How to make your creative business more profitable

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There's more to business success than knowing how to network. For the most part, successful businesses emerge as an outcome of a thoroughly planned and well-executed strategy.

• 8 ways to make more money in 2018

While luck may be a small factor, success is always primarily 'engineered' through successfully defining and following a path that embraces profitable opportunities. The question isn't about who or why people are successful but how can success be crafted?

What is success?

Success can be defined by many factors but, from a strictly business perspective, it's all about the money. Making profit is the name of the game – or at least breaking even. If the primary objective isn't making a profit, it's not a business. At best it's a social enterprise or charity; at worst it's merely a hobby. 

Creatives are often guilty of wanting to use their passion to run a business but actually treating it as a hobby. It probably doesn't help that many, if not most, academic courses in computing and design don't teach how to apply technical theory to real business situations. Growing your business requires you to sidestep any technical rules that are in contrast to the needs of the business. That is, all technical implementation needs to be executed with a focus on being profitable – even at the expense of breaking technical principles if required.

Growth options

All options for growing a business can be boiled down to three areas:

• Sell more of what you already do
• Charge more for what you already do
• Sell things you don't already sell

Each of these options has clear benefits that are applicable to different situations and ambitions. For people who are happy with how their business already operates, the answer is simple; sell more or charge more. The answer to which of these is most suitable is defined by two factors: the characteristics of customers and delivery processes.

There's no law to stop a business from charging millions of pounds per hour for their services. Just two factors stop this from happening – the willingness and ability of customers to pay the quoted rate. As a result, product and service pricing has to be produced inline with whatever there's a market for.

Small profit margins limit the amount of time you can invest before you lose your profitability

More people are able and willing to pay for lower prices, so it makes sense to adopt a low pricing strategy if you aim to make many sales. The problem at this end of the market is profitability. Small profit margins limit the amount of time you can invest before you lose your profitability. This means that you must have the right processes in place to maximise efficiency and avoid wastage. Without these processes, you risk finding yourself in the situation where you end up making less money.

At the other extreme, being able to charge higher prices depends on your customers placing value on factors other than just the price you sell your products and services for. This could be appreciation of the quality you deliver, trust in your ability or your brand reputation. Whatever the reason, an ability to sell at a higher price requires customers who value factors beyond price – and who are able to pay the amount you want to charge. These customers typically seek a level of service that isn't possible to deliver with budget pricing.

For people seeking a new challenge, there is also the option of applying existing skills and knowledge to introduce new products and services to the business. Ideally, these would complement something that the business already sells, which would enable easy sales to existing customers. This option is riskier because demand hasn't been proven – this is especially problematic when you are looking at products that require significant investment before they can be sold.

To be forewarned is to be forearmed. The best approach to managing these risks is to create a solid plan that produces a clear picture of what needs to be done. And the first step of this is to understand the environment your business exists within.

Business model canvas

Visual tools like the business model canvas enable you to see opportunities that exist for evolving your business

Whether you want to attract new types of customers or increase the number of products and services you offer, visual tools like the business model canvas enable you to see opportunities that exist for evolving your business. The business model canvas is a tool that gives you the ability to recognise the important components and relationships needed for your strategy to work:

• Key partners are the people and businesses you can work with who will add value to what you sell.
• Key activities include anything that you need to invest time in so that you can run the business.
• Key resources are the equipment and digital services you'll need to deliver your product or service.
• Value propositions highlight the reasons why people would want to buy from you: what problem can you solve?
• Customer relationships detail critical information about relationships with customers, including factors such as loyalty and support costs.
• Customer segments describe the characteristics of customer groups you sell and market to.
• Channels identify how you are able to reach current and potential customers – for example, where to advertise.
• Cost structure enables you to identify profitable price points for anything that you sell
• Revenue streams are the methods you will use in order to make money from the business.

