We are exploring margins as a theme for this podcast this
season. And obviously there's the
obvious implications of profit margins and all of that, but
also margins in the more metaphoric sense of just having
breathing room to be creative for a team.
So can we dive into that a little bit more as well, like
how you manage like the passion side and maybe some lessons that
you've learned from how to manage your margins?
Yeah, absolutely. You know, early on in my
freelance career, the, the passion was the midnight oil
that kept me designing until 2:00 AM, you know.
And I quickly learned that as like when I was a being a
freelancer that, you know, I'm only designing 20% of my time.
The other time I'm doing invoicing, I'm following up with
clients. I'm doing the project
management, the account management, the sales, the
marketing, the networking. And so like design really
quickly became a small portion of my day-to-day operations as a
freelancer. And then as I started the
agency, it was the same thing times 4.
You know as we grew to four employees there was more to
manage, more numbers, more cash flow, more invoices.
And I think a large part of our success is that we were always
under promising and over delivering.
We would always give some extra little Easter eggs.
We'd always design some extra mock ups, throw them in to kind
of help sell the vision and the concept of the brand.
And you know ultimately it was a lot of sweat equity.
You know, we were producing and producing and ultimately that
became part of our DNA and and our process that was
undocumented at the time to just like this is our expectations.
We have these really high quality bars and we always need
to deliver in this way. But over time, you know, we
really started to audit and evaluate what we were doing and
90% of the work that we were actually designing day-to-day
ended up in a trash can or a dust bin on Google Drive or
Dropbox. And we never saw the light of
day again. And so we're like, how can this
be a little bit more sustainable?
You know, like we don't just want to design concepts and
that's part of design. You iterate, you ideate and
ideate and iterate and just moving through the process to
get to the solution. But ultimately, you know, we
were presenting 5 full blown brand identity concepts with
everything from the water bottle mock up to the Billboard
campaign to the slogan, the tagline and charging them very
little for that. And it was just a lot of like
being in our young 20s like we we had insecurities, we had
imposter syndrome you know and and so we always wanted to put
our best foot forward and we saw that it was very successful
doing that just giving a lot of work that we weren't necessarily
building into a pricing structure or a business model or
a process to manage that. And I think our first website
that we ever built like full custom designed prototypes and
full custom development was $500.
And today like that's something that we would charge like 75,000
to $100,000 for. And we did not know that earlier
because we didn't necessarily measure the process.
We just had one checklist on our To Do List that was like deliver
a website, that's what we would do.
We would just drive it and we delivered it.
But then the business started to grow and we had more overhead,
you know and and it was seeing like, oh, cash flow is an issue.
The timing of when do we bill versus when is the work being
done and actually being completed.
And sometimes, you know, clients being late in their homework or
us being late to the table late to the draw, It takes two to
tango. There's mistakes that happen on
both sides. But really we would often bill
at the end of the project. So like through the
entrepreneurs organization, I was learning like, oh, I'm
actually financing this work for 6090 a 180 days because maybe
that project was two months long and then we're getting paid 30
days after that. So that's 90 days from the start
of it to the finish that you know we had to foot the bill on.
And so we learned really a lot, a lot about like cash flow
management, the accrual timing of matching projects up to the
duration of the project to meet the billing and then also meet
the resources that we have on the team and to always keep
those resources utilized. And the resources being our
people and it's our most valuable asset is our talent and
our team. You kind of touch base on it
too. You know, as a creative, as a
designer, we're often looking at creating white space to make
things stand out, things room to breathe.
We have margins and we have padding and really the padding
is looking at the process and adding a little bit of buffer of
costs because things do go over time, things do get over
delivered. And so adding that little buffer
in there gives us a little breathing room around our
expenses. And you know our expenses are
our software cost, the fun tools that we all love here.
Like we all love the Creative Cloud, Figma, you know you name
it. Like there's a lot of costs that
go into operating your business and a lot of it for us is
software. You know, our first expense is
people and then it's software. And so having that profit allows
us to save up for expenses whether it's buying, you know, a
new print plotter or some studio lighting for the photo studio to
have some padding to breathe and sleep at night.
And really we operate off of this 5030 twenty rule, our 50%
margin is gross profit margin. So that's our revenue minus our
cost of goods sold, which is our people.
The people are the costs of delivering the work.
And then the 30% of top line revenue should be our expense
target. So we budget for software
professional development learning R&D rent on it on our
studio space and then at the end of the day we you know our
target is that we have 20% leftover for those savings and
growth. Really just.
Yeah. And try to visualize it like you
know our team is in the middle of the page on that a four
layout and we want to have the proper margins for the team to
breathe And and with things like inflation our cost of goods have
gone up at home but it's also gone up as an employer.
You know I have to pay our team members more money just to
afforded a decent work life bounce and compensate you know
benefits. We have healthcare plans.
We have paid time off. We have retirement savings
plans. Yeah.
Like the total compensation structure really helps us
understand our cost of the people, software and the end of
the day, the business costs. And so we're able to take that
and formulate what is our profits from that model there.
Yeah. I really appreciate how you use
that parallel that metaphor between like margins and padding
on a page or a web layout with managing financials.
I think another way I'd think about this is whether for
designers, whether you're working in like 2D or 3D,
thinking about like space, cash flow is really about the 4D
chess, right. It's really like adding that
time dimension and that can be the real killer.
That was definitely one of the lessons I learned from the
school of Hard Knocks when I was running a studio as well of
like, OK, there's like the total project size of things, but if
you're not going to see that for another three months, you know,
how are you going to keep the lights on and all of that?
Yeah, the 4th dementia in fact, glad you mentioned that it's
that's that's the one that often feels like we have no control
over the clocks always ticking, but cash flow has been the
biggest challenge by far. You know in the 10 years of of
running commence studio here. You know we've solved it at
times and for years and years upon times.
And then you know we have macroeconomic headwinds the last
18 months and cash flow gets a little bit shorter.
Ideally, we try to reserve four months of cash on hand of our
total operating expenses just to have that runway and that safety
net. It's what allows maximum
creativity. When you're not sweating getting
the checks in on time, you're not sweating like bleeding of a
project because it's not managed properly.
You're able to really free up your mind to have those really
deep thinking, deep focus sessions on the work.
That truly is what we all love to do here.