How to build a profitable creative business
Profitability is often a big stress factor when you are running a business. It’s so easy to get stuck in a cycle of working impossibly long hours, thinking that all you need to become profitable is more work.
My goal with writing this is to help you find clear ways to make your business more profitable without all that stress.
Overview
What does profitability look like to you?
Diagnose your business - looking for opportunities
How to charge more for your services
How to become more efficient
How to get more clients
How to cut costs in your business
Building passive income
What does profitability look like for you
Start with your goals and lifestyle
Before we jump into changing anything in your business it’s important to set a clear goal. When it comes to profitability, we often look at what other people are earning, what the industry standard is or pick a goal like earning 6 figures because someone has told us that’s what we should aim for.
I want to challenge you to think about what is important to you. If you want to buy a home and travel a lot, you need more money than if your goal is to spend a lot of quality time with the family and work less.
Besides your salary, there are some other factors you also need to consider.
Look at your fixed costs
First, look at what fixed costs you have in your business. Fixed costs are the things you can not operate without. For me it would be Adobe software, a laptop, insurance and accounting software. This is personal. For some people, having an office is a non-negotiable. For some, home office is a great option allowing you to keep costs down while working remotely.
Next we have to think about taxes
Every country is different and has different rules. Taxes are typically based on a percentage of your earnings so they scale with you, but there might be times when you need to pay an estimated tax rate or pay in advance. Make sure you know exactly what you have to pay, how to do it and when it is due.
Don’t forget about a buffer and your pension
When you run your own business, you need to give yourself flexibility and plan for the future. It is so easy to put pensions and savings to the side but you will have a big advantage if you start early. You might also want to save money in your business to plan for big expenses like a laptop, office or equipment.
Create a quick summary
Once you know what your salary should be and you had a look at all your other costs, buffers and savings, add up what you need to make each month or year. This is now the benchmark you want to strive towards.
Diagnose your business - looking for opportunities
Now that we have a clear benchmark, we want to find out where to focus our efforts.
I think there are four key areas that you can work on to improve your profitability. Charge more, improve your efficiency, get more clients and cut costs.
Start by tracking your time
To take the guesswork out of your business, we want to understand where your time is going. I highly suggest using a tool like Toggl track since they are really easy to use and you can set up categories and projects for different client work.
The goal is to understand how much time you spend on the projects themselves (maybe even the different stages), admin and project management, marketing and any other areas that take up your time. Knowing this will help you decide if you need to charge more or become more efficient.
Toggl track helps you understand where your time goes
So how do you know if you need to charge more?
The quick answer is to look at what you charge and how much time you spend.
Let’s say that you charge £5000 for a branding project. You track your time and notice that you spend your time like this:
10 hours - Project management (proposals, emails, setting up tools etc.)
45 hours - Working on the design (concepts, presentations, iterations and finalising)
2 hours - Admin (invoices, contracts etc.)
11 hours - Marketing to win the project (this one might be more of an estimate)
This would make our effective hourly rate around £75/hour. Depending on your goals this might look high, low or just right.
Now to the diagnosis.
Scenario 1 - You are very efficient in the way you work and your effective rate is still very low. If this is the case, you need to raise your prices.
Scenario 2 - You notice that you are spending a lot of time on tasks other than the creative work. You can then raise your hourly rate by removing unnecessary steps and automating tasks.
Scenario 3 - You are really efficient, your hourly rate is good but you are not making enough in total. This means we need to find more clients or cut your costs to become profitable.
Now that we know, let’s look at how to make these changes.
How to charge more
If you need to charge more, there are three ways to approach it.
Raise your prices gradually
If you feel that your clients can handle a price increase, go for it. You can make it small and gradual by increasing your price with a few percent each year, or charge more to new clients to get started.
Find a new type of client
If your price increase needs to be more drastic, start by thinking about if this will be realistic for the clients you typically attract. You need to charge a price that makes sense for you so we don’t want to adjust our pricing according to our client’s budget.
If your typical client can’t afford your new prices you need to find a new niche.
Have a think about what you can change about your website, marketing and branding to attract a different type of client. No need to fire your current clients, you can make this transition gradually.
Change the project scope
If you love the type of client that you work with but they can’t afford a higher rate, change what you include in a typical project. You can offer different packages or simply make some deliverables standard and some add-ons. This way you keep your hourly price higher without making your services unattainable to your current clients.
How to run your design business more efficiently
If you spend a lot of time on other parts of your business besides client work, you can make your business more profitable by cutting, delegating, automating and creating a great process for them.