From what makes money through to the reasons why people will buy into the idea, these categories enable you to identify answers to the important questions of the business idea. From a financial perspective, cost structure and revenue streams are the two categories that should be given the most attention. Getting these wrong will lead to a failed business, no matter how good the planning and execution of the other categories is. The reasons for this are the fact being profitable depends on understanding how money is to be made and because the costs of running the business and making sales need to be stacked up against the income generated.

Understanding what makes money and what costs money results in better decisions to define and refine the business model. Every other part of the canvas supports the identification of the financials in one way or another. This ensures you avoid mistakes that on paper sound feasible, but that in reality turn out to be impractical.

How much should you charge?

Many people who are new to the web design and development business sell websites using the pricing structure of a product. Without enough business experience, this almost always leads to money being lost. If taking this approach, it's important to remember that although the customer is buying a website, you are ultimately selling the time to create what they want – no matter what pricing model you use. The easiest way to remain profitable with your work is to price using time and materials – the only question being how much do you value your time to be worth?

An understanding of the client relationship should be used to estimate the time that prices are based on

When selling services at a fixed price, a bit more effort is required to make sure that projects have the highest chance to be profitable. This includes evaluating how client relationships and the available resources should affect the quoted price. With custom website creation services still being an issue of time sold, there is the issue of 'ideal' time and 'actual' time to complete the project. A client with a track record of being efficient to work with is less likely to drag out a project, while a client who is known to be problematic or overly bureaucratic should be expected to cost more time. For this reason, an understanding of the client relationship should be used to estimate the time that prices are based on.

The major problem with this kind of pricing model is that you need prior knowledge of the client, along with experience of the problems that can be caused by difficult clients. Both of these are issues that can be difficult to understand without having significant experience of project management.

Maximise profit

There are only so many hours in a day, so maximising profitability is all about selecting the work that delivers the most profit from your available time. It doesn't matter whether you sell a product, a service or a mixture of the two – if you invest your time in activities that produce the lowest profit margins, you are missing opportunities to make the most money with your time.

It's also important not to confuse turnover with profitability. When expanding your business to involve other people's services as an employee or supplier, the income generated by what you sell can easily become misleading. At first glance, big numbers seem impressive but this money is quickly eaten up by people you need to hire to deliver the work. Without proper scrutiny, it becomes easy to simultaneously grow the turnover of your business while reducing your profit – or even making a loss. This is where maths becomes a useful tool; numbers tell the story of what's happening but you need to know how to read the numbers to understand the story.

When time is limited, you need to avoid activities, clients and products that distract you from maximising your profitability

When evaluating the numbers, it's important to remember that some costs are fixed, regardless of how many sales you make. So think about how many sales you need to make to cover these costs. Conversely, other costs are proportionate to the number of sales you make, so always ensure that you incorporate these costs into your unit pricing.

When time is limited, you need to avoid activities, clients and products that distract you from maximising your profitability. This includes those that are not profitable or less profitable than other available options. While this may sound harsh to clients, it's important to remember that the work you do is business – nothing personal. Although clients hire you because they view you to be worth their money, you must provide your availability to the clients who you value to be worth your time. This means favouring clients who are productive to work with and, most importantly, fund the time you allocate to them without expecting freebies or discounts that hurt your profitability.

Another factor to consider around maximising profitability is thinking about the short, medium and long term. It's important to be ethical in business because although making a short-term profit is always tempting, it can limit your abilities in the long term. And this works both ways. Customers who may initially buy small services or products from you are likely to return for higher-value purchases once they see that you are reliable and capable of delivering the results they want.

Technical application

Much has been said about business strategy but remembering how technical issues impact its execution is a priority. Increasing profitability can come in part – or entirely – from how you implement your creations. Agile methods of developing website code and design components can mean the difference between change requests taking just a few minutes or taking a full day to implement. Learning and embracing these practices, therefore, make a significant impact on projects that operate on a fixed budget.

This article was originally published in issue 309 of net, the world's best-selling magazine for web designers and developers. Buy issue 309 here or subscribe here.

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