Margin Scale and Platform

All creative business owners should make a point of understanding the interplay between margin, scale and platform as they apply to their creative business.  Sounds like Greek, but it is not.  Margin is how much money you make on what you sell.  Scale is how big your business is and how it needs to operate to maintain margin.  Platform is the mindset behind your current approach to margin and scale. 

Most creative businesses fall into one of two general categories: low margin, low price predicated on volume or high art, one-off big sale.  The former is all about ultra efficient pricing and process; the latter, high touch, long lead relationship.  No judgment on which model has the higher long term value. My only comment — it is nearly impossible to do both well.    

However, when the economy collapsed, most creative business owners responded by unwittingly doing both.  For instance, a florist might have had a minimum of $20,000 per job in 2007, but had to pick up $5,000 jobs in 2008 to keep going.  Smaller dollar sales increases risk exponentially as most production mistakes are fixed – a $500 mistake on a $20,000 job reduces profit by five percent.  The same $500 mistake on a $5,000 job reduces profit by twenty percent.  Likewise, focusing on margin at the expense of the finesse of high design will likely undercut the essence of the florist’s brand and alienate the core clientele.  While the dollar volume of the florist’s business might actually be the same, the florist’s business is not. 

Now that the economy and (hopefully) your creative business are seeing an upturn, your job has to be to evaluate your business’ current strategy and scale. Crazy as it might sound, the more business you get, the bigger problem not identifying your platform will become.  As the florist example shows, high dollar and low dollar strategies are remarkably different and at odds.  If each area grows, you will stretch your resources too thin to handle it all.  Stretched resources increases risk, which is a ticking time bomb.  Much better to take a step back and evaluate where you want to go and choose the strategy that best fits you and your business.  You might sacrifice short term revenue (incredibly scary coming out of the recession I know), but you will give your creative business the best chance of success in the future.