Year 1 Income Report
Income, expenses, and profit from year 1 as an independent designer
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Today I’m sharing my finances from my first year in business.
Anson Cheung Design LLC was registered in the state of California on July 18th, 2022.
This is how the next 365 days went, by the numbers.
Why am I doing this?
Because I’m passionate about design and entrepreneurship, and I want to share how it’s possible to go your own way and make a living.
I’ll show you the numbers and talk through my income, expenses, and net income (AKA profit) in some detail.
Maybe if you were thinking of starting your own design business, this will encourage you to give it a shot (or not!). Maybe you already run your own business and have some pointers for me.
To some of you, these numbers might look impressive. To others, it might not be anything to write home about. Comparison is the thief of joy, so I try not to compare how I’m doing to others, and I hope you won’t either. I don’t know whether my numbers are typical, or whether typical numbers for an independent design business even exist.
What I do know is that the past year has been a wild ride. It’s had it’s ups and downs, but I’m grateful to be able to continue practicing my craft, explore new interests, and still make a living doing it on my own terms.
I hope this piece will give you some insight into what it’s like to run your own independent design business. Feel free to drop any questions in the comments or simply reply to this email!
Some context
Before we dive in, let me give you some context.
I’m an industrial designer with over a decade of experience designing technology products in Silicon Valley. I was previously a partner at Bould Design, a design consulting firm in the Bay Area where I’ve spent most of my career. Last year, I left my role there to explore a new direction.
I live in San Francisco (famously one of the most expensive cities in the world to live in). I live with my partner and my cat, and have no children or other dependents.
Also important - I had about half a year of living expenses saved up as liquid cash before embarking on this journey. Always have an emergency fund!
My goals
Honestly, when I started this business I only had a pretty loose idea of what I wanted to do going forward. The business was simply a container for my professional activities. There wasn’t a business plan.
I knew I wanted to keep things small, nimble, and flexible.
I wanted to keep practicing the craft of designing beautiful, functional products, hopefully with good clients that were working on products that I genuinely cared about.
And I wanted to experiment with new ways of leveraging my creative skills and hopefully make some money through content creation and f*cking around on the internet.
That was really about it.
I didn’t have any financial goals (other than to make ends meet) or any grand vision. The year ahead was meant to be a year of experimentation.
Profit and loss
So let’s take a look at the overall picture.
The table and chart below show my gross income, expenses and net income for the first year.
Gross income is revenue coming into the business, and is calculated on a cash basis, meaning it is based on money actually landing in the business bank account (versus based on invoices issued and receivables).
Expenses is stuff paid for in the course of doing business. Equipment, software, office supplies, travel, etc.
Net income is what’s leftover. Otherwise known as profit. This is what I actually get to keep (before taxes)
Overall, my business made around $108K in year 1, spent about $34K, leaving about $74K in profits. This means about a 70% profit margin, which I think is quite healthy for any business.
Income
My business income is broken down into 6 categories, and I’ll tell you a bit about each one below.
Design consulting
This is industrial design work for clients. They have a hardware product that needs design, and I come in and help. It’s what I love doing and I’ve been doing my whole career. It’s what I’m most comfortable doing. No surprise it’s the biggest chunk.
Management consulting
This is interesting and I didn’t expect to be doing this. I spent about 6 years growing and running a successful design business with my partners at Bould Design. This experience led me to some amount of work this year consulting with design businesses to help them operate theirs.
Digital products
Earlier this year I launched my first digital product, LinkedIn for Designers. It’s a 1-hour, downloadable video course specifically for designers to help them grow their careers and businesses on LinkedIn.
This was largely an experiment to try and create another income stream (while sharing valuable knowledge that I genuinely believe has enabled my success over the past year).
It’s small compared to the consulting work, but I really enjoyed the process of creating it and I learned a ton about building my own digital products and marketing them online.
By the way, over 200 designers have downloaded the course and it has an average rating of 5 stars on Gumroad in case you wanted to check it out 😉 (Use discount code DESIGNTHINGS for 10% off!)
Speaking
I like speaking at in-person or virtual events. It’s terrifying but it’s a skill I know I want to get better at. Sometimes I get paid!
Sponsored content
As this newsletter and my online presence has grown, I’ve been experimenting with sponsored content. This is income from paid newsletter advertising or sponsored LinkedIn posts. It’s a tiny amount right now, but again it’s all part of the experiment of making money online.
I only engage with sponsors that I think are valuable or I have personal experience with. I’m not looking to turn myself into a walking billboard for just about anyone to make a buck.
If you’re interested, you can sponsor an issue of this newsletter here. It goes out to 2,200+ designers inboxes every week.
Miscellaneous
Random stuff that isn’t particularly worth going into. It’s a negligible amount.
