business growth
Benchmarking artists vs. designer-makers (2008-9 data)
We’ve been comparing MyCake data for 2008-9 between artist users and designer-maker users.
This makes for some really interesting comparisons between two types of object/product based practice.
- In both cases we are looking at sole traders (some have a ltd company others just registered as self employed).
- In both cases there are sets of figures for folks with less than five years experience and people with 10-20 years developing their practice.
- As two clusters of MyCake users both have an average turnover of <£50,000 … it’s worth noting that MyCake has two distinct groups of users … individual makers of various types who tend to turnover <£100,000 vs. small creative firms with 2-10 employees who turnover £250,00-£2m per annum
- Artists tend to charge a higher hourly or daily rate for their work than designer makers .. there are more artists in the >£50/hr range whereas there are all too many designer-makers in the <£20/hr or worse still <£10/hr range
- Designer-makers tend to have a higher total turnover than artists
- Artists don’t tend to use bank debt or supplier credit ie they use the income they generate but don’t borrow
- Designer-makers on the other hand do use loans
- Whilst Designer-makers may have a higher turnover they are also more likely to make a loss … they are taking more financial risk (borrowing, sale or return, expensive materials) and thus there is a greater impact if they get it wrong.
- None of the artist data we have indicates a loss (though there are times when there ain’t much profit!)
- Very few are making payments into a pension
- Artists tend to pay themselves a higher proportion of the income they generate, Designer-makers less so (due in part to higher costs but also because more designer-makers run a limited company so leave the profit in the company … we suspect that fewer artists have a business bank account and run everything through their personal bank account … if so is a bit harder to leave the profit lying around, is more likely to get spent)
- Both show examples where the income streams have diversified … sub-letting studio space and doing teaching are both fairly common
- Designer-makers tend to spend a higher proportion of their income on the cost of materials than artists do
- Neither spend much on ‘research’ or ‘development’, nor much on training … partly because there’s not a lot of profit to spend on these items … there’s not always much to pay yourself a wage either!
- Designer-makers do spend on marketing, artists less so
What do we learn from this?
Designer-makers
Instinct says that neither group uses their financial information to help them make decisions about their future. We’d love to be wrong on this … please do vehemently & publicly disagree (and tell us how you use such information!). In the main we see designer-makers logging in to MyCake more often than artists so we’d say that they probably have better processes for inputting their data. Even so we don’t think that either artists or designer-makers are using that information for their own benefit, it’s really just a one way feed of data to the tax man. We’d really, really like to help change this!
The profitability issue is one we’d like to look at further. It’s one thing not to make much money from your practice if you’re investing in long term development or if you have an income from elsewhere (after all these are your choices to make) but if you’re trying to grow the business and your patchy cashflow is hiding a profitability problem then there is more here that needs looking at.
We’ve done a few in depth 1:1′s recently and a couple of things have emerged from these that we think are relevant more broadly. If as a maker you led an innovation or a design trend a few years ago but since then it has become fairly mainstream and other designers or even larger production houses have followed suit you may well now struggle to keep pricing competitive unless you’re selling in volume and achieving reductions in the cost of production. If you’re still making the work yourself or producing in small batches (00′s rather than o00′s) then whilst you’re competitors are bringing down prices because they’ve brought down production cost any reductions in wholesale or retail prices are just eating away at your profitability. This is a very real problem and not one you have a great deal of control over unless you can magically increase your sales volume.
That said there are ways to focus attention on a smaller percentage of your overall range so that you raise volumes of sales of key items. Plus if you plan new products differently so that there are fewer items in a range or product then instead of making 6 different plates for a set you’ll have three pairs of two in a set and thus automatically increase the order volumes as it will be spread across three items not six when manufacturing.
