How to create your revenue budget as a design studio?
Do you have a revenue number in mind that you need to make this year in your design studio?
If you do, what is this number based on?
Are you aiming for a similar revenue target as your business buddy?
Are you aiming for 6-figures because you were led to believe this is somehow the holy grail?
Are you aiming for a 'random number' that you have in your head because you feel that this is what you should earn by now?
Are you aiming to replace the salary you had before you started your business?
Or is the revenue budget for your design studio based on your enough?
Ask yourself this...
...what $/£/€ amount do you need to earn with your business that is enough for you to live comfortably and that will keep you motivated and not burned out?
Because only you know this, you can put a plan in place to get you there.
Not sure how to get to that enough number, then you're in the right place.
Because in this blog we'll get into:
Why you need a revenue budget as a design studio
Step 1 - Start with your enough number
Step 2 - How realistic is your budget?
Step 3 - Breaking down your revenue budget
Why do you need a revenue budget as a design studio?
Before we dive into the how let's take a quick step back and dive into the importance of this key piece of your financial routine.
For everything I do in my business I want to understand what I need to do and why, how this is part of a bigger picture and how this will help me to come closer to achieving my goals.
And having a revenue budget is part of that bigger picture, not just for your business but for your life. Because if you're looking to transform your business to be sustainable, to me, this means that you didn't just start your own business as a way to bring in money. But you started your business because of the long-term results this can bring and wanting to use your business as ‘a vehicle’ to have the freedom to live the life that you want. Maybe you want to spend more time with or have to care for your family, stay home more for your kids or travel more.
But when you want to create a sustainable and profitable business you need to know the numbers at which your design studio is sustainable for you. Because how else do you know what you're actually working towards? When you've achieved it? Or when you have enough?
This is why, in the blog Finance routine: 4 key pieces your Design Studio needs creating a revenue budget for your design studio is the first key piece that I mention. As this will be the base of everything else that you will do in your business.
From knowing how many design projects you need to sell to the marketing activities you will do and the content that you write and how you spend your time (yep, this is where your ideal week comes in again and using theme days and time blocking)
So let's get into how you create the revenue budget for your design studio.
Revenue budget for a design studio Step 1 - Start with your enough number
There's a lot that goes into getting an accurate financial budget for your business. And I believe you can not do this without looking at your personal finances so that you can determine what you need to contribute with your business to your household expenses so this is where we will start.
The most important thing when it comes to creating a budget is that you do this based on your 'enough'.
Not your business buddy's enough...
Not your competitors enough...
Not 6-figures just because we're led to believe this is somehow the holy grail.
Not a random number that you have in your head that you feel you should earn.
Because something I have noticed is that often there is a big gap between the want and the need.
What I mean by this is, that the need is the revenue that is needed to cover the costs of the business for the full year, the contribution to the household expenses (regardless if you are solely responsible, mainly or have a set figure to contribute) and business savings pot as a reserve.
The want is often a revenue target that is based on what we feel we should make by now or because it is what you used to make before starting your own business.
And I am guilty of this as well. For a long time, I held on to the belief that my business was not a success as long I was not making the same annual revenue that I used to make in my corporate job. Until I realised that not only my annual income had gone down since starting my business but that also my expenses had gone down.
Just a couple of months after quitting my corporate job as a business analyst and pricing manager we moved from living just a 15-minute train ride from London to Scotland. And with this change in location, our rent was cut in half, I did not pay £7 every day for lunch and a coffee at the office or more on Fridays when we would hop into town for lunch etc.
So why was I holding on to this notion of my business not being successful as long as I did not replace my corporate office? This was based on ego, not on actual numbers.
And when all you want is more, more, more and you try to keep up with others and feel pressured to aim for the same goals (even when you're in a completely different phase in business) or have unrealistic targets all you do is set yourself up to fail.
And I am absolutely not saying that you should not have big goals, you should! But I am assuming that you're reading this because you're not hitting your current revenue targets so I want you to set a realistic revenue target that is based on facts.
So ask yourself this. What $/£/€ amount do you (your family) need to live comfortably? And how much of this yearly number do you need to contribute to this with your business?
This number will be the starting point when setting up the revenue budget for your design studio.
But it is one thing to come up with this enough number based on what you want your contribution to be to the household expenses, it's another to gauge if this is a realistic number. This leads me to the next step.
Revenue budget for a design studio Step 2 - How realistic is your budget?
Let's say this year you are making 30.000 in profit. But you have calculated that to live comfortably you want to make 50.000 in profit. So you could set yourself this revenue target for next year. But the jump from 30 to 50K is quite large. Especially when you have been able to make this 30K with one-on-one design projects from referrals and word-of-mouth.
