Why Your Design Firm Isn’t More Profitable — And How to Change That

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Like any business, running a design firm is a balancing act that can leave even the most talented designers struggling to turn their passion into profit. For many, the problem isn’t so much a lack of projects or even a shortage of clients but rather a matter of financial structure. If you’ve ever felt like your business brings in plenty of revenue but somehow never seems to keep it, you’re not alone.

This is why we encourage you to consider the Profit First mindset. Popularized by Mike Michalowicz’s book of the same name, this approach flips the traditional equation of Revenue – Expenses = Profit on its head. Instead, it starts with the premise that profit shouldn’t be an afterthought but a fundamental part of your business plan. Revenue – Profit = Expenses.

In this article—based on a DesignDash Podcast episode on the same topic—, we’ll explain why this approach is such a game-changer for design firms, particularly those who want to scale. We’ll explore how it can help you keep more of what you earn, avoid common financial pitfalls, and create a healthier, more sustainable business model. Whether you’re a solopreneur or managing a team, these insights can help you run a more profitable, purpose-driven firm. Let’s get into it.

What is the “Profit First” Approach?

As noted in the intro to this article, the Profit First approach flips the script on traditional business budgeting. Most business owners follow a straightforward formula: Revenue – Expenses = Profit. This means they take in revenue, cover their costs, and whatever remains becomes their profit. While this seems logical, it often leaves businesses with little to show for their hard work, especially in an industry as unpredictable as interior design.

Profit First changes this equation to Revenue – Profit = Expenses. Instead of hoping there’s money left over, you start by setting aside the profit you want to earn and then structure your expenses around that. This is a proactive approach that forces you to prioritize profit, rather than treating it as a lucky leftover.

Taking on this mindset shift can be a game-changer for design firms that want to grow, invest in their teams, and take on larger projects without sacrificing financial stability. If you want to build a business that consistently puts money in the bank and offers long-term security, keep reading.

Find Michalowicz’s book on Amazon here.

Why Profit First is Ideal for Growing Firms — And How It Has Helped LUDC

For interior design firms looking to scale, the Profit First approach is both financial strategy and mindset. It encourages business owners to think like CEOs; designers should prioritize profit and long-term sustainability over short-term wins, but we understand that most designers don’t think like business owners. They think like creatives. Still, this approach has been transformational for Laura U Design Collective; it has helped them grow from a small, scrappy startup to a thriving firm with a team of fifteen-plus. Let’s take a closer look at why this approach works particularly well for firms looking to grow.

Profit is Non-Negotiable, Not an Afterthought

Melissa emphasized that profit can’t just be whatever is left at the end of the month – it has to be a non-negotiable part of your financial plan. She explained that while some designers might already be paying themselves a salary, profit should still be set aside separately. It’s about thinking long-term, whether you’re looking to hire, expand, or invest in a new marketing push.

More Predictable Cash Flow

In this episode of the DesignDash Podcast, Laura shared that in the early days of her firm, she didn’t pay herself a salary for the first five years. Instead, she took home whatever happened to be left over after expenses. This inconsistent approach made it hard to plan or invest in the business. Now, with a profit-first mindset, she can confidently pay herself a regular salary, which has brought much-needed stability and peace of mind.

Scalability for Teams

Scalability and flexibility are key, but putting profit last doesn’t allow for either. Melissa pointed out that hourly billing works particularly well for firms with teams because it ensures that every billable hour contributes to the bottom line. For example, a junior designer should not only cover their own salary but ideally generate a significant profit margin as well.

This makes it easier to grow the team without constantly worrying about covering payroll. Each new hire can contribute directly to the bottom line, rather than just adding to overhead.

Better Financial Decision-Making

Laura and Melissa also stressed the importance of separating profit from regular cash flow. They don’t just look at their bank balance when making financial decisions, because a large portion of that money often belongs to clients for custom furniture orders.

Instead, they track their numbers closely to avoid costly surprises. This clarity allows them to make smarter spending decisions, whether that’s investing in a new team member or taking on a large photo shoot for their portfolio.

