Ep 225: Profit Isn't An Accident Part 2 - The Markup Myth
Why Cost Plus 30% Is Quietly Killing Your Profit
In this episode of Profit Isn’t an Accident, Michelle Lynne tackles one of the most accepted pricing “standards” in the interior design industry: cost plus 30%.
And here’s the truth most designers never hear:
A 30% markup is not the same thing as a 30% profit margin.
Michelle breaks down the real math behind procurement, markup vs. margin, and why so many talented design firms are unintentionally underpricing themselves into burnout. If you’ve ever felt busy but not profitable, this episode explains why.
You’ll learn how to evaluate your procurement costs, rethink your pricing structure, and start building a business model that actually supports your firm long term.
In This Episode, We Cover:
Why “cost plus 30%” became the industry norm
The difference between markup and profit margin
Why a 30% markup only creates a 23% margin
The hidden costs of procurement most designers ignore
How time, freight, damages, storage, and admin eat into profit
Why many design firms are unknowingly subsidizing procurement with design fees
What “minimum viable markup” means
Why Michelle recommends a minimum 75% markup
How vendor relationships can improve your margins
Why charging correctly improves the client experience
The emotional side of raising prices
How pricing acts as a filter for better-fit clients
Why profitability creates freedom, flexibility, and sustainability
Key Takeaways
Procurement Is Not Free
Every item you source requires labor, communication, coordination, tracking, problem-solving, and risk management. If your markup does not account for those operational costs, your firm absorbs them.
Markup and Margin Are Not the Same
A 30% markup does not equal a 30% profit margin.
Example:
Wholesale Cost: $1,000
Selling Price at 30% Markup: $1,300
Actual Margin: 23%
That difference matters more than most designers realize.
Design Firms Are Running Two Businesses
You are both:
A service business (design expertise)
A retail business (product procurement and sales)
If your product pricing is too low, your design fees end up subsidizing your retail operations.
Your Pricing Impacts Your Client Experience
Underpricing creates stress, overwhelm, and operational strain. Profitability allows you to:
Hire support
Improve systems
Deliver a better client experience
Protect your energy and creativity
Michelle’s Recommended Pricing Structure
Michelle recommends designers move away from cost plus 30% and instead consider:
Higher product markups (often 75% minimum)
Procurement management fees
Passing receiver/storage/delivery costs to clients
Stronger vendor relationships to improve buying power
Mentioned in This Episode
Private coaching through The Design Bakehouse
The Profit Mixer procurement and pricing tool
Interior Design Business Bakery coaching program
Connect with Michelle
Subscribe & Review
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Transcript
Michelle Lynne (00:52)
Hey, hey, welcome back to Profit Isn't an Accident. This is the podcast series for interior designers who are done winging it on the business side and are ready to actually understand what's happening inside their firm. I'm Michelle Lynne I run ML Interiors Group here in the DFW area. And I teach designers how to build profitable businesses through the Design Bakehouse. And I'm also co-founder of Sidemark, an all-in-one sales and marketing platform.
built specifically for design firms. Because y'all, I just got tired of watching talented designers work themselves into the ground on the back of a business model that wasn't actually set up to pay them. So this series is called Profit Isn't an Accident because that is the truest thing I know about this industry. The designers who are profitable, the ones building firms that actually sustain them, they didn't stumble into it. They got intentional. They built systems. They got honest about their numbers.
and they stopped accepting the industry defaults as gospel without ever questioning whether these defaults actually worked. And that, my friend, is exactly where we're going today.
I want to start with the number and I want you to sit with it before we start unpacking this because the number itself matters less than what it reveals. And that number is 30. As in cost plus 30 percent, which is depending on who you talk to, the default markup for furnishings in the interior design industry. I can't tell you how many times it showed up in conversations at trade events or
how designers explain their pricing to clients. Like this number shows up in mental math that designers use when they're putting together a proposal. Cost plus 30, that's markup. That's how you make money on product, except y'all, it isn't. That's what we're gonna talk about today. We're gonna spend the next, I don't know, 30 to 40 minutes walking you through exactly why it isn't, what it's actually costing you, and what minimum viable markup really looks like.
for a firm that is trying to be profitable, not just busy. So here's the thing about 30%, it came from somewhere. It's not some random number someone made up, but it came from a different era of the interior design industry, a different cost structure, a different business model. And what happens when an industry clings to a number without revisiting it is that that number just becomes a myth.