To make this jump there is a large chance there's quite a bit that you need to change, improve or develop within your business to get to this number. You might want to launch website templates, brand strategy-related services like clarity calls or brand audits or maybe even full brand strategy sessions. All of these options mean that you have to develop these new services/products which takes a lot of time (and often even more than expected), especially when client work takes up all of your time. Add in additional education, like a program about brand strategy, and you can add in a couple more months.
Before you know it you're already in the second quarter of the new year and nothing has been launched yet. Every time you look at your goal, you know that in theory, you're getting closer, but there is nothing tangible you have to show for all your hard work and no extra money in the bank to confirm that you're getting closer.
This is where that downward spiral can come in, where setting goals actually has the opposite effect of what they're supposed to do. And where you start to feel overwhelmed instead of motivated.
Let's make sure that this doesn't happen and make your you have a realistic revenue target. If you feel the jump from 30 to 50K is too big because there is too much that needs to change in your business, what you can do instead of working towards the end goal of 50.000 is set yourself a revenue target of 40.000. And all the action plans that you're creating are geared toward this 40.000 goal. This does not mean you're not working towards your ultimate goal. All those things that you will put in place to reach your 40K are also necessary to reach the 50K.
But this will help to lower the pressure on yourself and for you to get the right things in place (whatever this looks like for your business) one step at a time to move towards the big goal.
Revenue budget for a design studio Step 3 - Breaking down your revenue budget
One of the things I often work through with clients is determining their capacity and working based on this capacity.
What this means is having a clear picture of how many hours per week you can work, what needs to happen within this week in terms of client work and business back-end and creating a weekly plan (to-do's if you will) to only plan in the work (and hours) that fit within that week.
I won't go into detail on how to set this up or why this is so important but you can read all about it in the blog about your ideal week and the blog about using theme days and time blocking.
But working this way lets you plan your capacity which is related to your revenue budget because you not only need to know your total revenue but also how many projects you can take on at any given time. Which then helps you to break down your yearly revenue plan into a monthly one.
So after you have set your revenue target for the year, you will need to determine how many times you need to sell each service to reach your revenue target. To do this you can make a list of your services and note how many times you sold each of your services so far. Then calculate what their contribution was to your overall revenue.
Let’s use the same example again and say you want to make £40.000 in revenue. You offer 3 different design packages which you sell for £1.000, £2.000 and £5.000. You sell your middle package the most, and this is generally 1 per month. Now you can calculate how many times you need to sell each service to get to £40.000.
Now you know that you need to sell:
package 1 -> 4x = £20.000 (let's say this is a brand strategy package)
package 2 -> 9x = £18.000 (let's say this is a website design package)
package 3 -> 2x = £2.000 (let's say this is a brand design package)
Now, knowing how much time each type of project takes, you can determine which type of projects you can run alongside each other. Can you take on a branding and a website design client at the same time? How about a brand strategy and website design client?
Let's say your brand strategy process is so intensive that you need 4 weeks to complete it, takes up a lot of your time but also your energy. Therefore you might say that if you have a brand strategy client you don't take on any other projects. But you can take on a branding and a website design client at the same time.
Looking at the times I mentioned in the above example you need to sell each package, you could break it up like this;
This is a simplified view of how much revenue will come in for each month as you might already get a deposit the month before, but that is ok. The aim of a monthly revenue target is not to have it match each and every month. It's there to guide you on how many times you need to sell your services, ideally when you sell these (or when you plan the start date).
So this is just your starting point at the beginning of the year. As the year goes on, your sales might look quite different because sold option 1 more or offered custom packages. So you need to keep track of how much you've sold of each service and then adjust how many times you need to sell each service to hit your revenue target. And so that you can gear your marketing towards what you need to sell.
Want to know how to increase your revenue without adding more clients? Read this article
And there you have it
How to create a revenue budget for your design studio based on your enough number. As you can see, there is much more that goes into this than ‘just’ having a number in mind. It's about creating a realistic budget based on where you are at in your business, what you need to contribute to your families expenses and what you capacity is to take on client. As well as finding a balance between the number of hours you work (with the help of business processes, systems and client workflows) and the financial result that this gives you.
But above all, you need to get comfortable with those tasks in your business that you've ignored as these are the tasks that will make a difference. These are the tasks that need to become a habit and part of your daily/weekly/monthly routine.
This is what will allow you to be proactive when it comes to achieving your business goals instead of reactive and 'just' seeing at the end of the year where you ended up.
But to get to this stage, you need to do the uncomfortable work.
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