THE UK COMMERCIAL DESIGN INDUSTRY DROPS IN VALUE BY GBP 1.4 BILLION - PART 1 OF 2
Now in its fourth year, the 2003/4 British Design Industry Valuation
Survey undertaken by the British Design Initiative in association this
year with UK Trade and Investment and in the three previous years with
the Design Council used a base of 4000 commercial design agencies; 1600
responded in full.
The 2003/4 results show the sector in trouble as it struggles to charge appropriate fee levels commensurate with value and overhead investment.
- Turnover down by GBP 1.4bn to GBP 3.9bn (-26%)
- Fees down by 0.5bn to GBP 3.1bn (-13%)
- Overseas income down by 0.1bn to 0.5bn (-13%)
- Employees up from 68,000 to 70,000 (up by 3%)
- London market share down by 0.4bn to 2.2bn
- 58% of the sector now occupied by the 0-5 employee bracket
The 2002/3 results had already recorded a sector turnover drop of GBP 1bn over the 2001/2 results. That drop was associated to economic changes post 9/11, the previous year's dot com crash and the end of all millennium funded activities. (See www.britishdesign.co.uk > design industry valuation for comparison results and full 2004 results.)
In a recovering market economy we could have expected to see the UK commercial design sector at least hold its 2002/3 position if not slightly improve upon it.
So what happened?
The results suggest that client companies have not yet fully recovered from the economic down turn and agencies may have to wait a little while longer before whilst client confidence re-builds and marketing activity significantly increases. These figures are one year behind and anecdotal indications are that client marketing activity is beginning to increase.
The continued redundancies brought about an increase of new start-ups as well as shrinkage in the 6-10 employee bracket has seen the 0-5 bracket increase to occupy 58% of the market (up from 54% over 2003/3 and up from 34% in 2001/2).
Design has become a 'commodity'. Agencies are competing purely on price rather than on expertise & market sector experience especially in the 0-5 bracket. This is upheld by results which show that the 0-5 share of turnover has decreased even though in terms of percentage they make up the larger part of the industry.
Fees charged are at an all time low - the post Millennium boom time kept fees at a respectable business level. Today fees rates are at 1993 levels despite annual increases in salaries and all other operational costs.
Design agencies are operating today at near freelance rates.
Independent designers, writers, marketing professional, PR professionals, charge from GBP 350 to GBP 600 per day. Design agencies providing higher value resources and carrying substantially higher business overheads are charging the same day rates as many independents.
And unlike the independents, who do charge hour for hour agencies often exceed the chargeable hours. The client quoted an 8 hour day often benefits from designers and project managers unpaid over-time.
Hours actually spent on a project often exceed the hours charged to the client. Factor in an estimated 20% over-budget, covered by unpaid overtime and chances are that agencies are earning the same as or less than the independent consultants and freelancers!
Watch this space. Remedy Brand Consultants are undertaking research into the average hourly rates charged by other professions and other trades and comparing them to design hourly rates.
For example current test the water research shows average hourly rates charged for a mechanic at a reputable garage are GBP 85, a NHS subsidized dentist GBP 70 + per hour; private dentist GBP 100-150, beauty technician (manicure) GBP 50-GBP 70 per hour, lawyer IP GBP 375 per hour, Accountant non-chartered GBP 50 to GBP 75, chartered senior GBP 120-GBP 150, photographer (professional) GBP 120 to GBP 150; IT independent GBP 45 to GBP 65, IT consultancy firm GBP 120- GBP 150, hairdresser cut and colour GBP 70 to GBP 200; designer freelance GBP 35 to GBP 50, design agency GBP 65 designer to GBP 120 principle.
It appears that your hair dressing salon can earn more for a cut and colour lasting less than 2 months than your design consultant creating products, trademarks, and marketing collateral lasting 12 months minimum to over a decade.
New technology versus volume
New technology has empowered design agencies be they branding, interiors or product agencies to produce results faster. This is translated into savings for client organizations but is not replaced by volume of projects.
For example, a decade ago clients would have received fee quotations covering concepts, design development, artwork production, and post production, and print & project management. Today, a designer fulfils the majority of those activities.
In product design new technology enables concurrent engineering and far shorter time to market.
Yet an agency's high level investment in new technologies has not been factored into fees charged. All time and cost saving advantage has been passed to the client company.
