the deal, we get through the design, and then we have to actually execute. But we already have done the design work, and that's what we are. We're designers. So that's where we should be collecting our fees, right? Oh, no. Procurement is detailed. It is emotional, and it can be operationally really heavy. And being aware of that when you're tracking items and freight and receiving and storing and damages and replacements and backorders and communication M and then client communication, and let's add install coordination to that. It's a lot. It's just a lot. And yet, many designers price procurement like it is a simple admin task. I want to tell you it is absolutely not a simple admin task. It can be a profit center. Um, and I want to tell you how it has to be priced, staffed, tracked, and managed like one. And if you're not doing that, you're leaking cash. All right, I want to talk about the misdiagnosis for a minute. Because when you feel squeezed, there's usually three things I see designers do they go, oh, my gosh, I need more clients, or oh, my gosh, I need to raise my prices, or oh, my gosh, I need bigger projects. And don't get me wrong, sometimes those are absolutely true. But if your business is more revenue is not going to fix the leak. As you get more revenue, guess what? You get a bigger leak, it will just grow and grow with you. And more projects inside a leaky business actually mean more untracked labor. And this is where many designers actually get trapped. You're chasing revenue because the revenue feels like progress to you. And revenue amplifies the business that you already have. But if your business is structured and profitable, more revenue can amplify profitability. And if your business is reactive and leaky, more revenue actually just amplifies the stress that you're already feeling inside of your business. The real problem may not be sales. It may actually be the delivery of the product. It may not be pricing. It may be scope accountability through that really good contract. And it may not be the clients. It may just be how you're qualifying those clients. And your team is probably pretty good, but maybe they need a better process. And the real problem may not be cash flow. It may be profitability. And let's look at this technically, because this is really, really important. I want you to hear me. You are not failing. You are doing great things. This conversation resonates with you. It just means we need better visibility on what's going on inside of the business. So what's really happening? Well, your business is losing money in the gap between what you promised, what you priced, and what you actually delivered. And that gap that I'm describing right there is where that margin just falls through the floor. Because you promised a certain level of service, you priced it based on what you thought the project would require. And the delivery took more time, more communications, more revisions, more sourcing, more meetings. I mean, pick your poison, right? The reality is, all of this took way more time. And in the process, every single time, the margin shrunk, shrunk, shrunk, shrunk, until you were left with a nominal margin on the project. So the solution is not simply charge more, which I hear a lot of fellow coaches saying, well, let's review. How much are you charging? No, don't get me wrong. Pricing matters. It really is important. But if you just keep raising your prices and keep the same delivery problems, you're going to create more cushion. But you've not actually created a better business or one that can actually scale. The better question is, what does this service actually cost us to deliver? From the moment you start to meet the client, all the way up until you lay down the last coffee table book, what does this actually cost us to deliver? And not just in dollars. I want you to think in hours, meetings, revision, your team involvement, procurement complexity, client communication, and your leadership. Because as we know, you are the most expensive hourly employee in the company. Then I want you to think about, what did it actually take to deliver it? How many hours did the design take? How many meetings actually did happen? How many rounds of revisions were there? How many vendor issues were there? Then I want you to think about question number three. Where did the project go off track? And I would be lying to you if I said projects don't go off track. There's usually something on every project that you're like, how did we get here? This is odd, right? And, uh, sometimes it's little, sometimes it's big. Hopefully not big. But each project is unique. And as such, the problems can be unique too. And then evaluate. Was the scope unclear? Was the client not properly qualified? Maybe my contract is too loose and maybe the procurement was underpriced. Then I want you to think about what needs to change before you dive into your next project. What do you need to calibrate on? And this is a hard conversation to have, but you need to ask yourself, do I need that stronger contract? Maybe I need a clear revision policy or a paid discovery phase or a procurement minimum. Do you have a change order process? Because you know it's a coming and I don't want you just to survive the lesson. This