Gross income for top 30 design consultancies falls for first time in nine years

The gross income for the top 30 branding and design consultancies has declined for the first time in nine years, according to accountancy firm Moore Kingston Smith.

The total gross income fell by 2.3% while operating profits overall decreased by 31.2%. While branding company The Imagination Group reported the largest gross income £76m, it was a decrease of 6% from the previous year’s £81.3m.

Significant decreases include Wolff Olins who reported a fall from £16m to £9.9m (38.1%) and Start whose income fell from £9.9m to £6.2m (35.1%). Across the top 30 companies, there was less than 3% growth.

Profits fall at 20 of the top 30 studios

20 of the top 30 companies saw their profits fall this year, according to the data collected. The average operating profit decreased from 14.9% to 9.9%, marking the first time margins have fallen below 10% since 2012.

DCA Design International, which had the fourth largest operating profit, fell by over 30% from 2018. Profits for Fitch also decreased by 34%, Design Bridge by 65% and Conran Group by 64.4%.

The sector has been affected by economic uncertainties, resulting in lower spending from clients and project delays, says Moore Kingston Smith, which specialises in the creative industries. Attracting and retaining talent also remains an ongoing problem.

Operating profit per head

According to Esther Carder, partner at Moore Kingston Smith, one of the most important indicators of performance is operating profit per head as it combines profitability and productivity. This year, the operating profit per head fell from £16,668 to £10,742.

Independent studios also managed to fare better here, as they can “manage their costs more tightly”. In this category, the studios reported an average figure of £11,202, as compared to £9,761 for group agencies.

All results fall far of Moore Kingston Smith’s suggested target of £15,000 per head.

Increase in spending costs

Moore Kingston Smith also reports that that spending costs increased from 23.3% to 29.1%. This is most likely owing to premise-related costs and freelancer fees, Carder says.

While freelancers offer a flexibility which is useful for studios working on big projects, they are often more expensive that full time employees.

Carder says: “This year has been tough for branding and design agencies as falling revenues have put further pressures on managing staff costs, resulting in a significant decrease in operating profit margins.

“Unfortunately, with continuing economic uncertainty and the changes to off-payroll workers coming in, pressures on performance and margins look set to continue.”

Due to take effect from April 2020, the updates for off-payroll workers include changes in the responsibility for deciding employment statuses, which will affect how much workers are paid, as well as tax and National Insurance.