A Clear Path to Growth

Melissa explained that if a firm’s goal is to double its profit, the first step is setting a clear revenue target. For example, if they want to bring home $200,000 in profit, they know they’ll need to generate roughly $2 million in topline revenue, assuming a 10% profit margin. This kind of goal setting gives them a concrete target to aim for, rather than just hoping for a profitable year.

Before You Implement “Profit First,” Consider These Common Pitfalls

Even with the best intentions, many design firms struggle to stay profitable. Laura and Melissa highlighted a few common challenges that can derail a profit-first approach. Be sure to consider these pitfalls and discuss the strategy with your financial advisor before making major changes.

Don’t Cash Flow with Profit

Melissa emphasized the importance of not confusing cash flow with profit. Just because you have a large bank balance doesn’t mean you’re profitable. Much of that cash might be earmarked for vendor payments or project expenses. Both Melissa and Laura stressed the importance of separating client deposits from true profit, so you don’t accidentally spend money that isn’t really yours.

Try Not to Overspend During Boom Times

Laura admitted that it’s tempting to overspend when business is booming, but this can easily create financial strain during slower months. She noted that many design firms fail to set aside profit during peak seasons, which leaves them struggling to cover expenses when the work inevitably slows down. This is one reason Profit First is so powerful; it forces you to prioritize profit even when the cash is flowing.

Avoid Inconsistent or Inaccurate Time Tracking

Both Laura and Melissa emphasized the importance of tracking your time accurately. They pointed out that many designers end up giving away significant amounts of unpaid work simply because they don’t track their hours properly.

This is a particular risk for firms that use fixed-fee pricing, where it’s easy to underestimate the true scope of a project. Accurate time tracking is absolutely essential if you want to ensure your team is profitable and not working for free.

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Wrapping Up with Actionable Steps You Can Take Today

For design firm owners, adopting a Profit First mindset can be transformational, but it’s not without challenges. When implemented properly, it can empower you to take charge of your financial destiny, prioritize profit, and build a business that supports the life you want to live. As Laura and Melissa emphasized, it’s not just about earning more; it’s about keeping more of what you earn. Try taking a few of these steps to enhance your firm’s financials.

Set a Clear Profit Goal Right Away

Decide how much profit you want to take home each year and work backwards from that number. For example, if you want $200,000 in profit, you’ll need roughly $2 million in topline revenue (assuming a 10% profit margin).

Pay Yourself a Regular Salary

Even if it’s small at first, paying yourself a consistent salary creates financial stability and helps you plan for long-term growth.

Separate Profit from Operating Funds

Use a dedicated bank account or a detailed cash flow document to keep client deposits separate from true profit. This prevents costly surprises and helps you make smarter financial decisions.

Track Your Hours Meticulously

Bill for every hour your team spends on client work. This ensures you’re not leaving money on the table and keeps your projects profitable.

Treat Your Team as a Profit Center

Make sure each team member is generating significantly more in billable hours than they cost in salary. This mindset makes it easier to scale without constantly worrying about payroll.

Plan for Peaks and Valleys

Set aside profit during busy seasons to cover expenses during slower periods. This helps smooth out cash flow and reduces financial stress.

Know Your Margins

Regularly review your gross profit margins to ensure your projects are truly profitable. Aim for at least 50% on design services, as Laura U Design Collective does.

Think Beyond the Next Project

Focus on high-value projects and larger, more profitable clients. This approach creates a more sustainable business and reduces burnout.

Avoid Overspending When Business is Booming

Resist the urge to overspend during peak times, and remember that slow periods are inevitable. Stay disciplined and stick to your profit goals.

Keep Learning and Adjusting

Profit First isn’t a set-it-and-forget-it strategy. Regularly review your numbers, adjust your goals, and keep pushing for better margins as your business grows.

Stay Tuned for More Helpful Firm-Running Tips

If you’re ready to take the next step, stay tuned for upcoming episodes of the DesignDash podcast. Our team will continue to dive deeper into topics like cash flow management, team building, and effective time billing alongside incredible guests from the design industry. In the meantime, drop a comment below or share your own profit-first stories; we would love to hear how you’re building a more profitable, purpose-driven design business.