is about thriving. Lessons are not failures. They are growth opportunities to fine tune what you're already doing and make it so much better. Okay, question number five. Is the biggest. Was this project actually worth it? Not just was it pretty or was the client happy? Was it profitable? No. I want you to think, did it strengthen my reputation? Did I make enough margin on it? Did it lead to more aligned work? Did it build our team and did it support the business you were ultimately trying to grow? And see those questions right there? Those are CEO questions. Those are not business owner questions. Now we're entering a new headspace. So here is where to start this week. If all of this is resonating with you, I want you to track your time for 30 days and I want you to track it by project and category. Did it fall into design, client communication, vendor communication, procurement, project management, meetings, revisions, install, prep, admin, and your time as the CEO. And I'm not looking for perfection here. We are looking for a keyword. Patterns. We want to look for the patterns. Where's the time actually going when you evaluate it? Which clients are requiring the most communication and which phase always takes longer than expected. And then I want you to do something else. This is point number two of your action series. Create a change order trigger list. I don't want you to wait until you're annoyed to decide something is out of scope. Decide in advance and then shoot them a lovely email that because of your contract, is legally binding. That adds on, it keeps growing your profit margin. That's exactly what you want to do. Additional room. Guess what? It's a change order. Revision round, Change order, new direction after approval, change order, an extra site visit. That's a change order too. And you don't have to call it a change Order, because I know that has a negative connotation. You can call it additional scope and make it binding within your contract. So you're adding on to what they want you to do. It's no different than going to your hairdresser and saying, hey, can we do some highlights this week? Right. What is she going to say? Well, I, um, can't do it this week, but I can do it next week because I didn't have enough time, but I would love to give you highlights. So why don't we take the same approach in our design business? Okay. Third, I want you to build decision deadlines into your actual process. Because open decisions cost money. They're going to create follow up and delay and rework and uncertainty. So make decision deadlines part of the client experience. Say things like, approvals are needed by Friday. To maintain the current timeline, revisions must be submitted in one consolidated round, or approvals after this date may affect pricing, availability and installation timing. And I'm going to tell you right now, that is not being difficult. That is called leading your project and protecting your margin. And then, fourth of all, I want you to stop giving away strategic thinking. You've worked so hard to get to this point. M. It's just like a doctor. When you see them for 15 minutes, you're not paying them for that 15 minutes. You're paying them for all the work they have done to be able to sit there with you for 15 minutes and explain what is going on inside your body. The same is true of you as a designer. You are so valuable with your strategic thinking and what you've developed. After years of experience, designers give away too much in the name of being helpful. I see you. You hop on a call to solve the layout. You explain what the contractor should do. This is not just advice. This is called expertise. And you pay for it in every other arena of your life. So why shouldn't your clients? If people want to access your strategic brain, there needs to be a paid container for that. Whether it's a, uh, consultation, a design audit, a project planning session, a paid discovery phase, a, uh, VIP day, whatever it is, they need to be paying in order to access that part of your brain and stop treating your highest value thinking like a free appetizer. It's not. You're worth way more than that. And then finally, uh, I want you to separate your revenue goals from your margin goals. These are very different things, as you've probably figured out on this episode. So don't just say, I want to hit 500,000 or I want to hit seven figures. I want you to ask better questions at, uh, what margin, with what team are you going to reach those goals? What owner involvement, what delivery model? And what level of stress? Because I assure you, there will be some. Because revenue tells you what comes in, but margin tells you how well your business is actually working. Okay, here's the mindset shift. The old belief is if I'm generous, flexible and helpful, clients will value me more. Denied, denied, denied. Your new belief is clear. Structure is part of excellent service. See, structure is important. Here's another belief I want you to replace. It's only going to take a few minutes. Isn't that such a common one, we tell ourselves? Your new belief now, though, is a few minutes repeated across every business project is a business model. Because it is never just a few minutes. And let me tell you, these numbers