There's a reason I focus so much on financials - 80% of interior designers own their own businesses. But not everyone has the background or skills to be a financial wizard. Yes, you have a bookkeeper and accountant (RIGHT?!?), but you need to understand every term and number yourself!! Even the most experienced business owners can get confused about two of the most important financial terms - markups and margins.

• They help you make more money
• Let you understand where you're profitable - or not
• Help control costs
• Give you insight to set your pricing

It requires a much deeper dive into your company to get to the heart of each one, and why they are SO important. So let's take a look at 5 things you have to understand about these terms.

1. Markups = Products and Services

Most people understand this one. A markup is how you set the cost of your products and services beyond what YOU paid for them. So you may buy a sofa with your designer discount at $1,000 and then sell it for $2,000, which is a 100% markup. Many designers use a sliding scale for markups, to help them hit a good profit margin on the project overall. 

1. Margins = Profits

Margins - sometimes called profit margins or gross margins - refer to the amount you make when you subtract your expenses from your income. It is the difference between what you earned and how much you spent to earn it. The higher the percentage of your margin, the more money you're making. To calculate the percentage, subtract the expenses from the income, and then divide that number by the income again. You can calculate a profit margin on your services, on a single project, or for your company's full income for the year. And I suggest you should do ALL of those! 

3. They Are NOT Interchangeable

You can be fooled into thinking you are making a lot of money if you're just marking up products and only watching your income. In general, a good rule of thumb is to have a profit margin around 40% to 45%. Then you have to mark products up more than you think to reach a good profit margin. That means your overall markup needs to be HIGHER than 40%. If you take $100 and mark it up 40% to $140, the margin is only 28.6%. 

Here is a visual to help:

4. Gotta Know Your Numbers

Hopefully you now REALLY get how and why you need to know these numbers!! You've got to have a good handle on how you're marking up your products AND how you're charging for your services so that you are DEFINITELY running a profitable business. That's why you should calculate your profit margins for each service you offer, for each project you have, and for your business as a whole. And your accountant can do that FOR you. But then you can analyze each item to see where you need to make changes!

5. This Creates Balance 

Taken together, markups and margins can help you find a healthy balance. For example, you'll find that design consulting has the highest profit margins. That would include things like Design in a Day. There are no real expenses other than your time, so the margins can be up around 90%! BUT they don't bring in as much money - you can't mark them up the way that you can with a full-service project. Understanding all of those numbers can help you decide where to spend the bulk of your time and energy, too.

That analysis is a step you should NEVER skip! It can make the difference between having a so-so year and a GREAT year! 

✨BONUS: The FREE download for analyzing ANY decision

I love a good pros/cons list!!! Get my FREE Pros and Cons for Decision Making Guide NOW. This is going to really help you decide what services to keep or change, what you need to be more profitable, and MORE.

👉 Click here to download the free guide now!

Know what else makes your business more profitable?? When it's as efficient and easy as possible! And I have you covered there too!! Click the link to learn more about my Design Project Blueprint course and templates! 

P.S. I know running your own business is overwhelming! I've been there and it isn't easy - and that is EXACTLY why I developed the Blueprint!! It really does give you shortcuts to organize your business for success.