Okay, what is it actually supposed to do? Well, it just gets passed down. It gets accepted. It gets used by designers who genuinely believe it's a professional standard when it's really just some number that stuck around like way past its expiration date. And the cost of that myth is real. It shows up in projects that close and still feel like a financial loss. I know, I've tried this. It shows up.
in firms that are generating significant revenue but cannot seem to make money. It shows up in designers who are doing beautiful work, winning awards, filling their schedule. You see them all over the Instagram, okay? But they're still not paying themselves what they're worth. And it's not because they're doing anything wrong. It's because they're pricing from a framework that doesn't account for the actual economics of running a modern design firm.
So let's fix it, right? So to understand why cost plus 30 % is a mess, it helps to understand what it was designed to accomplish. So let's step back a couple. This wasn't arbitrary. I believe that there was logic behind it. It's just that that logic was built on a set of business conditions that have shifted significantly over the past couple of decades.
The, from what I understand, okay, if I'm wrong, I'm wrong, but this is what I believe. The traditional interior design model, okay, and I'm talking about the model that existed before, gosh, before Amazon, before Wayfair, let's just say before e-commerce, okay, before clients could just Google a furniture piece and find it for 40 % less than your trade pricing, okay. So the traditional design model was
Built on.
Well, clients didn't have access. designers had the exclusive access to the product.
They had relationships with vendors that clients didn't have, didn't know existed, couldn't get.
Okay, the designer could walk into a showroom and get a price point that simply was not available to the general public. And that markup on the product wasn't just a margin, it was also the fee for access. It was the cost of working with someone who had the relationships, the trade accounts, the knowledge to source what wasn't available on every street corner.
So that model, 30 % made, I don't know, it was a certain kind of sense, right? The cost structure was simpler, transparency was lower.
And the competition for the sale, was more limited. So obviously, that world has changed. But the markup framework hasn't kept pace. Today, your clients can and they do look up products. They know what things retail for. They sometimes find the same item you're sourcing at a different price point online before you've even finished the proposal.
Okay, so the access piece of the value equation, it has eroded, it's gone. Poof, bye bye. Okay, and let me back up on that. Maybe it hasn't gone by entirely because the trade relationships do still matter, okay? Lead times, quality, those still differ. Your expertise and specification definitely has real value. But the landscape,
is fundamentally different. I hope that makes sense. So pricing from a framework designed for an earlier time, an earlier landscape is a problem.
And more importantly, and this is the part that I want you to hear, a 30 % markup on cost is not the same as a 30 % profit margin. Okay, it's not even close. But I find that a lot of designers, when they really dig into this math, are genuinely surprised by it. Okay, that's if we even dig into the math, because y'all, I'm not a fan of math either, but we're gonna break this down and I'm trying to keep it.
I don't like a mini skirt, right? Short enough to be interesting, but long enough to cover the important parts. Okay, so let's break it down. You purchase an item, let's say $1,000 wholesale, and then you mark it up 30%, right? You're selling it at $1,300. Your gross margin.
on that transaction is 300 bucks. Now, as a percentage of the selling price, which is how margin is actually measured, that's 23%. It's not 30, it's 23%.
So take that $300 and run it through the actual cost of executing that sale. You have staff time for sourcing. You have specification time. You have purchasing, you have order tracking, you have communication with the vendor, receiving at the warehouse, freight coordination, delivery scheduling, installation, the subscriptions to the software that you conducted all of that work in.
Okay.
What about insurance? You've got insurance on the product from the moment it leaves the vendor to the moment it installed. So you started with 300 bucks in gross margin or your markup, but most firms operating with cost plus 30 % without any additional procurement fees, the honest answer is that you're not gonna have jack shit left from that 300 bucks.
Sorry, mom, I hope your kids are not in the car with you right now. But they're not, you're not gonna have anything left. In some cases, in the scenarios when the vendor might ship the wrong item or something arrives damaged or you have to reselect and you absorb the cost, then you're paying to do business, babe.
So it's not a problem of working with bad vendors or bad clients. It's not a problem of selling furniture is too complicated. This is just a math problem. And the way to fix a math problem is to do the math differently.
