Ask Us Anything: Dan Rak on improving your profit margins
Trade Tales
Dan Rak shares actionable strategies for designers looking to improve their profit margins, focusing on sourcing, accounting software, and c
Key takeaways
- Consistent financial systems and regular margin reviews are essential for long-term business health.
- Using designer-friendly accounting software helps track expenses and improve profit visibility.
Main topics
- Profit margin improvement
- Financial tracking systems
Notable quotes
Acting small is the only way to achieve success on a large level.
Conclusion
Dan Rak emphasizes that sustainable growth comes from meticulous atten
Transcript preview
Speaker 3 (0:04) Hi, I'm Caitlin Peterson, the Editor-in-Chief of Business of Home. Welcome to Ask Us Anything, where we're tapping your favorite Trade Tales guests to answer all of your questions about building a better design business. Some weeks, we'll be workshopping a crisis. In others, we'll take a step back to talk about the big picture. Things like embracing change, hiring, or how to level up. No question is out of bounds. No question is too large or too small. And we're keeping it confidential so that this is always a safe space to air your frustrations and share your fears. Speaker 2 (0:42) This week, Speaker 3 (0:43) we're hearing from a designer who's finally ready to tackle her Speaker 2 (0:46) firm's finances. So I am just three years into my business. And one of my goals this year for 2026 was to really understand the financial aspect of the business. Speaker 3 (1:06) This designer has found it difficult to track her firm's profitability, which makes the next step toward improving her margins feel like a total mystery. Now, she's wondering if she can assert some control over her finances. Speaker 2 (1:21) This year, my goal was to really understand what my profit margin is. Am I making money on projects? How do I make more money if I am making any? So right now, my two biggest questions is how to keep a consistent cash flow because Speaker 3 (1:36) I Speaker 2 (1:36) feel like it ebbs and flows so much. And then my second struggle and big question mark is the entire PO process and how to analyze and figure out if I actually did make money on a project. You know, once the clients are there and the cash flow is there, how do I convert a sale into profit? Speaker 3 (1:57) Where are you currently or like when in the process are you currently collecting money from clients? Speaker 2 (2:03) So I have a consultation fee. So before the client ever signs on that very first meet and greet, I am charging. I do at that proposal phase and the design fee, I do, you know, I tell them like you get this as a credit so that if they do sign on with me, you know, they're getting that money back. And then I get 50 % of the design fee at signing and then 50 % prior to the first design presentation. And then. Right now, I'm charging a flat monthly procurement fee based on the scope of the project. It works for me right now because I feel like tracking my time is just so time consuming. And then products, and I'm trying to figure out how to make more money on my markup and my products. But again, that's where I'm like really struggling with the tax and the shipping fees. you know, I'm adding on a percentage for me on the product, but like, it's really not covering all the costs because shipping so much money. But I don't know, I feel like I don't have the clientele and the client base that can handle or swallow the fact that, you know, some of these shipping fees add up to like $1,000 for a full room because it's coming from all different places. And also I am getting clients that are questioning my markup. Like, well, what are you buying that for? People think that they have the right to. discounts and they want to understand what you're buying it for. And to me, it's just, it's really, it's really crazy. What Speaker 3 (3:32) would the most helpful thing be in terms of sort of making sense of like the ups and downs of cashflow and where all you could be charging for stuff? Is it really just getting that sort of broad overview of like where the missed opportunities are? I Speaker 2 (3:45) think it's the missed opportunities. Yes, 100%. And then also majority of my products, I purchase through my trade relationships. But there's every now and then where Pottery Barn might have a cute bench or you find a product retail that works for the space. And it's like, how do I charge the client for that or that I'm still covering the cost of the product? Like right now, I'm in the middle of trying to figure out like where I went wrong on a product that I bought retail for a client. I cannot figure out the numbers. So it's like invoicing stage two. Like, how do I figure that out? Speaker 3 (4:24) This designer is at a pivotal moment in her business. She's built the momentum, but now she needs to create the infrastructure to support her for the long haul. She's at the phase that so many people get to, where it's time to roll up your sleeves and peek under the hood of your business and then start fine-tuning the financial engine. This is also the moment where so many entrepreneurs get stuck. Maybe they're intimidated by the financial lingo or overwhelmed trying to make sense of spreadsheets of data. And look, I get it. This part is hard. But pushing through to find true clarity about your finances is also worth it. And it's incredibly important if you want to level up. As we ended our call, I knew just who to connect with. Someone who has developed a comprehensive strategy when it comes to managing expenses, assessing cost structures, and improving profit margins. All that and more in just a moment. Speaker 2 (5:29) Hey, designers. One Speaker 3 (5:30) of the industry's most beloved brands has a big birthday this fall. That's right. Four Hands is celebrating the big 3-0. That's 30 years of telling elevated design stories and empowering designers to tell their own. That's also 30 years of incredible growth. From a small antiques importer in Austin, Texas, to an international brand with a robust in-house design studio and a full lifestyle assortment. And that's 30 years of drive and desire to meet the ever-changing needs of life at home. Four Hands is a company that's proud to do things differently, with a deep commitment to continually improving and enhancing the designer experience. 