Ultimately if you’re making your own work you have two choices
- stay at the forefront of innovation in your sector, stick to small volumes and high prices and complement this with undertaking design commissions for larger manufacturers where you achieve a royalty but they do all the production and selling
- build up the volume of sales and as you do so outsource production and seek cost efficiencies. This model requires you to focus heavily on sales as you will need a lot of outlets (by which we mean hundreds and with an international spread)
Artists
Looking at the artists who use MyCake most frequently I’d describe them as folks whose main goal is to make a living from the sales of their work as early in their careers as possible. Based on a decade’s experience of working with artists of all types I’d therefore make a clear distinction between this cluster of what I’d call ‘retail’ oriented artists vs. those who are aspiring to be a Turner Prize winner ten years from now. This distinction is important because the latter crowd tend to be judged as ‘selling out’ if their work sells too soon or too easily (there was greater flexibility when the contemporary art market was booming but in tough times it is back to it’s old ways) whereas the ‘retail’ folks are applauded by buyers, peer artists and commercial galleries for being business savvy enough to recognise market forces at work and play to their strengths. We’re making no comment on the pros and cons of these two career paths but instead just separating them.
The rest of this commentary is therefore focussed on ‘retail’ artists and is aimed to help them make the most of their market.
The good news is that artists don’ t tend to get themselves into debt as a result of their practice and its development. Instead they work with the cash resources they have. The flip side of this coin is that this can be a limiting factor in the growth of sales in so far as the ability to invest in the business is limited by the money you have to hand. This is low risk but potentially low return also. Are there times when you would benefit from producing a catalogue about your work (perhaps with the assistance of a gallery you work with?), would your website benefit from development, would hiring an assistant or someone do to marketing/PR be likely to increase your sales volume or your prices? Might you benefit from hiring a gallery and making sales direct rather than going through an established commercial gallery? The trouble is that if you never have the resources to experiement on a few of these things you will not be able to reap the rewards from them.
If you could make a few more sales would it give you some extra cash to invest in your growth and development?
Over the longer term what are your pension plans??? Make no mistake, you’re no worse off than most creatives but we’re pretty perturbed by the overall lack of pension provision amongst creative entrepreneurs so it is a drum we are going to bang more loudly in the coming months and we’re starting here, we’re starting now!
Final point – we’re already being asked if we’ll analyse other sectors … architects, designers, glass artists, software and games folks, media freelancers, graphic designers etc etc. The answer is we’re planning to. You can help us get to this quicker by advocating that individuals and companies alike start to use MyCake for book-keeping and/or benchmarking of their financial data. If you do your books on other software you can of course just use MyCake for benchmarking.
So, sign up for a two month free trial and put in last years figures!!
Are you behaving like a COO or a CEO? (and why you should care)
Essentially this boils down to whether you spend most of your time dealing with operational details or do you have your brain free to work on the strategic stuff?
Obviously you need someone in the company to be in charge of running all the operational stuff from keeping the computers up and running to managing communications and the team. However if you are leading the company, planning and delivering its growth etc then there are certain things you shouldn’t be bothering your head with.
One way to work out whether you have the balance of activities right is to look at your diary for the past month and add up all the time you spend on operational things and compare it to all the time you spend on leading and developing the company.
If you’re wondering which of the many things you do fits into these two categories here are a few pointers.
Depending on the size of company (and therefore the number of people it takes to do these jobs) operational stuff is mostly management and includes:
- managing communications in the team, sorting out weekly meetings
- day to day client management
- project management for live projects
- doing the book-keeping
- managing the IT stuff
- looking after the website etc
- admin, travel and meeting arrangements
- delivery of training and workshops
- event planning
- marketing and communications planning and delivery
CEO activities should be mostly leadership and includes things like:
- articulating the firms vision both to clients and to your staff
- working out what the ethos and style of the company is (how do you want to treat your team, how do you want them to think of you and the company)
- leading the strategy development and business planning
- clarifying your position in the market … what business are you in and how does this compare to your competitors?
