Design staff costs threaten profits

Design companies need to marry rising employment costs with performance if they are to prevent a slide in profits, say senior industry figures.

According to an analysis of the top 30 design consultancies by accountant Willott Kingston Smith & Associates, an increase in staff levels to cope with a rise in work from, among others, dotcom start-up companies has resulted in inflated wage costs that many design groups are unable to cope with.

Research suggests employment costs per head have risen by 2.7 per cent over the past five months, while operating profit to gross income margin has fallen from 14.7 per cent to 13.6 per cent in the same period. This falls significantly short of the 15-20 per cent profit margins that companies should be aiming for, says the WKS report.

According to WKS partner Amanda Merron, companies must reward staff in ways other than high wages. “Expenditure needs to be linked to performance,” she says.

The Partners finance director Julia O’Mahony agrees high staff- expenditure is a long-term problem. “Staff costs have been rising, driven by a skills shortage which results in a small pool of designers that companies can pick from.”