30 years in, Four Hands is just getting started. Here's to three decades of design and to everything that comes next. Explore the benefits of shopping with 4Hands for your next project at 4hands.com slash tradetales. Speaker 3 (6:37) Today, I'm joined by Dan Rath, a Chicago designer whose firm recently opened an outpost in Southwest Florida. As a guest on Trade Tales, he shared how his early career in tax law helped inform his firm's financial structure. I thought he'd be the perfect person to answer today's question. Welcome back to the show. We heard from you here in the very first season of Trade Tales back in 2021. A lot has changed in the industry since then, but what have you been up to? Speaker 1 (7:08) Yeah, it definitely has. We've been busy. It's been a great couple of years. I think back in 21, we're kind of just starting to see this run up during those early COVID years. and all the investment that people were making in their homes. During the last couple of years, we've grown. I think at that time, our firm was probably four or five people. We have now in our Chicago office, which is where we started, we've got 13. And we added a practice in Naples, Florida, and we've got 10 folks down there. So we've grown quite a bit and are cranking along. Speaker 3 (7:51) How has your day-to-day changed? You have a completely different job, I would imagine. Speaker 1 (7:55) I do. I do. And I was just, you know, it was interesting. I was with a group of designers last night just kind of talking about that. And, you know, how I have to be very intentional about trying to carve out and retain some of the creative aspects of this job, which I love. And I got into this business because of that. But yeah, as the business has grown and... The day to day has changed from, you know, in the library and on site and kind of pulling design work together to sitting with designers and reviewing work and editing and meeting with clients regularly and bringing clients in and selling and administrative things that are required to run a business on a daily basis. And so it has changed quite a bit, but I do really try and I still am personally involved in every project. work with a really incredible team of designers that are super capable and talented and collaborative. And so I do, you know, do still get to spend a good deal of time being creative, but just not quite as much as I did when it was just me. Speaker 3 (9:04) What is the difference between being sort of the creator and the editor in your experience? Speaker 1 (9:11) Very different. And it's actually, so I'm working on my own home right now. And it's, as I'm kind of starting that from scratch, like you forget how much work goes into that kind of foundational layer of the design. You know, I'm kind of looking around, it's like, it's you kind of forget all the hard work that goes into pulling that kind of base plan layer together. how much work the design team does before it gets to me. And so I really appreciate the, that work that they're doing and bringing to me. And I think one of the challenges is the designers that work with us in order to stay at a firm, you know, I think a lot of people as they, as they grow in their design careers. are kind of considering do I stay at a firm? Do I go out on my own? And there's a right different thing for everybody. I think what I realized is in order to keep talented people here, you have got to like, I think the biggest factor is allowing creative autonomy and allowing their creative abilities to feel valued and worthwhile. And so when you're the editor, I think it's very important to not come in Speaker 2 (10:28) and Speaker 1 (10:29) start making changes just because it's not the way you would have done it. Speaker 2 (10:33) That's hard. Speaker 1 (10:35) It's hard. And I think, but I think, you know, what we really try and do, and as the business has grown, one of the biggest focuses that I've tried to, as a designer myself, to really challenge myself is to really start seeing the project through the eyes of the client and what they really want to see, as opposed to what I think they should want to see. And I think that's how I approach the editing process now. So if I'm offering suggestions, it's because I think that, you know, this particular client has an affinity for, you know, certain aspects that we should be playing up. And that's what's going to really make the house feel personal and that they're going to love more to them as opposed to like, oh, I just, you know, I just think this is better and we're going to make this change. And so I think, but that allows then I think it to be taken less personally by the designer that prepared it because it's not necessarily like. oh, I prefer my taste over yours, but just what do we think the client is going to respond the best to? Speaker 3 (11:29) What are you most excited about as you walk into work these days? Speaker 1 (11:33) My team. I just feel so lucky. I think like I really look at my job every day now is to show up and make sure that this is the best place for our people to work, that this is the best fit and the best. you know most uh most attractive place for them to spend their time in their at this place in their career um to offer the best opportunity for creative growth um the best you know financial uh incentive to to remain here um i think creating that environment that's that's how i see my job um largely and then in addition to you know just making sure that we are the best place for for our ideal client that we are the best option for them when they're searching for design services. Speaker 3 (12:20) What prompted you to open the second office? Or what kind of opportunities are unlocked in a second market when you really commit to opening that second office? Speaker 1 (12:31) Yeah, so very good question. And so I guess multiple kind of aspects to it. I think one, personally, like I just, hate winters and i hate winters in chicago in particular and so um i had had a home in naples for a while and you know i was down there and i was like well um if i'm gonna be down here i should be working too and so um but we did make we