So one of the reasons that cost plus 30 % persists as a myth is that most designers, we are not calculating the full cost of procurement against the markup that we're charging. Okay, I get it. Cost accounting, first of all, we're not accountants. Okay, the right brain is not looking at the numbers as often as we should as business owners. Okay, cost accounting for service-based businesses is comp...
It's complex, okay? But that's not a reason to skip it. This is why we need to do it. So we're gonna walk through it. Do you have to do it all the time for everything? No, no. Maybe you need a software that does it for you. That's a whole different podcast. Let's talk about this. This is what I call the real cost of procurement, okay? The cost that exists whether or not you're tracking them. So if nothing else, you're gonna walk away from a new perspective.
The first and biggest one when it comes to procurement is time. Every item you procure costs time. Time to source, to specify, to present, time to process the purchase order, time to follow up on lead times, to communicate updates to your client, to manage the logistics from the vendor to the installation. If you have a team member handling procurement, that time has a dollar value, okay? The hourly cost to your firm. And that's loaded with taxes and benefits and overhead.
If you're doing it yourself, that has an opportunity cost because every hour you spend on procurement administration is an hour that you're not spending on design work, business development or anything else that the CEO should be doing. So. Most designers, when they start tracking this time spent, honestly, they find the procurement takes somewhere between 15 and 30 hours of staff time per.
Well, I know I wouldn't even say per project, y'all. That's not a moderate. just in fact, I just had a ⁓ fantastic.
At Spring Market in High Point, we were talking about procurement, whether it's a bottleneck or if it's white glove service. And large full home projects, we were talking about these. They can run 40, 50 or more hours in procurement management, start to finish, probably more.
Definitely more. I think we calculate our procurement at ML interiors group at an hour to an hour and a half per item in procurement time. Okay, so let's do that. Let's just use that number, an hour to an hour and a half per item that you're procuring. Okay, from the moment that you are putting it on the PO to the moment that you're installing it. Run that through what that time actually costs your firm.
If you have someone at $25 an hour, okay, that's $375 to $750 in labor costs on a moderate project, just in procurement administration. I don't even know if those numbers are right actually.
But take that, you have 100 items, okay, let's see. I'm gonna try to do math right here live. 100 items times 1.5 hours each, okay, that's what, 150 hours times $25, that's $3,750 on a moderate project. That's just in procurement administration.
Okay, and you're supposed to cover that and make a profit from the markup on the product. Now, the second cost is what I call the friction cost. Okay, so that first one is time. Every item that you procure costs time. Second cost is the friction, freight, damage claims, returns, reselects, white glove delivery upcharges, storage, okay? I pray that you are passing the receiver costs, the warehousing.
and the delivery onto your client.
If you're not, take this as your message to do so. Okay.
But what happens when storage at the warehouse, when the project isn't ready for installation just yet? Maybe construction took a little bit longer than anticipated, or you have to make a couple of trips to deliver all of the product, okay? All of these are real costs, this touches the procurement process. None of it's predictable. What about freight? What about tariffs these days?
So when you're writing the proposal, when you're creating all of this, you can account for a lot of it, but some of these things happen in the middle of the project and they eat into the margin that you thought you had. And if you're not tracking them in real time, which is what we just talked about, I think in the last episode, you often don't even know how much they cost you until the project is closed. Okay, so you've got time, you've got friction, you've got capital timing.
Okay, your client should always be funding your purchases before you place the orders. That is a non-negotiable. This is not the Bank of Michelle. This is something that we structure into our client agreements from the start. We explain at the very beginning in the sales process. We explain it again when we go through and sign the contract. It's in the contract and then we have it on the actual proposal.
Okay, but even with a clean payment process, there are some times where situations where products arrive in phases, okay, or final balances get collected at delivery and you have capital moving in and out of the business throughout a project. Managing that cash flow has an overhead cost because it takes your time, your attention, your brain power, okay, and your bookkeepers as well. So,
What happens because none of these costs disappear if you don't account for them. They still exist and they come out of your margin. They just come out invisibly, which means that you can have a project that looks profitable on paper. The revenue was higher than the cost of goods sold.
But this actually consumes a significant portion of the margin in the time, the friction, okay, the timing.
And you you don't have to do this cost accounting yourself. That's what your accountant or your bookkeepers for. What you do need to do is ask them for it. Ask them to see what your procurement is actually costing your firm by project with labor, with freight, with overhead allocation, the whole picture. A good accountant who understands your business can pull that together.