Income throughout the year
Let’s take a brief look at how this income maps onto the course of the year.
This is worth discussing for a few reasons. Firstly, I took a brief detour for about 6 months where I put client work mostly aside and devoted my time to being a hardware startup founder.
I worked with some awesome people that I genuinely believe in and it was exciting and challenging, but I eventually realized that it was not the path for me. That’s a story for another time.
Another reason this is worth looking at is that the income is spiky throughout the year. It’s not a steady stream every month. This is something I had to get used to as an independent designer. There is always uncertainty and the highs are higher and the lows are lower.
Expenses
There are a lot of expense categories, so I won’t go into them individually but I’ll call out a couple notable areas.
Equipment
Being my first year in business, I needed a few essential pieces of equipment like a good laptop, a 3D printer, and a few other things. These are big investments that should last me a few years, so I’m not too concerned that this category is pretty high this year.
When it comes to equipment, I do consider it to be an investment. You generally get what you pay for, and if you’re making money off of it, I believe that you should get the best you can afford. A better computer pays for itself in saved time and a more streamlined process.
Software
Software is the next biggest. This is SolidWorks, KeyShot, Adobe Creative Suite, Notion, ChatGPT, etc.
Professional design software is NOT cheap. There are always cheaper or even free alternatives, but for the fluidity of the workflow that I’ve developed over a decade and client compatibility, I’m tied to the expensive options.
I could try to go down to lower priced alternatives, but given I’m managing to be decently profitable, I’m not looking to cut costs right now.
Office expenses and supplies
Office expenses and supplies is deceptively large. A lot of my client prototyping supply costs ended up in here, and those I get reimbursed for. Otherwise it’s stuff like 3D printing filament, foam boards, pens, paper, etc.
Professional and legal services
This is worth touching on. I paid a lawyer to help with some contract stuff and I also pay for tax prep and bookkeeping help.
This is stuff worth paying for. It’s a huge headache and time suck to deal with that essential but annoying administrative work when you’re not an expert, and my time is better spent generating more revenue.
Contractors
This is actually administrative help rather than design contractors. Invoicing, tracking down receipts, that kind of thing. Again, my time is better spent generating revenue. I would highly recommend design business owners outsourcing admin as soon as its feasible.
Advertising and promotion
I don’t actually pay for any advertising, but these are expenses related to my website, and a good professional headshot (worth it).
Travel
This looks high, but the majority of it is my business reimbursing me for car usage. I drive my personal car for work, mostly to meet with clients around the Bay Area, and the IRS allows my business to reimburse me $0.66 per mile, so a lot of this is just money going back into my own pocket.
There’s also some amount of flights and hotels for attending conferences and other longer range travel.
Net income (Profit)
So in the end I took home $73,711.77 in year 1.
Let’s see how that stacks up against industrial designer salary data for the San Francisco Bay Area.
It looks like I made slightly less than an Industrial Designer I would in the Bay Area.
To some this might seem like a non-starter.
Why go into business for yourself if you’re not going to make even as much as a junior designer at a decent company?
Two things:
Freedom
No income ceiling
When I left my last role, I knew I had interests and new directions I wanted to explore that would be difficult to do within the confines of a traditional job.
Starting my own business allowed me to apportion time however I wanted over the last year. And in that time I was able to be a designer for great clients, a writer, a content creator, a startup founder, and more.
I’ve also taken more time off in the last year than I think I have in the 5 years prior, which has allowed me to feel more creative, less stressed, and have more ideas for creative experiments I want to run.
In a traditional job, you have a clear ceiling of income. Maybe you get a bonus or some profit sharing, but you can reasonably expect to know what you’ll make in a year.
When running your own business, there is no limit to what you can make.
Sure, year 1 was a step down for me financially, but 2023 as a calendar year is already looking a lot better because I’ve returned my focus to client work. And there’s nothing except my own strategy and efforts stopping me from making more.
So ~$74K take-home.
I’m pretty happy with this.
Is it a pay cut from my last role?
Yes.
But that was to be expected by going off into the unknown.
Is it enough?
Yeah.
I was able to maintain roughly a similar standard of living while doing work that I enjoyed and having the time and freedom to experiment with all kinds of new things like writing, content creation, and creating a digital product.
Considering for about half the year (when I was trying to be a startup founder) I wasn’t really bringing in revenue, and I spent quite a bit on equipment just getting things set up, I’d consider this a successful outcome for my first year in business.
Plus, any designer will tell you, it’s not just about the money (though it does matter). For me right now, it’s about feeling creatively fulfilled and challenged, while being able to live an independent, self-directed life. And having fun while doing it.
And the last year was scary and challenging but it was fun.
Reader Q&A
I received some thoughtful questions after I announced I was doing this. I’ll try to summarize them and answer below.
How do you market yourself?
