Over-supply of design is keeping fees down

Design consultancies are still battling to squeeze healthy fees out of clients in an overcrowded marketplace, leaving themselves struggling to generate any real profits, says accountant Willott Kingston Smith.

Although profitability has increased for the fourth time in succession, “it is not up as much as one would hope”, says WKS manager Steve Waring.

The top 20 consultancies surveyed for WKS’s quarterly round-up Monitor upped their total number of staff by more than two and a half per cent.

These new recruits “were clearly good value for money”, with gross income per head increasing more than employment costs per head, Waring adds.

However, consultancies still find it hard to generate enough income for every 1 spent on staff costs. Many report a disappointing operating profit margin of 14 per cent on gross income. “A well-run design business should be able to generate an operating profit margin of between 15 and 20 per cent on gross income,” says Monitor.

“The competition that’s around precludes [consultancies] from charging as much as they could have done” in the heyday of the mid-1980s, says Waring. “There is still an over-supply of design services.”

But Waring does make the prediction that profits will increase as activity continues to pick up and prices rise.