Now y'all just a side note, regular old bookkeepers, I have a lot of respect for them, but they really need to understand the business of interior design because we have a lot of moving parts. We have items that are taxable, items that are not taxable because there's just so many nuances. So make sure that you find a bookkeeper who specializes in interior design.
Okay, let's go back to markup versus margin. And I know, y'all, if your eyes are rolling back in your head and you're just wanting to drool because this is not the sexy part of design, let me just remind you that what is sexy is the profit that comes after you get some of this worked out. And don't worry, at the end, we're gonna be talking about a lot of the solution to the problems that we're engaging today.
So often the language between markup and margin is one of.
It's just a very confusing aspect.
And probably why this 30 % myth continues to persist.
There's a distinction that will connect the decisions that you're making every day. And this distinction is that markup is a percentage of your apply. Markup is a percentage applied to your cost. Okay, let's go back to that example. You buy something for a thousand bucks. You apply a 30 % markup. You sell it for 1300.
Margin, if you remember, it's a percentage of the selling price.
On that same $1,300 sale, your $300 profit is a margin of 23%. This is just two different ways of expressing the same transaction. They always produce different numbers, but I'll tell you this works in your favor, and I'll tell you why in a moment. The markup percentage will always be higher than the margin percentage when you're talking about the same dollar amount, okay?
When a designer says I mark up a product at 30%, what they're actually describing is the margin of 23%. But if they've mentally been treating that as a 30 % profit margin, which is how it often gets used in mental math, okay, then you're overestimating your profit on every sale.
Our industry standard way to think about retail pricing is margin and not markup. Retail businesses typically think in terms of gross margin. What percentage of the selling price do I keep after the cost of goods are sold? Most product-based retail, anything under a 40 % gross margin is considered really thin. Many well-run retail
Try saying that three times fast. Well run retail operations operate at 50, 60, 65 % or higher. Interior design firms, which are part product and part service, often operate at gross margins far below that on the product sale side. But what we do is we try to make it up on the design fee side. And sometimes that works.
But the thing is, is that we are doing the work of both a designer, such as a service provider, okay, and a retailer. We're sourcing, we're managing, we're delivering, we're coordinating product. That work has a cost.
So if you're not pricing the product side to cover the cost of that work, then y'all, you're basically subsidizing your procurement operations with your design fees.
Which means your design fees, your time, your design genius are actually paying for your operations rather than contributing to your bottom line. Okay, and that's backwards. Think about that. Basically what you're doing is you have two businesses. You have a service business and you have a retail business and your service business is paying to keep your retail business open.
if these were too distinct.
Entities. see where that's messed up?
So what? Let's get specific. Let's get specific.
If I were to sit here and say, honey, you need to charge more, like that would be crap for advice.
What I wanna do is tell you what numbers to look at and how to build a markup that actually works for your firm.
Yes, we're gonna do that in a podcast. We're gonna try to. Enough to be dangerous. Minimum viable markup. Okay. This is the markup percentage at which the revenue, the sales that you generate from product fully covers your cost of goods, the direct cost of procurement, and a proportional allocation to your overhead. Okay, so what I'm basically saying in some fancy words there is that you're paying for what you're buying
You're paying for the cost associated with the action of buying. And then you also want to take some and allocate that to your overhead. Okay. And then you need to have some margin leftover for profit because we ain't in the charity game. We're looking for profit. Now, anything below that number, you're losing money. At that number, you're breaking even.
And above that, then you're profitable. Okay, in theory, there's a lot more that goes to running an interior design business, but we're talking about this specific activity. Okay, so what that number actually is, is it's going to vary by firm.
So there's not one solid exact number for everybody, but I can tell you what I've taught hundreds of interior designers, what their minimum should be. And we're gonna talk about that today. Okay. So I can't tell you because I don't know your cost structure, your volume, your staff costs, your overhead. If you have just all the magic number, but I can tell you that for most design firms that I've seen,
your markup's gonna be higher than 30%. So I'm gonna tell you, because I know there's a lot of people sitting here listening, saying, well, what is that number? What is that number, Michelle? You want to mark your furniture up from your cost a minimum of 75%.
Okay, a minimum of 75%. That's if you're buying to the trade at our trade pricing.
