This post is a complement to the analysis undertaken for Artquest in the March – May 2010 newsletters. For more details on our partnership with Artquest click here.
Remember – a short column is a good thing in this graph … you don’t want to spend too much of your income on your overheads!
The lesson in here is a simple one – there are some folks who are either in start up phase or have some investment so their cost base exceeds their income (anything over 100% on the graph). This is clearly unsustainable in the long term so the ones to emulate are those in yellow (ie with higher income) and in the average or minimum clusters on the graph.
Sounds daft but you don’t want to be in the brown column in the maximum section as this means you have very little income and yet your costs are way high!
If you’re a MyCake user you can benchmark your own data (rather than just look at these general results) from in the results section of the benchmark. See this post for a how to guide to reading your results.
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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?
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)
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!!
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