Design profits up but client spending drops

The profitability of design consultancies continues to rise, according to a survey out this week.

The quarterly Monitor survey by accountant Willott Kingston Smith shows a continued improvement in operating profit per head. This is despite a 7 per cent fall in client spend since October 1994.

WKS partner Mandy Merron comments: “I think that clients have taken more buying of bought-in costs in-house,” so while the volume of design consultancies’ turnover is down, design workload has increased.

The ratio of gross income to employment costs is approaching 1985 levels – an “encouraging” development, says WKS. This is due to employment costs per head only rising in line with inflation as the number of employees fell between last September and January this year.

The main reason for the improvement in gross income per head, reported in Monitor, is “the growth in aggregate gross income generated by the consultancies under review”.

“Design consultancies appear to have worked hard to restructure their cost base and should be able to translate increased income into bottom line profits,” WKS says.

The two previous surveys showed consultancies having high costs because of redundancies and buying themselves out of leases, Merron explains. “They were difficult decisions to make and now consultancies are reaping the benefits,” she adds.