Now, I'm going to tell you, don't drown me out and do not fast forward or stop this episode just yet. I'm going to walk you through how you can start building towards your number specifically, but I'm also sharing that 75 % as the baseline minimum. Okay, so for those of you who enjoy math or want to forward this to your accountant, hopefully I'm teaching you the right way. I pretty much am sure I am.
But I'm not an accountant and I don't even play one on TV, but I've done my numbers. I've got my notes. Here we go. The first thing to do is to identify your actual cost per order. OK, take a typical project. How many POs did you place? How many vendors were you working with? How many hours of staff time touch these orders from creation to close? What was your freight?
What did storage and receiving cost? Y'all, I'm telling you, you should pass that on to your client, okay? But if you don't, what is your storage and receiving cost? Did you have any damage? Did you have to reselect anything? Add all of that up and then you divide it by the total number.
of purchase orders or items. I do mine by items and that's your approximate cost per order. Okay, it's not going to be perfect because procurement costs vary because what if it's, ⁓ you know, what if it's a vendor where basically all you do is you put it in the cart and you check out. Okay, what if it's something custom? Like there's a lot of variables here. So we're being very generic in this baseline.
So you're gonna then take a look at the average order value across your projects. If your average order's $2,500 wholesale and your cost per order is, I don't know, 200 bucks in direct costs, then you need your markup to generate at least $200 in gross profit per order just to break even, okay, or per item, however you wanna look at it.
So then you have to take a look at your overhead. Do you know your overhead? Your accountant can give you what your overhead is, say per person. Every hour that goes into procurement is an hour that contributes to your overhead. Okay, your overhead is your software, your insurance, your rent.
Okay, the principal, if you're the principal designer, it's your time spent managing the team.
So these are the things, we're not gonna sit down and put pencil to paper, but these are the things that you need to walk through. Okay, and then you spread all of this across your projected annual product sales, and then you should see that your markup percentage gets to the real break even point. But if all of that just went over your head, you're driving, and you nearly ran into a pole because you're just bored stiff,
Just use my number 75 percent. OK, just do not use. I want to be clear if you're using cost plus 30 percent. You're not making money, OK, you should also. Be charging a procurement management fee, so so let's back this up a little bit, OK? When you are talking to your client, you're explaining to them that you have the design fee. That's your service, that is your design genius, and then you have your.
furniture that you were selling to them, that you are a retailer. If they ask you, some clients will, okay, if you're my retailer, how are you charging me? Y'all, if you are, let's go back to that math, margin versus markup. If you are charging a minimum of a 75 % markup, you can honestly look your client in the eyeballs and tell them the God-honest truth.
that you are working on a 42 % margin. Much easier than saying 75 % markup, it's a 42 % margin. Okay, if you're doing 100 % markup, it's a 50 % margin. A lot of it comes down to the sales. Okay, so cost plus 30 % is not viable. You've got your design fee, you're selling furniture.
You should also be charging a procurement management fee.
and then you're also passing the receiver cost through to the client. Okay, that is your math that needs to be corrected if you're not doing it that way.
Now, let me also plant a seed on something that I don't think gets talked about enough, which is that your markup is not only determined, it's not just what you charge, it's determined by how you buy. Okay, so how you buy matters. What I mean by that is that designers who have built deeper vendor relationships over time will often have access to better pricing than designers who are placing occasional orders with a wide range of vendors.
I made that mistake early in my business.
We were going wide instead of deep. Loyalty actually matters because the length and the depth of your relationship with a rep or with a manufacturer is something that goes into consideration because when a vendor knows that you're consistently sending business their way, when you're not just buying one sofa, okay, but you're furnishing multiple projects a year, there's room to negotiate better cost point. Okay, sometimes better freight.
Every dollar that you bring down on the cost side is a dollar that goes directly into your margin without requiring you to charge the client more. So that thousand dollar, you bought it for a thousand, you're selling it for 1300. What if you bought it for 750 and you're selling it for 1300? What if you buy it for a thousand, you're marking it up 75%, so you're selling it for $1,750? Well,
What if you're buying it for $750? Then you're making, instead of $750, you're making $1,000. So this is one of the last discussed advantages of growing your firm with intention. The deeper your vendor relationships get, the more leverage you have on your purchasing side.