- positioning the company and its products and services through key presentations, talks and events
- analysing the financial information and working out whether you’re achieving your goals or not (and thus working out what to do differently)
- strategic client development meetings
In a way the greatest risk is not necessarily that you have the balance wrong (though this is definitely worth sorting out) but that you try to cover all the bases and run out of steam when really you should be freeing yourself up to concentrate on the big stuff as this is how you’ll grow the company. This works for businesses of all sizes right down to one person operations – we know of at least one consultant whose turnover grew between 30-40% as a result of hiring a PA to manage their diary and travel … simply freeing up this time and moving beyond a boom and bust of being too busy on one project to go looking for the next.
Getting retailers to re-order this Christmas
By this stage in the year retailers have placed their Christmas orders indeed they’ve mostly received their stock and they are starting to watch what is selling and what isn’t. They’ve had a rough year, as have those of you whose business it is to sell to them!
That said there seems to be a little more confidence around than there was at the start of the year and certainly it’s feeling better than last October!
The goal therefore is to persuade your stockists to restock key items before Christmas in order to maximise sales. This will require you to be pro-active and to have undertaken some analysis of their ordering habits. First you need to know who your key clients are so that you can target them for sales calls. If you’re a MyCake user there is a report you can run called ‘Income by Customer’ which will answer this question quickly for you. You could also run the ‘Income by Product’ report to look at what your top selling products are.
We suggest you make a list of your top 10 customers (the definition of top 10 being who has ordered the most in terms of £ value of invoices).
Before you call this list of clients you also need to analyse the following:
- how often do they usually order from you?
- specifically what did they order most recently (ie what did they stock up on for Christmas)?
- what is their usual order ie number of pieces of each item?
- what are the top three products that they buy from you?
- does the list of the top 3 vary with the time of year and if so what are their Christmas favourites?
- are there products which are your top sellers that they are not currently ordering?
- do they pay on time?
The last question on the list is worth a look at because there’s no point encouraging sales to customers who are bad payers!
Now that you know what each clients ordering habits are you are in a position to discuss with them how sales are going, what their stock levels are and, if they are selling well, to suggest key products that they might like to re-order.
You also need to be clear on how quickly you could fulfil the orders – afterall there is no point suggesting products that it would take you ’til after Christmas to deliver on! The goal here is to sell them products which you can deliver asap (anything with more than about a four week delivery schedule is not going to leave them enough time to sell it).
And last but not least, get calling! Pick a quiet time of day (for them) and have the information in front of you. Start off by checking that it’s a convenient time to speak, then move on to ask them how sales are going in general and how sales of your products in particular are progressing. Compare the answers to the information you have on what they ordered and do the mental arithmetic to work out what stock they are likely to have left. Where the answer is that they are low on things ask them if they’d like to re-order in time for a pre-Christmas delivery and if possible suggest an order volume as well.
If the answer is no then have a couple of other questions in reserve such as when will they be ordering for the new year and can you call them to discuss this in January? If you have new products which you’ll be launching in 2010 give them a heads up about this and ask if they’d like to see details on these. Ask them if they are intending to re-order at all before Christmas and if so when and can you call to discuss?
As you can tell we strongly suggest that you have a conversation mapped out in advance, not necessarily scripted but just so that you know what questions you would like their answers to and what to ask them if you just get a ‘no’ but little explanation (actually you want to avoid these sort of closed questions that can easily be answered with just a yes or a no). This approach typically results in a more detailed and thus more useful conversation!
Pricing your Services (part 1)
The good news is that this starts out pretty simple as you are essentially selling time. If you are a freelancer or sole consultant easier still because you are selling your time!.
Pricing your time: start out by answering two questions:
1. How much would you like to earn in a year?
2. How many billable days do you think there are in a year?
Lets take an example, lets assume you want to earn £50,000 and that there are 100 billable days in the year. Divide £50k/100 = £500/day.
NB don’t overestimate how many billable days there are in the year otherwise you’ll underprice yourself and end up running around like a lunatic. After all if you can sell 100 days at a good daily rate you can spend more time on the beach and enjoying the results of your hard work. It rarely pays to be too cheap … you may not be considered credible if you are.