Most of my client work comes through my network. I’m lucky enough to have had a pretty fruitful first ten years of my career, and it turns out quite a few people enjoyed working with me.
When I started my own business, some of those people started calling me up to ask me to work with them on their current project. From what I’ve seen, word-of-mouth is the strongest marketing for any small to medium size design business. If you have a good network and have been in the industry for awhile, this is usually the strongest part of your new business pipeline.
Aside from that, I am quite active on LinkedIn (as you may know). I don’t see this as a direct business marketing strategy. Rarely has anyone reached out to me after seeing my LinkedIn posts and wanted to start a project. But it does keep me top-of-mind for my network.
Do you ever cold-contact prospective clients?
So far I have not done any cold outreach, as I know the success rate on this tends to be extremely low and I haven’t yet had to. I’ve had enough work just from keeping in touch with my network and people coming to me.
Did you have any slow periods? How did you navigate this from a financial and stress perspective?
If you look at the income by month chart above, you’ll see that there was about a six-month period where I was barely bringing in any money at all.
This was because I wasn’t trying to do client work during that time. I was trying to see if I could get a hardware startup off the ground with my cofounders.
During this period, finances did get a bit tight and stressful. I definitely started to worry at times. My ways of dealing with it were:
Having enough money saved up over the years so that I knew I would be OK, even if I didn’t generate income for quite some time.
Knowing that I had enough industry experience that should I want to, I could probably get a job that I’d be good at at paid well for.
Other than that, it was just a matter of keeping a healthy sense of perspective and being grateful for what I had already achieved in my career and the relative financial privilege I enjoyed.
Going into business for yourself certainly isn’t for the faint of heart though. Things go up and down. You have to learn to ride the rollercoaster.
How do you keep yourself from getting overbooked?
I made a rule for myself to only take on at most 2-3 clients at a time. Being a very small operation, I don’t need that much work to make a living. I prefer to focus on a few things I truly want to be doing, rather than spread myself too thin over a lot of projects just to bring in more cash. It’s a matter of being selective and learning to say no.
Aren’t you concerned about sharing your finances?
Kind of.
The internet isn’t always a friendly place. There are haters and trolls.
But when I think about creators who share their finances online openly, even though they make pretty hefty sums of money that could inspire jealousy or hate, I find myself respecting them and wanting to support them even more, because they’re sharing what they know selflessly for our benefit.
I want to believe that if you’re reading this, you’re getting some value from my transparency, and you find these numbers educational rather than boastful.
Also, I believe that we as designers and creatives should normalize talking about money. Creative work has long been undervalued, and a lot of people take advantage of this to keep creative people underpaid and overworked.
If we all talked more openly about how we make a living and how much creative work can be worth, the creative professions will benefit as a whole.
What prompted you to look for alternative income streams?
Just like a stock portfolio, I’ve started to believe diversification is key when it comes to your personal income.
When I left my last role, my income immediately dropped to 0. Anyone who relies on a job as their sole income stream will also be in the same position if they ever leave or get laid off.
This is a fragile place to be.
Even now that I’m running my own business, client work can be a boom bust cycle that follows the economy. It sometimes feels like you’re either starving for work or drowning in it.
I wanted to see how else I could monetize my skills, even out spikiness of my income, and create some diversification. Having an alternative (ideally more passive) set of income streams would allow me to maintain my selectiveness over what clients I take on as a designer.
My dream is to make enough baseline income from non-client work to support myself, and only take on client work that I truly want to do. I’m still a LONG way off from that, but I’ve made a start.
What did you do for health insurance?
In the US, this is often the biggest barrier to people leaving their jobs or starting their own businesses. I was lucky. I could get coverage under my partner’s employer plan for very little additional cost.
Well, there it is. My first year in business.
I hope you found that interesting and educational.
What questions or comments do you have after seeing the numbers?
What topics would you want me to go further into?
Hit reply and let me know!
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Thanks for sharing Anson, a brave thing to do, but also admirable. The first year in business is always exciting with the setting up, getting all the gear together and the new-found freedom. Turning a profit of any kind in your first year is a great achievement, keeping the momentum is now key. Looking at alternative income streams is very sensible, we've always looked to achieve that as it smooths the bumpy road that consultancy can sometimes be.
We used manufacturing as our main alternative income in the start, now its a combination of that, royalties and other random things. It's also wise to devote a certain amount of time to new non-fee ventures as these are the ones that can give the biggest opportunity for the future.
The thing in the back of my mind was that there is never really any inherent value in a design consultancy, the value is the people. So building another business or joint-venture can give that opportunity. We built a medical device business which we later sold, we're now trying to do that again but in a different sector. It means we limit the time we can 'sell' for design projects, but its a good investment.
Good luck with year 2, I'm sure you'll smash it! Paul.