Profits could plummet as salary levels spiral

Accelerating wage inflation caused by skills shortages in the design industry is set to hit profits as design companies struggle to pass on spiralling wage bills to their clients.

Tracking of salaries in the sector by accountant Willott Kingston Smith, scheduled to be published next month in its annual survey, shows average salary rises galloping ahead of inflation at more than 7 per cent.

The uplift in wage inflation comes despite an earlier tracking study in February which estimated salary costs per head growing by just 1 per cent to 35 513.

According to Mandy Merron, Willott Kingston Smith partner: “Salary rates are going up well ahead of headline inflation, and I don’t think consultancies are managing that in terms of increasing fee billings.

“The wage bill will increasingly cut into profit, unless agencies can counter this by linking salary to profit performance,” she adds.

Other observers concur that a skills shortage is developing in the sector, which is making it difficult to hire suitable staff. But Ashley Goodall, divisional director at Price Jamieson Recruitment, challenges Merron’s view.

“I haven’t noticed any significant increase,” he says. “I don’t get the feeling that design consultancies are throwing money around. I think they are being very sensible about costs, and people don’t want to risk paying over the odds. They are adopting a sensible business attitude of keeping costs under control.”

There is agreement, however, that demand for design skills in the new media and interactive sector is driving up salary or consultancy freelance fees, and tempting designers to switch disciplines from other “classic” or more traditional design areas.

Clifford Weatherall, interactive recruitment consultant at Gabriele Skelton, estimates there is 30 per cent more demand for interactive design staff than last year, with salary or consultancy rates up by 20 per cent since the end of last year.

“There’s definitely a skills shortage in the multimedia area. It’s getting to the point where we have more briefs than people,” says Weatherall. “It’s a ridiculous situation. There are some extraordinarily good jobs, and no one to fill them.”

Meanwhile, a boom in interior design created by big-spending high street retailers is also creating a bottleneck in supply of experienced designers.

“Retail interiors was an area hard hit during the last recession,” according to Goodall. “Now work is coming back, there are not enough people around.”

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