Designing for Business: When Revenue, Profit, and Margin are Stakeholders
There’s no shortage of advice for designers seeking to be more strategic and influential in the larger organization. We’ve written about how to influence customer experience, present design research to the c-suite, and scale design across the organization. And in some other cases we’ve read how coding may or may not be a useful skill among those who, well, don’t. But lately I’ve been reading articles about designers needing to learn more about business.
But even that advice comes up short in helping designers learn what they need to know about such a wide-encompassing term as business.
So instead of sweeping life-advice telling you to quit Photoshop and start filling out GMAT applications, let’s look at a few business concepts that can directly relate to a designer who is making things — products, services, or whatever — for a company that is in turn selling those products and services.
Many of these concepts may be familiar to you. Or maybe you just overhear these terms as you move on to meet your fast-approaching deadline.
But framing these business themes in a way that is directly related to a designer may help you understand them as a lens to view your design work. Perhaps more importantly, you may soon be in a position to provide this business context to a less-familiar designer, product manager, or developer, and can help set your larger team up for greater success.
What we’re not going to talk about
Before we dive in, let’s clarify what we’re not going to talk about. I’m sidestepping specific metrics, key performance indicators, and other data points frequently associated with quantifying a startup or a product’s success. If that’s what you’re looking for, check out Andreessen Horowitz’s 16 Startup Metrics. So let’s leave such concepts as vanity metrics, abandonment rates, active users, churn rate, or cost-per-impression on the table. We want to talk about a bigger picture here.
Revenue, Profit, and Margin
Let’s start with these 3 concepts that many of us are familiar with, but perhaps not always in ways we apply to our products and services we design at our jobs.
A product’s revenue is simply the amount of money the business brings in based on the number of goods sold and the price at which those goods were bought. Simple enough. To be more specific, top-line revenue is all money that comes in, or gross, and bottom line revenue is the gross minus interest charges, taxes, and other operating costs, also frequently known as…
The profit is what’s left over from all that revenue the business collected after expenses. Basically what’s left over for the business.
We’re defining margin as the difference between how much a product costs on the market and how much it costs to make the product.
Easy enough, right?
Standing alone, those three terms are relatively simple to understand and can be found in any middle school math class or on a million websites. But when we narrow our focus to how these apply to our own design or product management jobs, things may get murkier, quickly. For instance, is your team is currently working on the project that hauls in the most revenue? Have the highest margin? Or is the most profitable?
Product and commercial executives are often (ok, basically always) charged with focusing on growing these numbers. This is where you, the designer, come in.
If the mission is growing top-line revenue, you need to attract more buyers of your product, which may result in more marketing costs (which would hurt bottom-line revenue/profit). Or perhaps a competitive analysis leads you to discovering the market leaders have critical features your product doesn’t have, and you may need to consider investing in more product people to deliver feature parity.
If the emphasis is improving margin, your product needs to make more money with fewer costs. Perhaps you need to re-evaluate distribution methods, or invest more in online sales channels instead of a salaried sales force.
But what can you, as a designer, to do to improve your product’s margin?
Maybe your product has too many features, many of which aren’t used, but still require support teams to manage that rarely used functionality. Or perhaps you’re paying for subscription-based content or API’s that no one ever uses. In either case a good designer would likely recommend simplifying the product for the benefit of the user, while also benefitting the business’s margins as well.
Additionally, what happens if you have a design team of 20 and 10 are working on the lowest margin product? Or the least-profitable product? In some cases, it’s warranted to make sure business priorities are aligned with product priorities. It’s way too easy (and common) for commercial and product goals to drift apart. Sometimes it’s unavoidable, but other times look out for an influential, territorial product manager who wants everyone working on his project.
It’s also to helpful to know how the products in your team’s portfolio generate revenue relative to each other, not just individually. Are you working on a form for a product that nets half your business’s revenue? But another designer is making slick motion graphics for a service that barely breaks even? Your form may not make it to Dribbble, but your work is significantly important, even if it is just a mundane web form. In fact, challenge yourself to make that form even better to reduce potential errors, or speed up conversion, and tie that improved efficiency to increased revenue when it’s time to discuss a raise.
You don’t have to go to night school or fill out at a FAFSA application to learn how revenue, profit, and margin can impact your role as a designer. And you don’t need Adam Smith’s Invisible Hand controlling your Wacom tablet’s stylus to be successful either.
Reframing business concepts through a designer’s lens can show us what to prioritize, where to focus, and when to cut back. Layer these strategies against what your design research is telling you, and what your historical and present day analytics indicate, and you’re well on your way to presenting a unified product strategy to lead your organization to success.
This is the first what may become a multi-part series of business themes and design. Keep an eye out as we explore how designers who understand organizational structure, segmentation, sales, and other themes can position themselves to influence and improve more than just the products being designing today.