are not here to shame you. Giving away your time, your efforts, and your talents is not generosity. It is an unpriced operating system, and it's going to flat out wear you out. So the numbers are valuable. They're here to guide you. And when you stop avoiding them and stop making decisions in the dark, you will be amazed at how quickly and effectively your firm can actually scale. All right, this is one of the reasons I care so much about coaching interior designers, is the positioning your work. I am still active in the field. I still practice every single day. And I'm bringing my real life experience to you both here on the podcast and to my coaching clients. I'm not teaching theory from a mountaintop. I'm actually in it to win it. And I know what it feels like to lead a team, manage client expectations, deal with scope changes, and navigate procurement issues and look at beautiful projects when they're finished. And still ask yourself the hard question, was it worth it? This is why this work matters. Interior designers. You do not need to just hear, just charge more. You actually need someone who can help build the business underneath the price point, the process, the positioning, the boundaries, the client journey, the team structure, the way that you're actually selling, and, uh, the scope and how you lead. How do you go from being a business owner to getting into a CEO mindset? See, that is where the profit lives is when you review and improve after every project, which only a CEO can do effectively. See, the profit is not just in the proposal, it's in the process. It is in the handoff and the revision policy and in the meeting structure and in that client qualification before you ever leave the gate. And it really is in that moment when you say, hmm, hm, this is beyond our original scope and I would be happy to add it for this price. Great. That's not being salesy, folks. That's just called leadership and growing your firm. So let's bring this home. Your business may not need more revenue first. It may need fewer leaks. Maybe you need some better tracking, cleaner boundaries, or a stronger qualification for your clients. It may need a better way to price procurement and less of you. Wouldn't that be nice? It may need a project review process that turns lessons into systems. I would say if you're doing something twice, you probably need a system for it because you can chase more leads when you need better margin and you will raise your prices when you need tighter scope. Sometimes you hire more people when you just need a clearer process. And you can blame difficult clients when really you should have qualified them better. And I want you to build a design business that is beautiful from the outside and healthy on the inside. It pays you well, protects your team, serves you financially, and gives you margin in every way, financially, emotionally, mentally, spiritually. And it allows you to keep going. This week, choose one recent project and ask yourself, what did we charge? What did it actually take? Where did we absorb work? Where did we over deliver without charging? And where did the clients slow us down? Where did the team get stuck? And where did I step in unnecessarily? And what would we change next time? See those questions? Those questions right there? That's CEO work. That's the work only you can do inside your business. And every time you identify elite, guess what? You just reclaimed your margin. You just made more money. And every time you reclaim your margin, guess what? You have more capacity so you can take on bigger and better projects. Do you see how this all works in tandem to getting a business where you want it to be and scaling at the level you want to scale? If listening to this and you're thinking, katie, I know there are leaks in my business, I just know it. But I don't know where to start. This is exactly the work that I do inside Success by Design. We look at real business, not that cute, beautiful Instagram version. This is actual business. The pricing, the process, the client experience, the team structure, all of it. The places that you are working too hard for, too little return. I want to talk to you about it because you do not need to become less creative to become more profitable. And you don't have to become cold to become clear. And you do not need to become salesy to be well paid. If this hits I would challenge you to head over to our website at uh fixmydesign biz with a z.com again fixmydesignbiz.com and book a 15 minute free problem solving call with me. Let's dive in and see if we're a good fit and if we can start figuring out where you're losing money. Because as I always say, your business should be working for you, not you working for it. Until next time, take care of yourself. That's your real talk for today. If you found this helpful and you are ready to truly move the needle in your design business, head over to fixmydesign biz.com and let's get started. That's Fix My Design Biz with a Zoo and if you want to stay connected, head over to my Instagram @successbydesigncoach underscore podcast and give me a follow. Don't forget to mention you came from the podcast because I would love to meet you and I personally respond to every dm. Until next time, take care.