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As everyone is painfully aware, the U.S. economy has slowed
significantly in recent months. If you earn your living selling
design services to corporate clients, you already know that many of
them are cutting back existing budgets and delaying the start of
new initiatives. When the economy enters a recession, the first
client industries to be affected are usually the ones most
dependent upon consumer discretionary spending, including such
As a businessperson, it's important for you to start battening
down the hatches and doing some contingency planning-particularly
if your clients are in these vulnerable categories.
What can you do to keep your design business healthy during an
economic downturn? Here are six smart strategies to help you
For your design firm to thrive over the long haul, you need to
be doing work that draws upon your key strengths and produces
profits. Sit down and review your current mix of clients and
services. Pay close attention to which ones are producing profits
for you and which ones are not. If you've slowly expanded into
marginal activities, now is the time to pull the plug on them. You
can't be everything to everybody-it's important to stay focused on
your core competencies. Reducing an overly broad range of services
and products will allow you to focus on the strongest. It also
leads to more effective positioning and differentiation. This
brings us to our second topic…
You need to increase sluggish sales by landing new clients and
projects. However, you don't want just any work-it has to be the
right kind. Again, concentrate on your strengths. Don't panic and
try to take on anything for anybody. That would water down your
brand and take you into areas where your firm is less competitive
(and probably less competent).
To help with your new business efforts, review your promotional
tools and activities. Make sure that you have these key items:
Beyond these, consider adding some additional components to your
promotional mix, such as:
Do some research into current industry trends and focus on
client categories that have the most potential. Your goal in all
this is to be a leading provider of premium services in strong
demand within client industries that are expanding.
At the same time, of course, you want to nurture ongoing
relationships with the best of your existing clients. Networking is
always important, and it's perfectly acceptable to ask for business
referrals and testimonials that you can use for marketing
As you begin to close in on potential projects and negotiate
fixed-fee proposals, don't let new clients center their
negotiations on hourly rates. Allowing a client to hammer down the
hourly rate that you use for developing project budgets will
quickly drain away your profitability as well as your self-esteem.
Instead, negotiate the scope of work. Reducing the overall quantity
of work that needs to be performed is the best way to reduce the
overall price tag.
One last thought about new business development: Landing new
design work is not like turning on a tap. For some types of
projects, you should expect a long sell cycle. It may take quite a
while to go through the pitch process, submit a detailed proposal,
and get a signed contract back. While you're waiting, you would do
well to heed this next bit of advice…
A slump in sales must trigger a prompt reduction of expenses.
Where should you start? Look at the big-ticket items first. In
design firms, labor is by far the largest business expense. If you
don't have enough work to keep everyone busy, immediately release
any freelancers you're using. Then, if there's not enough work to
keep your regular employees productive, consider trimming the
workweek and prorating compensation accordingly. For example:
Cutting back the workweek from five days to four represents a 20
percent reduction in payroll costs. This change is a temporary
measure only. If payroll continues to be too high for you to cover,
the next step has to involve permanent layoffs.
Think carefully before you act. In order to do the right thing,
plan out the most likely scenarios for the company: How low will
the workload go, and when is it likely to pick up again? When you
scale down, it's important to retain key skills that are necessary
for the success of your client projects. Layoffs should eliminate
duplicate positions and any that are easily replaceable.
Maintaining an appropriate foundation of skills makes it much
easier for the company to scale back up when business conditions
The decision to lay people off is a very tough one, but you
can't afford to wait too long. When you're ready, the wisest
approach is to cut once and cut deep. This is much better than
laying people off one at a time, days or weeks apart. That's very
demoralizing to the staff and creates growing paranoia. To soften
the blow for employees who are asked to leave, you should provide
career advice, letters of recommendation, and perhaps even
introductions to other firms. At the same time, reassure employees
who are staying by meeting with them and keeping them informed.
Morale is going to take a hit because people can't help feeling
insecure. However, don't let morale get so low that it has a
negative impact on the quality of your work and the level of your
When you do eventually staff back up, hire cautiously. You'll be
older and wiser for having gone through this painful process. As a
businessperson, you'll know that you have to keep payroll
affordable by not overstaffing and not allowing base salaries to
become inflated. On top of reasonable base salaries, you'll learn
to motivate team members with incentives that are directly tied to
the company reaching specific business goals. In this way, a
certain portion of your future labor expenses will flex in response
to changing conditions.
