We all love league tables because they tell the participants just how well they are doing in comparison to one another and they tell outsiders the same sort of thing. The Financial Times produces its annual list of the most valuable businesses in much the same way that Design Week produces its league table based on design fee income – the only difference being that the FT is looking at public companies which have a published market capitalisation. Even schools are doing it now with the publishing of league tables at many levels.
I have always been a great believer in the Tom Peters concept of measuring those things that are important to you. It is only by measuring things that we demonstrate to others (our employees, for example) that we care and we then have a benchmark to see if we are improving or not. Guess what: if you start to measure the amount of repeat fees you get from existing clients, the level of repeat fees starts to creep up. Start rewarding people on the basis of this and publishing your success and the level of repeat fees starts to rocket. Try it!
However, having said all this, league tables also have big draw backs. In the world of education it is easy to achieve success in exams if you are highly selective about the pupils you take into the school. Wouldn’t it be interesting to measure how well schools do in comparison to the raw materials they have to work on – wouldn’t this be a far better measure of the effectiveness of the head and his or her team and the value that they had added to the pupils
Our 1998 Top 100 is interesting, but is in no way a value added table. The ultimate measure of value added for all businesses is, of course, profitability, since it measures how effective you are at winning new business, executing the design well, controlling the project and, ultimately, getting paid.
I would say a good target for design businesses to aim for would be a net profit margin of between 15-25 per cent. If you are achieving less than 15 per cent, then you are almost certainly running your business inefficiently. I know many consultancies which achieve in excess of 25 per cent, but margins as high as this are sometimes difficult to sustain over the longer haul and may indicate a lack of investment within the business.
Aside from profitability, one of the most powerful measures of value added in design is the ratio of fees to the total salary bill. This is equivalent to the football league added value table. It is relatively easy to hire a designer on 50 000 a year and ask him or her to generate 100 000 in fees from a client, but the challenge for a creative head is to manage designers so that a designer on 25 000 can generate 100 000 in fees. This is called leverage and it is why most in professional practice have a structure of partners and staff with a ratio of around 1:10. This is how the firms of accountants, lawyers and management consultants make their money.
So, measuring the ration of fees to total salaries in this way has all sorts of benefits. It makes sure that you train people well, that you coach people on the job, it helps you get the right mix of people in the business and helps you keep a healthy ratio of administrative staff to billable staff. The range you should be aiming for here is a ratio of between two and three. So for each 1 of salary, you should be generating between 2-3 of fee-income.
Who knows, perhaps in future our Top 100 may not be based solely on size, but rather on value added. While it is undoubtedly interesting to see who the biggest players are, it would be equally interesting to publish a list of the best run design consultancies. In my experience the biggest aren’t always the best.
1997 moves and closures
Williams Murray Banks launched by Richard Williams, formerly at Design Bridge, Richard Murray, formerly at Coley Porter Bell and Justin Banks
DMB&B launches DMB&B Design
MPL, CLK and The Brandnaming Company buy out of Princedale Group
Real Time Studio takes on Andersen Consultancy design arm, Creative Design Services
Dew Gibbons is launched by Shaun Dew and Steve Gibbons (both at formerly The Partners)
Lloyd Northover Citigate forms alliance with US group Bass Yager, which becomes Bass Yager Citigate
MTA Design buys out of Minale Tattersfield & Partners
Wolff Olins management buyout finalised
The Coleman Group buys Planet
Wagstaff acquires The Green House
Baxter Hobbins Sides becomes Hobbins Sides
Lambie-Nairn and Tutssels officially join forces to form The Brand Union
US group Diefenbach Elkins buys Davies Baron
Revolution buys Torres Design’s UK office
WPP Group buys Addison
Abbot Mead Vickers-owned McBains buys Horseman Cooke, forming Horseman Cooke McBains
Interbrand Group buys Neweland Sorreland merges it with its London office to form Interbrand Neweland Sorrell
The Jenkins Group merges with the design arm of communications group Cobalt, but stilgoes into receivership at the end of the year
Webmedia Group’s Internet design arm folds
Sampson TyrrelCorporate Marketing is merged into WPP stablemate Addison
IDmerges with Funhouse to form The Brand Works