Design “more profitable than other creative sectors”

The design industry is outshining creative sectors in terms of both profitability and productivity, according to new reseach.

Accountant KingstonSmithW1 says that with the exception of design, every other creative industries sector is suffering from shrinking margins. Design is out-performing sectors including advertising, public relations, media buying and direct marketing and sales promotion.

According to KingstonSmithW1’s Marketing Monitor survey, the design and branding sector has grown by 4% over the past six months, with an extra £23 million in gross income since the previous Marketing Monitor report in December 2014.

Fees have risen while staff costs have remained the same

The Marketing Monitor focuses on the top 30 consultancies in each sector. For branding and design these consultancy profit margins have risen from 11% to 11.8%.

The report reveals that these consultancies have increased fees without proportionately increasing spend on staff costs.

However KingstonSmithW1 suggests a healthy operating profit margin should be 15-20% and only nine of the top 30 consultancies have managed this in design and branding.

Freelancing is on the rise

The sector shows that on average employment costs are identified as 57.7% of gross income, a reduction from the 58.8% recorded at the end of last year.

KingstonSmithW1 says: “It is becoming progressively difficult for the design industry to be able to employ all the skill sets required to service their clients, particularly where digital skills are involved.”

This means that consultancies are calling on freelancers more often and therefore the spend on people costs are likely to be higher than the 57.7% indicated.

Salaries could be set to go up

Productivity is defined as gross income per head, which has slightly increased to £103,188. There are 19 of the top 30 consultancies with income per head in excess of £100,000 and of these 10 are in excess of £120,000.

While average employment costs have remained much the same in the sector, (£59,569), there are likely to be additional pressures on consultancies to increase salaries as wages have remained stagnant for some time.

Meanwhile increased pension contribution legislation will also make a difference in the coming months and KingstonSmithW1 warns that this could dent margins.

Digital incomes have dipped slightly

Operating profit per head can also be identified. It measures combined productivity and profitability and registers an all time high of £12,223 per head for the sector, an increase from the previous report’s £11,316.

Digital is listed as a separate sector from branding and design. In this sector operating profit margins and productivity register a slight dip, but only eight of the 30 digital consultancies included in the previous edition of the report have released new figures.

KingstonSmithW1 points out that the drop in profits of one particular (un-named) digital consultancy may have skewed the digital result.

You can read the KingstonSmithW1 Marketing Monitor at www.kingstonsmith.co.uk.