The reduction in projects commissioned during the post 9/11 period (approx 18 months) forced agencies to compete fiercely and lower their fees and/or agree fixed price contracts. In a recovering market fees need to increase but agencies remain fearful that they will lose a project opportunity to another agency prepared to under cut them.
Unlike the advertising, photography and illustration creative sectors, the graphic design sector has failed to address IPR issues and thereby gains no design usage fees for original works used by the client company outside of the original fee/contract.
In the 80's design usage and implementation fees were the norm post original contract delivery. Today, no such business terms exist.
For example if an advertising agency is commissioned to create a campaign for the national press in the UK, and thereafter the client wishes to use the campaign concepts and origination for a TV commercial in the same or another market the agency is either retained to undertake that work at an additional fee or paid an originators usage fee, should the original materials be utilized by another supplier. This is an accepted and appropriate contractual term but it is not currently applied by the commercial design profession.
A photographer is commissioned to shoot the ideas the agency conceived, most often art directed and managed by the agency. The photographer is paid GBP 750 to GBP 1000 per day for the shoot and the image is used, for example, in a corporate brochure. If the image is re-used by the client for a poster campaign, the photographer is paid a 'usage fee. The agency that conceived the shot and even art directed it, receives no such fee. The scenario is much the same for illustration.
Agencies ought to have back to back agreements with their suppliers to appropriately agree and share the usage fee. They are often out maneuvered contractually by both their client and their suppliers.
A product design agency often extends the clients vision, transfers knowledge, creates IP or IP arising, and yet rarely benefits from licensing or royalty deals or IPR or IPR arising buy-out - even though a patent or registered design is valued and recorded as a bottom line asset by the client company.
The same is true for branding and retail agencies. The creation of a trademark or retail format is recorded as a bottom line asset.
A trademark created for a new or existing brand for the UK market, European or Global market often adds significant value to the client company and as contracts currently stand, can be rolled out in as many markets and in as many mediums as so directed by the client company for the 'one-off' fee paid to the originator (the agency).
Client companies have accepted the reasonable usage terms set-down by other creative sectors. However, the commercial design sector has failed to band together and agree more acceptable and more appropriate remuneration terms matching those of their creative peer group and or suppliers.
Failure to differentiate
The majority of agencies fail to communicate value to clients and therefore fail to charge for the value of their team, their resources and facilities, their investment in new technologies, their risk reduction, their project management skills, their strategic skills, their knowledge transfer, years of experience or sector experience.
Equally, in that failure to communicate such capabilities, they place themselves in a position of hindering the client's ability to understand and thereby buy in to a reduced risk, higher quality, and higher value business resource. There are risks to the client when buying purely on price. A lack of time spent on a project can lead to disappointing results - which impact on the status and value of the entire industry.
It is the responsibility (or should be) of the more established agencies to get together and assist the client organizations to differentiate one agency offer from another. Some form of standardized glossary; charter and or guarantee which assure the client of a higher value, higher quality and reduced risk service may be beneficial to both parties.
In Part 2, the British Design Initiative suggests ways for commercial design agencies to communicate the value of design and improve their fortunes.
British Design Initiative
Making design and innovation resources more visible & accessible to industry and media
Full copies of the 2003/4 results can be downloaded from the BDI web site together with previous years results. Click on Design Industry Valuation.
Companies and individuals are free to use the BDI, Valuation Survey Results, including the imagery contained within the document in any manner and any format they so choose, as long as the source is credited against each image/editorial to 'The British Design Initiative 2004, Design Industry Valuation Survey'.
About Maxine J Horn
Maxine J Horn is CEO of the British Design Initiative, a company she founded in 1993. Over the past 12 years she has forged deep relationships with the UK s design agencies, industry bodies, government and media.
She plays a pivotal role in facilitating business opportunities and the two-way flow of information between design agencies and design buyers, design-driven organizations, the media, government and influential individuals and bodies in the UK and overseas. She is a founding member and key advisor on Design Partners, set up by UK Trade & Investment. Design Partners aims to increase the level of international design business by co-coordinating the activities of UK design industry bodies and government agencies and departments. She is a member of the Associated Parliamentary Group for Design and Innovation and a member of the Institute of Directors.