So buying well is a skill. I still haven't mastered it, but I know it's there and I know that it has compounded over time when I'm intentional about it. So if you're spreading your purchasing across 20 different vendors to keep your options open, it's worth thinking about whether consolidating into fewer deeper relationships might actually serve your margins and your clients better.
I know, I know this is not nearly as sexy of an episode as I had anticipated. But it's important, okay? So knowing the math is one thing, but changing your pricing is another. I get it, I totally get it. And what I've seen is that one of the reasons that most designers don't change their pricing, even when they understand it, that they need to, it's fear. Fear of losing clients, fear of being more expensive than the designer down the road.
Fear of the client who pushes back, okay? Or worse, maybe go somewhere else. But.
Let's let's let's address that head-on. Fear it's understandable. I get it. Been there.
But pricing is one of the most emotionally loaded parts of running a design business. Because what it is, is it's tied to how you value your own work and how you think clients perceive you and what you believe the market will bear.
For a lot of designers, especially those who have built their client base at a certain price point, the idea of charging or changing the price feels like it's gonna break everything because we get comfortable.
But what I've observed both in my own firm, okay, and in the designers that I've worked with is that when they make the shift to pricing that actually works, it does not break everything. In fact, the clients who are right for your firm almost always accept pricing that reflects the real value of what you do. And the clients who don't, the ones who leave, okay, or they don't sign because they found someone else who will do it for less, I found somebody cheaper.
They're not your clients to begin with. If anything, you've dodged a bullet. There's a filtering function to pricing.
When you price at the minimum viable markup or above, basically what you're doing is you're communicating something about the caliber of your firm, the quality of your service, the level of accountability, the systems you have in place, the...
processes that you bring to the design process, the design project. So clients who are shopping for the lowest price, they're not responding to that signal. They're fine somewhere else, okay? You're not the right fit for them. And they're not the right fit for you, and that's okay. Just remember, that's okay. The clients who are right for you, the ones who have hired you because they want your eye.
They want your process. They want your relationship. They want your expertise.
These clients are not primarily making their decision based on whether your markup.
is what it is. They're making their decision based on whether they trust you, whether they believe you're going to take care of them, whether you're saving them time, and whether the value that you bring justifies the investment.
I mean, flip your thoughts on its head. It's not all about the money for the clients who can afford this luxury service. So when you are pricing in a way that you cannot sustain, you're not a better designer or a better partner to these clients. If anything, babe, I can tell you this from experience. You're more anxious. You're more financially stressed. You're more stretched.
You are not the best version of yourself and that shows up how you serve them.
It shows up in whether you can afford to hire the right support staff to get projects done in a timely manner. It shows whether you have the bandwidth to give them your best work, whether you can invest in the best tools to support your business. So pricing correctly is not just about your profitability, it's about your capacity to serve your clients well. I wish my younger self would have known that.
So if I could read your mind, I'm going to address the thing that I think is probably running through the back of it right now, which is, well, that's all well and good, Michelle, but my market is different. My clients are price sensitive. The designers in my area are all pricing low. I just cannot unilaterally decide to price differently.
Does that sound familiar? And while I am kind of poking fun at this.
It's not a baseless concern. Okay, so let's take it seriously. Markets are real, competition is real, and there are geographic and demographic differences in what clients expect to pay. So I'm not dismissing that. But what I am gonna push back on is that your conclusion, your idea that because other designers in your area are pricing low, that you therefore are locked into that same number. Because, honey,
That conclusion only holds you back if you believe that you and every other designer in your market are offering an identical product to an identical client, giving them the identical experience.
and for whom the price is the deciding factor. And that's never true.
you are not delivering the exact same experience, the exact same outcome, the exact same pricing.
or they're not you. What clients truly are buying from an interior designer is generally not commodity furniture pricing. Okay, they're not looking for the Amazon of furniture plus labor. They're looking for a specific experience, a relationship, an aesthetic that reflects them.
customized. Okay, a specific process. Your value proposition, y'all, my value proposition is not the same as the designer down the street. Hers isn't the same as the one next door to her. Like your pricing does not need to be the same. In fact, if your pricing is the same, you're inviting clients to make a decision based on something other than quality or the experience.
Because if everything else is equal, then yeah, price does become the differentiator, but it's by default.
when you price correctly and you communicate the value behind that pricing. This is your sales process. I think I did an episode on that recently. But when you're transparent about what your procurement process involves, what the client gets when you manage their project, like what they don't have to deal with, okay, you are shifting the conversation. You're not competing on price. You're competing on the strength of your process, your relationships, your outcomes.
