Design Bureau: Economic Model
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- popovich
So I've been practicing myself in calculating economics for a design studio, which should grow from 3 to 15 people in 5 years, doing jobs for some random clients, moving from small office to a larger one — everything from starting up to rolling down the road... but then I realized how stupid this all actually is, if I cannot articulate the economic model of the design business. What drives a business like this?
I am now doing some manager job at a company, where the economic model is "buy for $1- sell for $5", which is basically an economic model for every trader. It may vary from "buy a lot cheap, sell in small chunks expensive" to "buy a lot cheap, sell a lot immediately and not so expensive", and so on. Anyway, the case is clear.
Another [random] example would be a toilet paper manufacturer, where the economic model could sound like "buy paper, cut, package, sell wholesale", where the business would depend on the volumes of paper it can turn over; which would probably lead the company to grow its production, to eventually expand the offer to kitchen paper towels, then probably seeking to buy out couple of suppliers to drive costs down and so on. This one was easy, too.
What about *our* industry? [I am saying "our" while working for a trader? yes, I do, I belong here, I guess]. I mean basically everyone, who is in touch with intangible goods, creative services like advertising, photography, video production/editing/FX, copy writing, etc. What is the business model of BBDO/JWT/Ogilvy? Or maybe someone can trace down the thinking of the people, who started these companies? What was the plan of the founders of YouWorkForThem, Pentagram, MK12, Brand New School? Is it "draw, sell for 3$, draw more"? Is it "do a project for a client, get paid, do another project"? Or maybe "get a client with big budget, get another client with big budget, get three more clients with small budgets"? How do all the supppliers fit in this model, i.e. an ad agency commissioning a commercial video to a creative boutique, which in turn hires video FX company, production company, model agency and cattering service on location?
Just please don't come saying it's all started with a breeze of fresh air and an inspiration to do something beautiful. Even if this is true for a couple of businesses, it's not really descriptive to the industry.
Phew...
- popovich0
dang, that was a long one.
- akrokdesign0
i am sure some started their own firm cause they want a bigger piece of the cake.
- enjine0
excellent questions
take refuge, if you need it, in the fact that you are knowledgeable and capable of articulating these concerns. that is the business side that a lot of creatives lack. though it sounds as though you are thinking big. very big. perhaps more business than creative?
- Amicus0
Most designers work on the I want to make $x therefore I should charge $y/hr and then end up working a shiteload of free hours cause they are passionate about doing a good job (or are addicted to QBN).
- This is the unfortunate truthJosev
- Very true... The amount of free work ive done just to satisfy me shits me sometimes! Anyhowbkpatterson
- Pupsipu0
Sorry but it starts with a breeze of fresh air and inspiration. If you want to understand the way "creatives" or "designers" think about business, good luck.
Only reason it's not descriptive of the industry is because business people run the big agencies. They have a pretty standard approach to business. Quantity over quality is a tool for destroying competition, it's as true for McDonalds as for BBDO/JWT etc...
- cannonball0
it starts with wanting to own/run a business. then you adapt to make it work based on your position. there is no formula.
- popovich0
OK, so the fresh air and inspiration are probably one of those drivers, which lead people to thinking how cool it would be to have one's own agency. No question. I am even almost convinced, that "cool", "inspiration", "my own" are the keywords for the starters-up in this industry. But this is not a business model. You cannot base your business plan (if you are so far) on these terms.
I still do not have an answer, but monNom is right — this is a service model. Dare to expand on it?
Here is another read, if somebody cares — the story of Attik http://www.creativereview.co.uk/…
I may be mixing things up here, strategy and economic model, however I believe that both are crucial for this discussion.
- BaskerviIle0
wow a thread that actually address some real-world design industry issues! I think business/economics should be taught at design school. We were lucky and we had a short module about how to run your own small studio/manage jobs/markup work and printing for a profit etc.
If we admit that design is essentially a commercial practice then we should all be much more aware of the business side of things. All the threads on here about people not getting paid on time, or having clients drop out could be attributed to designers not having the business knowledge to draw up the right contracts, manage time well, to draw a line between the business and creative sides of the job.
- vaxorcist0
Depends on type of agency..
Agency of Record for a client in the ad business often means a monthly retainer and a percentage of media buy. That said, business models are in a stage of change now, and smaller agencies are getting lots of clients who are tired of supporting the overhead of large agencies....
Some agencies have their own media-buying arm, some outsource it, some have freelancers do that, but the ad buy negotiation is something small creative agencies often don't do well, and may get out-negotiated in..
And, of course, finding GOOD clients is more important than anything else....
