Managing project costs is one of the biggest challenges interior design firms face. Between purchasing, freight, installation, and the time your team spends managing each project, there are plenty of opportunities for costs to exceed expectations or expenses to go unbilled.
Even when a project generates significant revenue, small mistakes and inconsistent processes can quickly eat into your profitability.
The good news is that a few consistent practices can make a big difference. Here are four ways to better manage project costs, protect your profit margins, and keep your projects on budget.
Just because you're charging a fixed fee doesn't mean you shouldn't track your time. Understanding how many hours your team spends on each project helps you determine whether your fees are profitable.
Track time spent on design, sourcing, project management, client meetings, and revisions. Compare actual hours against your original estimates to identify where projects are taking longer than expected. This information can help you price future projects more accurately and avoid undercharging for your services.
Don't wait until the end of a project to review your purchasing activity. Reconcile vendor invoices and payments against purchase orders on a weekly basis.
This process helps identify vendor billing errors, duplicate charges, outstanding credits, and unexpected cost increases. It can also uncover additional amounts that need to be billed to your clients.
Regular reconciliation helps prevent small discrepancies from turning into larger financial problems.
Rather than creating proposals one phase at a time without considering the overall project, establish a comprehensive budget at the beginning.
A project budget should account for furniture, materials, freight, installation, design fees, and other anticipated expenses. As the project progresses, compare actual and projected costs against the original budget.
This helps you manage client expectations, make informed purchasing decisions, and avoid surprises when the project is nearing completion.
Establish consistent procedures for how expenses are estimated, recorded, and billed across all projects.
For example with freight and related expenses, use a consistent approach to estimating and billing those costs rather than handling them differently from project to project. The same applies to receiving, storage, delivery, and installation expenses.
Consistent practices make it easier to evaluate project profitability, reduce billing errors, and ensure you're not unintentionally absorbing costs that should be passed along to clients.
Need help putting these practices in place?
Accounting Frontier helps interior design firms with bookkeeping, Studio Designer setup and optimization, project reporting, and cash flow planning.
If you’re having trouble keeping costs organized or understanding your project results, schedule a free consultation. We’ll talk through your current process and where support would be useful.