As the compilers of the Design Business Association Design Business Performance Ratios we were interested, as always, by the Design Week Top 100 and the accompanying commentaries.
We agree that profitability during 1997 was substantially up on 1996. We are, however, slightly concerned by some of the euphoria surrounding this fact, as we found 1997 to be very much “a game of two halves”.
Using operating profit as a percentage of gross income as our measure of profitability, our quarterly surveys found that the January/March quarter was good, the April/June quarter was excellent, the July/September quarter saw a period of consolidation, and the October/December quarter saw a distinct deterioration.
The main reason for this was the wage inflation during the second half of the year. Since July, across most of the design sector, the rate of increase in the cost of producing chargeable time has been substantially higher than the rate of increase in the sales value of that chargeable time. This is beginning to gnaw away at the sector’s profitability.
The 1997 figures show that much of the the sector has developed a lovely looking garden, but do please be careful. The weeds of wage inflation are pushing their way through our beautifully manicured lawn.
David Jebb & Associates
Leicestershire LE16 7LN