- Scotch_Roman0
This is a question I'm trying to answer for myself right now. What I know so far is that I want to stay small (never more than one other designer, a bookkeeper and a new biz manager); partially because I just like the vibe of a small studio, and partially because it means less overhead and the ability to crush my competition on price, all while ensuring the work is still lucrative for me.
As far as pricing, I charge what I think the market can bear, based on national data, for someone with my skill set and experience.
Is that a business model? I'm an intellectual service company. I charge what I think the work is worth (well, I try to anyway). Does it need to be any more complex than that, for someone of my size and projected growth?
- janne760
I had a few bussinesses too. around 75-200 employees depending on what we did. i sold my ad agency BDDBBDKWK to TBWWBA and now merged to BKBKDKAW/Mojito a brand new 4d interactive lunar department.. i earn 56 k ... per month, daft eh?
- cannonball0
I think we at WBBTWTFBBQ/Mindfilch went up against you for the Del Monte account not too long ago. Crackerjack work there old boy.
- Scotch_Roman0
WTFBBQSplozionz™. Now there's a shop I'd like to hang my hat in.
- Pupsipu0
see nobody has clear answers. All the business knowing people are busy.
- popovich0
The part of the problem is that normally services have standard rates, which are easily accessible for a client (and, of course, for this business owners). Say, if a client comes to a solicitor, there is a standard rate which will apply to the required job. Architects also have some easy formulas to calculate the job (normally, percentage of the construction costs — though, this may not always be the rule). And then, such a service will grow the standard rates out by making a good name, by winning at courts, by getting awarded by the industry, whatever. The problem with the design industry is that there exists no standard rate for the jobs and such rates will be also handled as a top secret. "Charge as much as you *think* you are worth of". What kind of a challenge should this be for a beginner? How this thinking should be clarified for a client? "I *think* this job costs this much"? In this view, businesses like logoworks.com or dreamtemplate.com have quite clear statement and job rate which a client can easily grasp. Certainly, this kind of business might not be as rewarding as running your-majesty.com and winning Fave Website Award, but it is at least "quantifiable".
Certainly, running a small agency and a big network are differrent businesses. However, as we are talking here about starting small, this is what interests me most. One thing is clear — there should be one or a couple of strictly defined products to offer. A group of 3 people cannot seriuosly offer the full range of design services without sacrificing the credibility of such offer. This is what should be defined and calculated, I guess.
On a side note, I have noticed, that offering a tangible product — like posters, t-shirts, books, stickers (wall stickers anyone? www.wallstickers.ie) — makes the whole business more credible and might help survive in the first "delicate" phase of the start-up.
More comments?
- popovich0
Another addition: the number of the variables, which belong to this job. One of the easiest questions which has no definite answer "How much is a website?". Compare it to "How much is the freight from A to B?". Whereas with the second [transportation] service the answer depends on the weight, distance and trasportation way (by car, by air, by rail, by sea), can be given quite promtly and is clear to the client, the first question needs much more variables to be clarified before an <em>estimation</em> can be done in the first place.
How much is a business card?
How much is a logo?
How many times can you actually sell these services?..
- mranon60
popovich, you sound like a fucking newbie. I don't believe for a second that you're a financial analyst.
You claim not to understand how value is created in this market? And then you go and say " "cool", "inspiration", "my own" are the keywords...but this is not a business model. You cannot base your business plan (if you are so far) on these terms."
Are you fucking stupid? Do you not understand that this business is based around "cool", "inspiration" and "my own/unique"?
You have to be a fucking braindead moron not to understand this shit. This industry revolves around the creation of intellectual property, IP that is "cool", "inspired", and "unique". We provide a service and often turnover the creation of "cool" and "unique" Intellectual property as an intangible asset which yes, can actually sit on a company's books.
God you're an idiot.
And then you go and say how there isn't any clear pricing? Have you NEVER encountered a fucking line-by-line estimate in your short little wannabe businessman career? Do you not understand the concept of an hourly rate?
- mranon60
"there should be one or a couple of strictly defined products to offer"
Oh shit, tell that the to the clients. God, you're hopeless. You will not make it in this industry. You're not even a good beancounter.
- mranon60
"The problem with the design industry is that there exists no standard rate for the jobs and such rates will be also handled as a top secret."
There is not a single industry, in the entire world....where one thing costs one amount.
Fuck even the grocery store has different prices on fruit depending on how fresh or rotten it is.
Depending on how "fresh" or "rotten" the designer is, they charge different rates.
How are rates determined? Are they often pulled out of peoples asses? YES. But guess what, we have this nice little thing, maybe you've heard of it...it's called the free market. I could charge $300/hour but that doesn't mean the market will bear that much. I won't get hired.
Go back to Econ 101.
- You have to be a fucking braindead moron not to understand this shit.gung_hoek