You wou ld wheel c n't re-invent the reativel y so avo with you id it r busine ss mode benchm l and ar k you r pr og r e ss!
MyCake is now 5 years old so we thought weâ€™d celebrate by focussing the 7th issue on a review of how creative businesses have fared across the last five years i.e. before and after the recession. Weâ€™ve looked at how many employees these businesses hire, how much people charge per hour and how the average turnover has fluctuated over the last 5 years. Most importantly we make some practical suggestions on how creative businesses might use this knowledge to plan ahead.
Staff, crews, and teams: Lets start with a review of the sorts of businesses who use MyCake these days. On average MyCake users started their business 5-10 years ago so whilst we meet a lot of start-ups many will work with an excel sheet in the first couple of years of operation before switching to a proper book-keeping system such as MyCake. However whilst many MyCake users are now becoming more well known names in their sector many still keep a fairly small base of employees and fit within the micro-business category of 1-5 employees. In fact it’s noticeable that whilst the average number of employees before the recession was 4 that’s dropped down to 2 in 2012. When we look in more detail at where the costs in the businesses are you’ll see that whilst in some cases this is due to folks having a tough recession and a reduction in their turnover for others this is due to a shift to using more freelancers in their workforce rather than full employees.
hr. If this is you then of course you need to be looking at what the market will allow you to charge but you should also be considering whether the value of your time contribution is accurately reflected in the look and feel of the products & services you’re creating and whether if the materials or time cost were to be reduced whether you could maintain the price point. You could also consider whether you are working efficiently and at capacity? If you can increase the output per hour then you’ll see a greater profit per piece or project.
Hourly charge out rates: The average hourly charge out rate has also shifted from a steady £37/hr from 2007 to 2010 to a peak of £58 in 2011 and is now sitting at £44/hr. It is however worth noting that the maximum charged by any MyCake user is still over £100/hr and
eo ur vid Vi e w o o u r l y h about re! he rates
What is the average turnover of a MyCake user and has this changed over the last five years? Well as of 2012 the average turnover of a MyCake user is around the £75k/annum mark … big enough to know that compulsory VAT registration is just around the corner so ensuring your finances are managed properly is key as is understanding how VAT affects your pricing to customers. We suggest you consider registering for VAT before your are compelled to do so particularly if your customers are themselves VAT registered because this crowd at least won’t really notice the difference. We also have a clutch of customers who’ve reached or are aiming for the £1m/annum turnover level as well as a clutch who are turning over under £40k/annum … common sense isn’t related to turnover ☺.
unsurprisingly it’s folks in agencies and other service providers who are up at top end there. Sadly there’s also still a fair old crowd of people charging under £10/
So has this profile changed over the five years we’ve been running i.e. can we see any impact of the recession at this level? The short answer is yes we
can. Naturally over a five year period the MyCake user
So if these turnover figures have dropped we also
base has changed as new users have arrived and a
need to take a look at how this plays out in terms of
few have left. This means that we need to be careful
the changes in income/creative and profit/creative –
about how we make comparisons across this time pe-
so… if you are micro creative business how are you
riod because we’re not looking at a constant user group
balancing the need for enough staff to deliver pro-
so some of the spikes may be more due to a change in
jects with the efficiencies they need in order to con-
the make up of the group than the economic conditions
tinue operating at a profit?
affecting the businesses in the group. So we’ll focus on some of the successes as role models for the MyCake user community. Ok, well it looks to us like the recession really kicked in terms of turnover in 2009-10. Whilst the maximum turnover of the micro businesses (we’re cutting out the data on the biggest MyCake users to even the sample out a bit) is fairly steady at around £600-700k/annum it is the average turnover that’s dropped in the recession. Back in the golden years of 2007 and 2008 this average was around £105-130k/annum but by the time you fast forward to 2010 and 2011 this has shrunk to about £75k. That’s a heck of a drop in turnover and starts to shed light on why employee numbers have taken a dip and companies are turning to project based freelance staff. It’s not just the folks in the middle who’re having a harder time. Even the best 25% of MyCake users (the top quartile) have seen a 20% drop in revenues. To put it another way it used to be that the largest 25% of MyCake users was all those with a turnover of over £170k/ annum, that has now dropped to around £145k/annum.
Earnings per (creative) head: Rather than look at the total turnover of MyCake users in isolation we think that looking at the earnings and the profit per creative person in the organisation is a useful additional measure of the creative efficiency of these companies. Of course if you’re a sole trader the total turnover and earnings/head are the same thing but it’s still useful to compare the sole trader crowd to the 1-5 employee
crowd as it means we can look at what might lie ahead
best in class and the average.
as sole traders grow their operation and we can also
What else do you need to know about these figures?
see which of the efficiencies of sole traders are translating through the growth phase of the bigger firms. There’s a clear trend from 2007-2010 of dropping average sales/creative. 2011-12 seems to be show an upturn but not all MyCake users have finished doing their accounts for 2011-12 so perhaps we’ll wait and see if this number changes as more data comes in to the benchmark. We can release the 2007-10 data though. All of this is the average across the MyCake users with
Well, MyCake users are a mixture of product based and service based creatives so whilst 35% direct costs would be very high in a service business it would be at least in the normal range (albeit fairly high) for the product based crowd. How do these figures compare to the achievements of other
Gross profit as a % of turnover a turnover of <£1m/annum. Important points:
• The maximum income/creative in 2010-11 was around £140k • The maximum gross profit/creative around £77k There is therefore a significant difference between the
businesses. Well we’ve seen another set of data that indicates that the small to medium sized agencies are achieving over £60k/creative on average with the best in class achieving over £100k/creative.
How can you use this information? The reason this is useful is that if you’re considering how you might grow the business you need to have an idea of how much growth you might achieve by adding one or two more people as you’ll need to set higher sales targets to ensure that you make enough profit to cover the additional overheads. So having a ball park figure for what an additional creative is worth to the company is certainly something you can add into the mix when creating next year’s budget. You obviously need to consider whether you need more space for the extra people to work in and the various indirect costs associated with this and this and the change in dynamic in the team when you add new people means that small firms often grow quite slowly to start with as each addition can make quite a change plus few firms can afford to hire a whole lot of people at once .. the cashflow won’t stand for it until you’ve brought in some new clients!
!! ACT NOW
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Weâ€™ll look at product and service based businesses separately given the significant differences in their business models.
Published on Nov 15, 2012
MyCake is an online toolkit helping creative businesses to manage finances simply and easily. This bulletin, the 7th in our series, explores...