Boosting Profitability: How a Strategic Pivot Transformed My Interior Design Business
In my newsletters and previous blog posts, I’ve shared how my Frustration Tracker revolutionized my approach to client management, ultimately leading to transformative insights for my interior design business. But today, I want to delve deeper into a pivotal moment that sparked a significant increase in interior design profitability.
Identifying the Profitability Gap
During a recent meeting with industry expert LuAnn Nigara, we delved into the nitty-gritty of my business finances—a topic that has always been a pain point for me. Despite receiving compliments on my well-organized financial records, LuAnn shed light on a crucial metric I had overlooked: project profitability.
Did you know that project profitability should ideally be at least 50%? I certainly didn’t. Despite years of managing my finances, no one had ever spelled out this standard for me until LuAnn did. And let me tell you, she’s a straight shooter.
Closing the Profitability Gap
Upon closer examination, I realized that my interior design profitability on each project and was nowhere near the benchmark. In fact, it hovered around a mere 30-35%—a far cry from where it should be. LuAnn’s advice was clear: streamline my vendor accounts and focus on partnering with 1-2 large vendors offering higher margins, ideally at 75-80%.
Armed with this insight, I set out to optimize my margins and started with my Vendor List. I reached out to each of my existing vendors to renegotiate pricing and explore stocking dealer options. This process revealed a glaring discrepancy: some vendors offered a modest 30% discount off MSRP, while others provided a substantial 53% discount for the same Designer Net pricing.
The Ah-Ha Moment: Maximizing Profit Margins
Listening to LuAnn’s podcast further underscored the importance of putting profit margins on paper rather than relying on mental calculations. It became evident that by focusing on vendors with higher profit margins, I could significantly boost profitability without necessarily increasing sales volume.
In one eye-opening example, I discovered that I had been leaving a staggering 23% on the table by not prioritizing vendors with higher margins. Armed with this newfound knowledge, I’m now in the process of evaluating my vendor relationships and strategically aligning with those offering the most lucrative terms.
Bigger profits, here I come.
To learn other ways I keep my profit being high, check out this FREE webinar where I discuss diving deep into client budgets and some unconventional methods.
The End Result
At the end of this assessment, I sat down and created a short list of vendors I was interested in by category to increase my overall interior design profitability. Here’s what that looked like:
- Upholstery
- Casegoods
- Area Rugs
- Lighting
- And so forth.
As I mentioned earlier, I was on a mission for higher profits, and I knew that partnering with the right vendors was crucial to achieving that goal. These vendors often come with high opening order requirements, which can be a significant investment, especially for a smaller or growing business. To tackle this challenge, I teamed up with a fellow designer who is not only a trusted colleague but also a really good friend. By combining our purchasing efforts, we were able to meet the minimums required to open accounts with some of the industry’s top vendors.
We landed partnerships with vendors like:
- Wesley Hall
- Vanguard
- Chaddock
Just to name a few. These vendors are known for their quality and craftsmanship, and more importantly, they offer margins that allow us to make a profit somewhere between 65-75%. Additionally, their customization options give us the flexibility to create unique pieces for our clients, further increasing our potential profit margins.
By pooling our resources and focusing our buying power together, we not only met the opening order requirements but also positioned ourselves strategically to hit the yearly minimums. This partnership has been invaluable, allowing us to establish ourselves with these high-caliber vendors and providing us with leverage to pursue even higher-end vendors as our businesses continue to grow. This collaborative approach has not only elevated the quality of the products we offer but has also significantly enhanced our profitability, setting us up for long-term success
