As designers, we are accustomed to fielding questions about resolution, pixels, PMS, typography, kerning, Lorum Ipsum, hex codes, UX, CMYK— it’s as if we have our own language.
But do you speak the language of business? Because when we’re talking with our clients— whether internal or external— they are typically not designers or creative professionals. Instead, they may be from marketing, operations, finance, or sales, and their focus is not so much on the font or finishing we’re recommending, but on the budget, cost, logistics, and ROI. (We’ll get to ROI in another installment of this series— stay tuned.)
Understanding and conversing with clients in business terminology reshapes conversations from subjective to objective, where we discuss our “why” behind a design and how it is, well, designed to achieve specific business goals.
From aesthetics to economics
Similar to our design world, the world of business has a long list of relevant terms. For this series, I’m focusing on The Business 6™— the top six terms to begin building your business vocabulary. When we understand these terms, synthesize them, and use them correctly in conversations and meetings, we’re no longer just talking about aesthetics or color palettes or fonts. Instead, we’re talking about economics; we’re asking about sales goals; we’re listening to strategies for gaining market share.
When we do share our knowledge about a particular design’s advantages— perhaps research that shows consumers spend more time with interactive packaging, or that shoppers are more likely to pick up a product with tactile finishing, or even why we choose green over blue— we can frame our design, data, and scientific-based input within our client’s business goals. The Business 6™ are tools we can use to expand our understanding, credibility, and impact. You’ll find that clients are more receptive to your input when the point you make is in their language.
It’s not design— it’s design strategy
The Business 6 are the top six business and financial terms to better understand your clients’ perspective and connect with their objectives. Let’s start with revenue. Revenue is simply the money that a company receives in exchange for its products and/or services. Now, there are a lot of terms that are associated with revenue. You might hear gross revenue, net revenue, and top line. Let’s unpack those, too.
Gross revenue is the total amount of money a business receives from its sales. That’s also called the top line. Which term a person uses often depends on their role. I’ve been in cross-functional meetings that include someone from sales, operations, and HR, plus the CEO and CFO. That’s a lot of different people with many points of view. One person might use the term top line, while someone else uses the term gross revenue. They are talking about the same thing: money the business made from sales.
Net revenue is the amount of money a business makes from sales over a given period of time, minus the expenses the business incurred making that product or providing that service over that same period. Let’s say a company made $10 million in sales last year, but it cost them $6 million to make the product (or create the service). They subtract the $6 million from the $10 million to come up with their net revenue of $4 million.
You’ll also hear the terms profit, earnings, and bottom line. Let’s talk about those in the context of the previous example. Four million is what the company had left after it accounted for the cost of producing that product or service. That was its net revenue. However, the company also has other yearly expenses, such as paying employees, rent, and overhead expenses to run the business. Those are called operating expenses. Companies calculate profit, earnings, and bottom line by subtracting operating expenses from net revenue. In our example, if operating expenses are $1 million, and net revenue is $4 million, profit is $3 million. (Fun fact: the term “bottom line” is derived from accounting ledgers. Picture the role of bookkeepers before computers; the number on the bottom line of the ledger page was the profit.)
A universal understanding
But wait, there’s more. If the company has loans, they have interest to pay. If they own equipment, they have depreciation to calculate. And, of course, every business has to pay taxes. However, because those are not considered operating expenses, financial investors created a standard formula called EBITDA — an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA provides a universal understanding of what is included when assessing a company’s earnings.
Whew! That’s the birds-eye explanation of revenue and its associated terms. The second term in The Business 6 is margin. Margin is typically discussed as a ratio. Here’s an example of how that works: let’s say your company has a product that sells for $20. The cost of producing that product is $15. That means you have $5 left. $5 out of $20 is 25 percent; your margin, then, is 25 percent. Why is margin important to designers? Often the budget for branding, design, and marketing comes out of margin. So when we’re in conversations with our clients, it’s not just about what they have to spend on our project— we want to understand where the budget is coming from as we talk about their investment in design.
This certainly happens to me when I’m designing packaging, and I’m advising my client to do something really interesting to increase consumer engagement, or to stand out among the competition, or to align with an integrated marketing campaign. Let’s say I know that the cost for any extra design element I suggest— whether it’s a foil, a specialty substrate or a soft touch finish— will come out of the margin. Sometimes I’ll ask my client, “What is your margin?” When they tell me, I have a better idea of their appetite for adding the extra element, particularly if I can tie the element to their specific business objectives.
So I can ask what their current margin is; I can ask what their projected sales are; I can ask what their marketing plan is. I can even suggest that adding that element to the design may increase their sales. (Be prepared to provide them with examples or studies to back that up.) Taking the conversation to this level lets my client know that I am in business with them; that I’m designing strategically to help them meet their objectives, whether those objectives are related to revenue, profit, market, consumers, sustainability, or any number of goals my client may have at any one time.
Join me next time as we dive into two more terms in The Business 6: Market Share and De-commoditize.