The design industry appears to have struggled financially in the past year, with a 6 per cent fall in turnover and a 16 per cent drop in fee-income between 2004/5 and 2005/6, according to the latest British Design Innovation Valuation Survey.
Turnover has dropped from £4.6bn to £4.3bn, while fee- income has fallen from £4bn to £3.3bn, the UK commercial design sector report shows.
Any growth has been in the mid-sized consultancies, suggesting that smaller, newer groups and freelances are struggling.
One notable observation highlighted is the widening gap this year between turnover and fee-income. The difference between the 2005 results – when turnover was £4.6bn and fee-income £4bn – and 2006, when turnover was £4.3bn and fees were £3.3bn, creates a widening gap which might suggest that workload may not have fallen by much, but the amount that clients are paying for the work has fallen.
These figures, while apparently disappointing news for the industry, are no great surprise to BDI. Maxine Horn, chief executive officer of BDI, says, ‘Designers are still struggling to get out of the commodity/supplier arena. There may also be an element of some design groups moving to Shared Risk and Shared Reward schemes – reducing fees for licensing and royalty deals or equity share.
‘Our thoughts on the future of the design industry is that it is going through a paradigm shift. The business model is changing. We will see a wider gap between strategy-led design consultancies and less strategically positioned groups. The newly emerging disciplines, such as service design and proposition creation, will pull away from the design throng and align to innovation services and to industry. These groups will re-balance their remuneration models between fees for services and licensing, royalty and shared equity,’ she says.
Meanwhile, there are very different outcomes with respect to just the top end of the market. Amanda Merron, partner at accountant Willott Kingston Smith, has checked the WKS survey of the top 30 design groups, which shows that turnover and fee-income for these lead consultancies have risen. This also suggests that bigger businesses are growing at the expense of others.
Merron says, ‘Clearly, the well-known establishments get more credibility. There is an oversupplied market with uninformed buyers, who can go and get it cheaper from someone up the road. Design groups have to articulate their benefits. They need to say they are not going to agree with the lower price and highlight why buyers should pay to have value added to their business.’
Overall, Horn is optimistic for the future of the design industry and believes it will prosper again. ‘The higher up the strategic ladder consultancies are, the more respect they will command with business through a common language. So while income was down again in 2006, the future direction for the design industry itself is positive. Changes are changes for the better,’ she says.
Separate findings of the BDI survey show that the number of design employees has fallen by 8.4 per cent from 71 000 to 65 000. Overseas income has risen by 19 per cent from £0.7bn to £0.8bn, while turnover for design groups in London has slumped by 13 per cent from £2.3bn to £2bn.
The BDI Valuation Survey results
• Turnover is down 6%, from £4.6bn to £4.3bn
• Employees are down 8.4% from 71 000 to 65 000
• Fee-income is down 16%, from £4bn to £3.3bn
• Overseas income is up 19%, from £0.7bn to £0.8bn
• London turnover is down 13%, from £2.3bn to £2bn
• The BDI Valuation Survey is in its sixth year and uses a base of 4500 commercial design groups
• More than 1500 design groups, representing over a third of the sector, participated in the 2005/6 survey
• The 2005/6 survey is supported by UK Trade and Investment
• In June 2006, BDI reclassified the commercial design sector and updated the industry design discipline glossary to reflect new skill sets