100 billable days equates to about 2 days a week which leaves you 3 days to pitch for work, have introductory meetings and do admin.
Lets consider a few other things:
1. What level of expenses will be involved in winning business?
2. What percentage of jobs that you pitch for will you win?
3. How much time will you have to give away before you win business?
4. How much time will you have to spend managing contracts and other people?
You will therefore have to add in both time and costs afterall if you turnover £50k this will not all end up as income to you! You may of course be charging expenses to clients as an additional rather than within the cost of your services … this is up to you and may well depend on whether clients are buying a ‘package’ of pre-defined services (in which case you should probably take account of all expenses in the price of the package) or whether you are selling consultancy.
Conclusion: If you want £50k as your taxable income then your turnover will be more like £60-75k.
“That’s all very well but how does the rate I want to charge compare to market rates for my sorts of services?”
Fair point, well made. Here are a couple of things to think about.
- If you are billing time (ie consultancy or freelance) then you will probably end up with a range. So your preferred rate may be £500 a day for your most innovative & demanding work but you might take on work at lesser rates if it gives you stability, regular income or is in some way ‘standardised’ rather than bespoke. So when you start your range might be between £150 – £500/day. The trick is not to take too much work at the lower end of your range when you are busy but not to burn your bridges at the bottom end so that you can take it when times are quiet and you need the income. Equally you want to move your range upwards over the years so that five years in it’s shifted from £150-500 to £300-700 for example.
- If you sell pre-defined services or packages of services then you do need to know how your prices compare to competitors afterall we all know what happens when we notice that we’re paying above the odds for a phone contract … we shift to another supplier unless we are very clear about the added value that our current supplier offers.
- Why would you package up your services? Well customers will be clearer about what they get for the price and there’s less risk of you over-delivering against your commitments. It is often easier to buy a defined package than a more nebulous and open ended bespoke service. Plus it means that once you’ve defined the service you can offer it time and again without having to re-invent the wheel … this has the benefit of being more efficient. It depends in part on what the market is used to buying and in part how you want to operate.
- Is there a difference between your newest, most innovative & exciting work and your standard stuff? The latter is absolutely the stuff you’ll package up, the former is your bespoke stuff.
So, now that you’ve worked out what you’d like to earn in a year and started thinking about bespoke vs. standard services and how the prices in your range will differ next you should think about what constitutes a small, medium or large project/job/contract.
What is a Small, Medium or Large customer or project for you?
What would constitute a small, medium or large order of your products? For example if you are a product designer with 8-10 items in your range:
- what would make up a typical small first order from a new shop? Should there be a minimum order below which it is not really worth your while?
- If the client wants to take products on a sale or return basis (often true for design & craft shops) what is the largest order you would accept on this basis? Beyond what point would you insist that they bought some in order to share the risk of a large SoR order with you.
- What would be a larger repeat order from a steady client?
- At what point do order sizes make you think about producing in larger batches? What is the minimum order of a new product (from one or more clients) that you need in order to justify the risk of putting it into production?
The goal in starting to answer these questions is to build up a picture of how you will achieve your sales goals. If your turnover goal is say £100,000 in a year then the question is how many large, medium & small orders will it take to reach this? How about 5 orders of £10,000 each, 13 orders of £3,000 and 22 orders of £500? What would be a likely mix of products in a £10,000 order? How would this be different in a £3,000 order? What would it take for a client to move up a level in their ordering patterns?
Of all your existing and potential clients who might make these orders? Start putting clients into groups according to ordering habits and potential. What you are doing here is setting sales targets for individual clients and your next task is to work out what it would take for these clients to increase their ordering levels with you … do you need to spend more time with them looking at how your range meets their needs, are there any gaps in your range that need filling before clients increase their orders? What would help or hinder this growth? Make a long list, prioritise changes & improvements according to which would make the greatest difference in your sales levels and sense check this against what these changes would cost and your ability to make this investment in the business.