Okay.
And I understand 100 % that not everybody listening, not every designer is going to be ready to make that shift on their own. OK, the pricing piece is one thing. The sales process, the client conversations, the way you communicate your value. These are all skills that take practice and structure.
Knowing that you need to price differently is the beginning. It's not the end. So if you're sitting here thinking, know my pricing sucks. Okay, I know the math doesn't math. And I don't actually know how to restructure it in a way that feels both honest and sellable.
That's exactly what I do. I teach interior designers how to navigate that.
We have one-on-one coaching, some group coaching. The Design Bakehouse is where we get into the actual financial structure of your firm, not just theory, it's your numbers. Okay, so you can take a look at the Design Bakehouse slash coaching, and I'll also put that into the show notes.
But let's make sure that we don't walk away today with the impression that fixing your markup is all you need to do to achieve profitability.
Now that is a critical piece, but it's not the only piece. Your revenue structure as a design firm is typically made up of those multiple streams we talked about earlier, right? You've got your design fee. You've got your, the product markup, your retailing, the furniture for the client. You've got procurement management fees. You're passing on the retainer to the client, the receiver to the client, I mean, in the form of a retainer. There you go.
These things work together to produce your total revenue per project. And the relationship between those, that also matters. Design fees, it covers your design genius. Basically what you can do is you charge them for the design, you could hand it to them, okay? And they could essentially recreate it using their own resources. That's not the plan, but you've gotten paid for your work, okay?
Markup covers the cost and the profit associated with the product. And the fact that you have access to some furnishings and the curation of them specifically for the client.
Okay, procurement fees. Let's talk about that. Some firms charge it as a percentage of the product cost. Some charge it as a percentage of the design fee. What I now teach is I charge it as a flat per item fee. Some bundle it into a project management fee, cover the administrative and the operational labor.
just charge for it. Just charge for it. So when you get all of these pieces calibrated, all of these fees, your firm's actual cost structure,
is profitable. Okay, it's work. One of my least favorite things is knowing my numbers. Actually, let me rephrase that. I love knowing my numbers, but being required to go dig and analyze my numbers. I have a good accountant, let's just put it that way. Okay, but what it does require is you getting honest and removing the emotion from what things actually cost you, from what you're actually charging.
and it requires the confidence for you to price accordingly.
Whew, I know that's a lot. Profitability gives you flexibility though, babe. It gives you the ability to say no to the wrong clients because you don't desperately need the revenue. And that just feels so good. It gives you the ability to invest in the right systems, the right people, the right tools, because you have the margin to do it.
All of it starts with pricing correctly.
So again, I want to mention I do have private coaching. If you're listening and thinking, OK, I don't just need a pricing workshop. I need a little bit more help with this. I also have a. Profit mixer. Which is a software program. Where we do get into the actual financial structure of each item.
and it navigates your procurement. shows you your markup. It shows you your margin. It shows the client their pricing directly towards it. I'll put that into the show notes too. That used to be available only to my interior design business bakery clients.
but we've opened it up and I really think you'll love it. So that's enough. This episode, y'all, that was a lot. This is episode two of our series, The Profit Isn't an Accident. If you sat through this whole episode and felt something click and felt something uncomfortable that needs to be felt, share this with another designer, okay? Or if you know somebody who's struggling.
and you haven't been able to convince them that they need to be changing their pricing. I'm telling you, this industry is full of wickedly talented designers who are pricing below.
their cost and they're not, they don't even know it. And the only way that changes is for more of us to start talking about it honestly.
So follow along with the series wherever you listen to podcasts. You can always come find me at thedesignbakehouse.com or on Instagram at the Design Bake House.
Next episode. I think I have a guest in the next episode, but the next episode in the series, we're talking about a problem that is costing design firms real money every single month, and they almost never see it coming. And that is the double entry problem. The reality of what happens when your project management software and your accounting software are two separate things and why that gap between them is not just a minor inconvenience, but it's an actual financial drain.
So if you have a team member who's entering information in more than one place, okay, or if you're entering your financials and then you hand it off to your bookkeeper, more than likely she's doing the same thing. So you'll need to hear this one. I will see you there.
