The UK design industry has performed well through the recession with fees increasing, demand remaining strong and designers feeling optimistic. Mike Exon analyses the Design Industry Research 2010 figures.
In 2005, the Design Council produced its first ever in-depth research on the industry. Since then, our picture of the design world has become sharper and more granular. It’s an important step forward. Talking to designers in depth helps us identify the currents shaping the industry and make sense of how design is adapting to outside factors, such as post-credit crunch conditions, sustainability issues and patterns of design buying.
The latest research report contains some startling discoveries and confirms some longstanding home truths. It’s perhaps not surprising to find that the average UK designer is a white 38-year-old male. At the same time it seems incredible to discover that 87% of design consultancies in the UK employ fewer than ten staff, that almost a quarter of consultancies are less than four years old, and that only one in ten design consultancies believe they compete outside of the UK.
The good news is that top line figures for design fee incomes are growing steadily and demand for design services is still reported to be strong, particularly in digital and multimedia, as in 2005. Just as significantly, a higher proportion of design businesses report increased demand for communications design and interior design than did five years ago in spite of the recent downturn.
Since 2005, there have been some very marked changes to how much designers say they are earning each year. Fee rates don’t appear to be going down. Around 40% of consultancies and freelances report increasing their rates and another 40% have kept them the same. But as client budgets have been squeezed and design procurement processes strengthened, there has certainly been downward pressure on fees, too, from the demand side.
Look a little deeper and we find a design industry that is becoming increasingly bottom-heavy as it becomes more polarised. The number of micro design businesses and freelances is growing at one end, while at the other, the top 5% of consultancies have annual fee incomes of more than £2m.
We get a different picture when we split out the three main types of design operations – consultancies, freelance designers and in-house teams. What we find then is that total (adjusted) income for consultancies is much the same as it was five years ago, while combined earnings for freelance designers have increased by 22%, and combined in-house budgets are down by a third.
Getting into the numbers historically, there are two important stories we need to consider. The first is the long-term trend between 2005 and 2010. The second is the short-term impact of the UK recession during the last 18 months. Even with the negative impact of recession, assuming even annual growth, the design sector has seen growth averaging 3.5% a year, over the five year cycle. And while the downturn has played a big part in the substantial decrease in in-house budgets, it has not been at the expense of staff, according to the research.
The growth of freelance design within the industry is a big story in itself. But there is no clear evidence of a structural shift towards freelance working styles and away from consultancies, since consultancies have actually increased their staff numbers by 35%. On the face of it the numbers look good for the growing numbers of freelance design professionals – very good if you consider the recent recession. However, freelances still say it’s tough out there in 2010 even if conditions are improving.
In the consultancy world there are some fascinating parallel trends. Just as staff numbers have been rising, the number of consultancies has been falling.
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Designers have always been optimistic about their future earnings, though the credit crunch has somewhat reined in people’s expectations for 2010. Half of designers still expect to earn moderately more this year than last year, which is very encouraging, and about 11% expect to earn a lot more. This is almost back in line with people’s expectations in 2005, which can only be good news. The significant change in this respect is within in-house design teams, which now largely predict flat budgets for the foreseeable future.
What hasn’t changed notably is the relative spread of work being done by designers. More designers still work in communications than in any other type of design discipline. Almost two-thirds of consultancies now do some form of communications activity, followed by digital and multimedia (around half) and then interior and exhibition design (roughly a sixth).
Geographically speaking, the new data shows there are definite local hotspots emerging such as the South West and the West Midlands for digital, Northern Ireland does very well on the interiors side and the North East also performs well in interiors as well as in industrial design. Communications is very strong right across the UK, Yorkshire tops the communications charts, although the North East and East Midlands have lower than average proportions of communication design businesses.
Measuring and improving business performance is still something design businesses need to address. Too many are still ignoring questions about business development and cost efficiency altogether. Surprisingly, about a quarter of design groups say they don’t plan to do anything at all to improve their financial performance in the next three years, and many say they don’t know what they will be doing in this vein, in spite of the tightened economic situation and the clear pressure on client budgets. In its 2009 report The Financial Performance of Marketing Services Companies, accountant Kingston Smith W1 highlights the need for design consultancies to use better metrics to measure their performance. Optimum operating margins should be between 15% and 20%, says the report, while fee income per head should hit £80,000.
Consultancies report some interesting things about their relationships with design buyers. Instead of thinking long term, the average agency relies very heavily on winning new clients every year. Design consultancies and freelances say on average 43% of their fee income came from new clients during 2008 – 09. Designers also say that in 74% of cases it is chief executives or business owners that commission them.
Sustainability has been avidly discussed as a design issue in the last five years, though designers need to do more collectively if they want to be able to advise clients with confidence on sustainability best practice. Around half of designers are building waste reduction criteria into their projects or their own business practice, as well as using environmentally friendly materials and lowering energy consumption, but more attention could still be paid to increasing the lifespan of materials.
Connecting and collaborating with outside designers is an important part of professional life, though this tends to be on short-term projects for most design businesses. Fifty-five per cent of design businesses collaborate with other designers and 51% say they work with non-design businesses. More than a quarter of design businesses that collaborate say they work with certain outside designers all the time, though they also say they do not rely on them.
Professional design representation is still a big issue. In 2009, only one in ten design consultancies and freelances were members of local or regional design networks, though even fewer said they were members of national design bodies such as the Design Business Association, the Chartered Society of Designers, D&AD or British Design Innovation.
Training is still a big blot on the copybook for consultancies and freelances. Lack of time and cost still seem to be the reasons for not providing the development and training needed. And while cost is cited most often as the reason, lack of time has become less of an excuse in the last five years.
The research has revealed a lot about the sector, but there is clearly much more to be discovered. When it was compiling its recent Innovation Index, Nesta found more than three-quarters of investment was not in traditional R&D but in so-called ‘hidden innovation’. Only by continuing to explore and understand the currents flowing through the design industry will designers be able to discover the nature of any ‘hidden design’ and help it to flourish.
Over the next five years, design should have a lot to look forward to. Will Hutton, Director of the Work Foundation, has recently talked about the importance of the knowledge economy in driving economic recovery. What he identifies as strong consumer demand for ‘experiential services’ should mean designers are well placed to keep contributing significantly to GDP by designing and anticipating the currents of the future.
Design consultancies and freelances say that on average 43% of their fee income came from new clients during 2008 – 09