Cultural & Creative Self-Employment in Hard Times (New Deal of the Mind report)
Arts Council England contracted New Deal of the Mind to research the role of the self-employed in the Creative & Cultural Industries. There are all sorts of interesting nuggets in the full report, here are our favourite stats, ideas and food for thought:
- It is estimated that 41% of people working in the creative sectors are freelance or self-employed
- As of April 2009 there is a 16 week ‘self employment credit’ of £50/week for those who are claiming unemployment benefit
- The Federation of Small Businesses are calling for a new version of the Enterprise Allowance Scheme … in 1989 65% of those who’d been on this scheme were still trading 3 years later
- NDotM suggests that creative businesses join with the FSB in calling for this new EAS
- Unemployment has risen in the creative industries from 43,445 in April 2008 to 83,660 in April 2009
- Creatives rarely see self-employment as a route to employment and instead see themselves as collaborating with other independents to grow their opportunities. In this sense they don’t see a value in being ‘unemployed’ and working through Job Centres to find employment but see self-employment as a valid status that helps them find work.
Whilst a 16 week offer is a step in the right direction it usually takes longer than this to get a venture going and, like the FSB and NDotM MyCake would suggest that a 6-12 month programme would be considerably more effective.
In January 2009 the FSB launched its five point plan which calls for 48 weeks of benefit payments (£200 per week for 24 weeks, followed by £100 per week for a further 24 weeks), alongside investment grants and a £1,500 training grant. The FSB cites research showing that new small firms grow at a faster rate than larger companies and create more employment opportunities even when corrected for their higher probabilities of exit.
What do you think is needed?
Click on these links to read the full reports from NDotM and the five point plan from FSB
The IoD’s take on how to be a grade A failure
Here’s an article we came across this morning from the Institute of Directors. They argue that many great entrepreneurs have failed their way to success and that the key characteristics include:
- Ambition
- Activity
- Astigmatism
- Amplification
- Aphorism
- Abidance
We like it for it’s honesty that the path to success is rarely a straight line and that you rarely take that path first time around. We also like it because it implies that you have to find ways to learn from your past experiences … it won’t surprise you to know that we think that learning should include learning from the numbers 
For the full article click here
Setting & increasing daily rates
If your income is based on a daily rate here’s how to improve the rate over time (years) without pissing off current clients.
It’s true to say that it’s hard to increase a daily rate with an existing customer. It is therefore really important to set a rate that you won’t regret later. It’s also important that you have ways to increase your daily rate as the years go by.
For a start you need a ‘preferred day rate’ which is your top rate and which you quote when people ask you your rate. For the sake of example lets call this £500/day. Next you need to know what the minimum rate you’ll accept is (also think about whether you’ll accept this on all work or only the simpler/older rather than newer/most innovative). Again, for the sake of example, lets call this £150/day.
When you are busy always quote your top rate, when you are not so busy consider hinting to clients that you are flexible.
You now have a range from £150-£500/day. As your reputation grows you want to shift this range upwards say to £600-1000/day over several years. This means that you may need to drop some of the clients who only pay at the bottom end fo the range but lets face it you’ll probably have outgrown them if their briefs to you have not changed. You can always introduce them to other people or companies who will work at these lower rates or you can take the business and farm it out to inexpensive sub-contractors.
Tools for non-profits & social enterprises
The New Economics Foundation has just published ‘Tools for You’ – a booklet that summarises tools and systems that can help to prove and improve third sector organisations quality and impact.
To download your free copy see here.
In terms of SME day to day management tools I’d still suggest Huddle and Tactile myself!
Melvyn Bragg bangs the drum for individuals & SME’s
The health of Britain’s creative industries is founded on the strength of individuals, a debate in the House of Lords has concluded. Melvyn Bragg is in favour of supporting small groups of creative people.
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