Financial Management Tips for Interior Designers: Pricing, Budgeting, and Forecasting for Success

As an interior designer, managing the financial side of your business is just as important as creating beautiful, functional spaces, even if we would rather bury our head in the sand! 

If you are new to the interior design business world or are ramping up your projects, having a handle on your finances does more than create a balanced budget. It also creates confidence in your abilities as a business owner - the domino effect of that is your client having confidence in you, too.  

Here are some places you want to focus on to design a financially stable business.

Setting Competitive Pricing and Rates

Know Your Market: Research the pricing trends in your area and niche. Look at competitors and industry reports to understand what clients are typically willing to pay for services similar to yours, but don’t get lost here for too long. This is a quick market research task. Consider both hourly rates and flat-fee pricing, as each can work better in different project scopes as well as your experience in the industry. A competitive rate reflects the value of your expertise without undercutting the market. If everyone says “yes” it is time to charge more!

For a more thorough conversation about pricing, listen to my podcast 98. Should You Price Your Design Fee Hourly?

Account for Overheads: Determine the costs required to run your business (rent, software, materials, travel expenses) and factor these into your pricing. Remember, pricing isn’t just about covering your costs but ensuring profitability, so add a margin that reflects your desired net income. I also recommend including adding a salary you pay yourself to this category once you have some consistency in your revenue.

Offer Levels of Services: Consider offering different tiers or packages based on your clients’ needs and budgets. For example, you could offer Designer for a Day, Modified Design, or Full Service packages. This makes your services accessible to a broader range of clients and may encourage upsells.

Managing Budgets and Expenses

Create Project Budgets: For each project, create a detailed budget to track expenses related to materials, labor, and any subcontractors you might need to hire. Review budgets regularly with clients to ensure transparency and prevent cost surprises later in the project. If you have a client that says they do not have a budget, help them create one. 

Track Expenses in Real-Time: Use financial software or apps to track expenses as they happen, rather than waiting until the end of the month. This habit provides a clear picture of where funds are being allocated, and it helps you identify any areas where you could reduce costs or adjust your fees for future projects.

Prioritize Cash Flow: Design projects can be financially demanding, with high upfront costs for materials and labor. Aim to have at least three months of cash flow available as a buffer. This approach helps cover expenses while you wait for client payments, especially in cases where payment is delayed.

Tips for Invoicing and Payment Collection

Establish Clear Payment Terms: Set clear expectations for payment timing and methods in your contracts. Many designers find success with a payment schedule that includes an initial deposit, a mid-project payment, and a final payment upon project completion. By breaking up payments, you reduce financial risk and improve cash flow.

Use Invoicing Software: Invest in invoicing software to streamline the process and make it easy for clients to pay. Look for features like automated reminders for late payments and payment processing integrations, which can reduce administrative time and improve your collection rates. I personally use Design Docs, now Studio Designer and love the details it offers for our unique industry. If you hire a bookkeeper make sure they are well versed in the design business.

Implement Late Payment Policies: Sometimes clients delay payment, which can strain your finances. To prevent this, include late payment fees in your contracts and communicate them clearly to clients. While it may feel uncomfortable to discuss, clients typically understand these terms when they are presented upfront.

Financial Planning and Forecasting

Use a Cash Flow Spreadsheet: Create a sheet where you can see all projects at once in your business. This would include current and future projects and break out revenue buckets, costs of goods sold and business expenses.

Review Your Financials: Set aside time each week or month to review your income, expenses, and overall profitability. This habit allows you to see trends, adjust budgets, and make informed decisions about any changes or new investments. I do “Financial Fridays” in my calendar to stay on top of any and all things related to my financials. 

Plan for Tax Obligations: Taxes are often a significant expense, so plan ahead. Set aside a percentage of each payment in a separate account to cover taxes, and consult with a financial advisor or accountant to understand your tax obligations fully.

If you want to learn a little more about your unique relationship with money, you will enjoy this podcast interview S2 Ep.145 Discover Your Money Personality Type With Danielle Hayden

Effective financial management is the foundation of a thriving interior design business. By setting competitive rates, managing budgets carefully, streamlining invoicing, and planning for the future, you’ll be better prepared to take on new projects with confidence and ensure a sustainable, profitable design practice. Trust me, knowing these numbers and getting your head wrapped around this part of your business makes a huge difference in your peace of mind!

This is just one of many topics we cover inside Interior Design Business Bakery. And this is my official invitation to you to JOIN ME in The Bakery. To learn more about this life-changing program, visit Designed for the Creative Mind and get in touch with us today.