Cutting and delegating tasks
Cutting and delegating comes down to what you get out of the different tasks and how much you enjoy doing them. Experiment with removing some tasks and see what happens. If you need to keep a task but it takes you really long, consider if it is worth hiring a virtual assistant to do it for you.
Automating tasks
Automations are a great timesaver. With any task that you need to repeat, like marketing, admin or requesting files, you can find a tool to do it for you. These are my favourite ones.
Later - schedule all your social media posts in advance
Batch creating content and scheduling it to post when you like is a game changer if you want to save time. Later let’s you use a visual planner to see what your feed will look like, you can add links to each image and track your results.
Freshbooks - makes invoicing much easier
Not only is it important to have a consistent and easy way to send invoices, we also want to get a clear overview of what is paid and not. Freshbooks is perfect for this.
Setting up a clear process
This is my absolute favourite way improve my business. You probably repeat a lot of the steps for each design project. It might look something like ‘Discovery, Concepting, Refining ideas and Handoff’.
For each of these steps, you need to collaborate with your client. You might want to present work, gather files and feedback and have a way to share your final work.
A clear and easy to follow process means you have more time for the work that pays the bills. You might for example have a template for your concept presentations to save time and stay on brand.
We created a full course on project management for designers on Skillshare
If you want to get more control in your business, save time and build a great relationship with your clients, this course is for you. See you there!
How to find more clients for your design business
If you charge enough but still need more cashflow to become profitable, you might need to find more clients.
Referrals
A lot of creative businesses rely on word of mouth and referrals. This can be a great way since it is all based on trust, but it can also feel very unreliable.
You can still encourage referrals by asking your past clients if they know someone who might be a good fit, and by offering a referral bonus. A referral bonus is typically a percentage of the project budget that you give to the person who referred a client. This is money you would have otherwise spent on marketing so it can be a great way to get more qualified leads through the door.
Create a lead funnel
A lead funnel is a series of steps that help potential clients get to know your business, see your value and eventually encourages them to reach out.
You typically have a few stages:
Awareness
Building a relationship
Encouraging the sale
To create your own funnel, start by thinking about how you can help potential clients. You might post tips on social media, have a youtube channel where you teach design or create a freebie. Try to build an email list by offering some of your content only once you sign up. This means that you are able to send emails with more helpful content and can build the relationship over time.
To encourage the sale, mix in offers or content that shows why clients should work with you. It might be indirect, like a blogpost about the 5 benefits of hiring a designer, or more direct like letting them know you have 2 spots left and asking if they need design help.
You can also use collaborations as a way to reach new potential clients and build your brand. In this video, I share how to get started and how to get the most from collaborations.
Cutting costs
Sometimes we don’t realise that we could be profitable if we cut away some of the costs we don’t need. The best way to find out what you need and what you can cut is to open up your accounting and look for trends.
Cut vanity costs
Sometimes we buy something because we think it is expected from us or because we think it will make us look more professional. Often times, these things don’t really help our business but they can mean we have to work longer hours to afford them. Go back to what your goals are. Do you need an expensive office or are your clients happy with you working remotely? Do you need 10 Pantone palettes or is there another way to pick colours for your print projects? I do want to say that unless you really need to be strict with your budget, you can of course buy things that make you happy but are not super efficient. I have a few too many nice notebooks to say otherwise.
Bulk buying to save money
Purchasing a yearly licens instead of paying monthly usually comes with a lower price. The same goes for memberships to sites that sell assets like mockups and fonts. If you notice that you are making a lot of individual purchases, some sites like Yellow images offer much lower prices per item if you become a member.
Do I need that subscription
Paying for subscriptions can either be a huge profitability boost or they can be an unnecessary cost. The first thing to do is just get a clear overview of exactly what you are paying for.
Next up, think of each tool in terms of how much time it saves you. We spoke earlier about automation. When we built Kayla, we set the price starting at £28/month. Most creatives charge between £30-£100/hour so we figured that if you save at least an hour each month not having to chase down files or remind your clients, Kayla is adding value.
You can take the same approach for all your subscriptions.
Passive income
Passive income is referring to any income where you do the work upfront and then can charge for each sale without much extra effort. An example can be an online course, selling graphics, templates or even having a Youtube channel.
Passive income can be really helpful in building more consistency in your income. Even though you need to spend some time upfront, it tends to be a good investment since the earnings compile over time.
If you want to learn more about passive income, we made a really in depth blogpost about it. We give examples of lot’s of different types of passive income, what you need to get started and how to succeed with each one.
I hope you found this helpful. Let me know in the comments if you have any questions and am would love to help out! Good luck with your business!