We've been discussing labor, but of course payroll is not the
entire financial picture. You have many other business expenses as
Some of them are directly related to active projects. Be sure
that you budget and track all project costs tightly, that all of
them can be billed back to the client, and that your invoices
include full markups.
Next, sort through non-project costs in order to establish clear
priorities. Chances are you'll find some overhead expenses that can
be eliminated entirely, including such non-essentials as fresh
flowers or free food in the refrigerator. For things that can't be
eliminated outright, think of ways to reduce them.
One unavoidable expense that can be quite high for design firms
is the cost of the physical space your company occupies. It may be
possible to get creative about this. Depending on the size of your
firm and the layout of the building you're in, you might be able to
consolidate your activities in order to occupy less space. You may
be able to release an unused section back to your landlord or
negotiate a temporary sublet to another firm (if your master lease
allows you to have subtenants).
Even in good times, many design firms have trouble with cash
flow. It's an even bigger challenge when business is bad. With any
luck, you built up some reserves in the past. They will be helpful
now when you're on deadline to pay such things as rent and
To maintain financial health in tough times, it's important that
you don't operate in the dark. Prepare a detailed cash flow
projection on a weekly basis. You need to anticipate when funds
will be coming in and plan exactly how they will be used.
Most of your incoming cash is from clients, so here are some
tips regarding project invoices:
As you land new clients, run credit checks and set appropriate
limits on the amount of credit you extend. Best case, you'll have
clients across a range of industries. If clients in a particular
industry are facing temporary cash flow problems of their own, the
fact that you have clients in other categories will help you to
offset that fluctuation.
If money problems are keeping you up at night and you've already
taken the measures that we discussed above, then your next step
might be to negotiate an across-the-board cut in all staff pay
rates. At the same time, defer compensation for yourself and any
other owners. Don't take a check at all for the next few pay
periods. You can slowly get caught up as future conditions
At this point, you've stretched existing cash from operations
just about as far as it can possibly go. The only remaining step is
to find entirely new sources of funds. For example: To free up
cash, companies sometimes sell assets such as extra equipment or
furniture that's not being used. Design firms sometimes have the
option of liquidating works of fine art, such as a print collection
or rare poster collection. It might also be possible for owners to
make an additional investment in the firm, providing a cash
infusion from their own personal resources.
A word of caution: When you're looking for sources of additional
cash, don't give in to the temptation to take out new loans. If
conditions don't improve, the company might not be able to repay
them. In fact, banks are reluctant to extend credit to small
businesses in the current climate. Credit lines and other types of
loans for small businesses are subject to tighter underwriting
standards and, at many banks, higher interest rates than they were
just a year ago.
As the old saying goes, a crisis is an opportunity
misunderstood. Perhaps it's best for you to look at this entire
situation in another way-it may be a strategic opportunity for you
to rethink and reposition your firm. After layoffs and cost cutting
have made you leaner and meaner, it's much easier for you to grow
in a new direction. Use this downturn to make changes and
improvements-to fine-tune your internal systems, rethink your
services and resources, even reposition or restructure your firm
entirely. By doing this, you'll be prepared to benefit when the
economy begins to expand again.
Remember that this downturn is temporary. It's part of a natural
cycle. When you're back at the top, remember the hard lessons
you've learned: Build reserves, diversify clients, run credit
checks and set limits, hire cautiously, constantly update
projections, and watch those business trends!
Shel is a graphic designer who is active on the business side of professional practice. He has solid experience managing the operations of leading creative firms and guiding them through periods of accelerated growth and rapid change. He has served as director
of operations for MetaDesign San Francisco and as vice president of operations for Clement Mok. He provides management consulting services to a range of creative firms in both traditional and new media. Shel has served on the national board of the Association
of Professional Design Firms and as the president of AIGA San Francisco. He has written and lectured on many topics related to design management and teaches Professional Practice at the Academy of Art in San Francisco, the California College of Arts, and the
University of California.
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