1118

Zweig Group is social and posting every day! C O N N E C T W I T H U S r worth Mastering fees begins with a profit plan Determining fees is important for accurate billing and for creating a profitable firm; to begin, leaders should assess expenses and goals to establish desired revenue. facebook.com/ ZweigGroup twitter.com/ ZweigGroup linkedin.com/company/ ZweigWhite blog.ZweigGroup.com vimeo.com/ ZweigGroup

By LIISA ANDREASSEN Correspondent

ing to Burns, there are statistical surveys that show, on aver- age, architectural firms achieve about 65 percent. This aver- ages all employees, including principals . Though principals might only be 50 percent efficient (spending 20 of their 40 hours each week billable on projects), interns might be 95 per- cent efficient. SET IDEAL BILLING RATES. The planned net multiplier is an incredibly important number to help determine minimum hourly billing rates. Burns provides the following example for an architec- ture firm:

H ow do you set your fee and billing rates? Do you compare and contrast? It’s a fine line to walk between maintaining top profits, while remaining competitive in the marketplace so customers turn to you time and again. START BY BENCHMARKING. Benchmarking your firm’s billing rates is important because your rates directly impact revenue. If you bill your services at rates lower than other firms in your peer groups without simultaneously winning a higher volume of work or obtaining a larger number of hours, it limits your profitability. Steven Burns, spent 14 years managing his firm Burns + Beyerl Architects . After creating ArchiOffice, a smart office and project management solution for architectural firms, Burns brought his management expertise to BQE Software. He says that fi- nancial health starts with creating an operating budget or profit plan. EASY AS 1-2-3. Burns says that there are three steps to creating a profit plan: 1)Estimate your expenses. Don’t include any of those that are reimbursed by your client (printing, travel, pass-through consul- tant fees, etc.). 2)Set a profit goal. This is generally thought of as your return on investment. It’s a percentage of your total expenses. All the ef- fort and money you put into the business should return a profit. What’s the return you want to see? 3)Add your expenses with your profit goal to get the net reve- nue goal. Your net revenue goal is what you plan to invoice your clients for your services. KNOW YOUR EFFICIENCY RATIO. Burns adds that architects and engi- neers earn their revenue (and profit), by working on projects. So it should come as no surprise that the most common de- nominator for planning and measuring financial performance is the direct salary expense. This is the salary cost of the hours charged to projects (your billable time). He says that these are the numbers that will be used to deter- mine the values such as the target break-even, profit and reve- nue amounts. But in order to do this you need to know your ef- ficiency ratio. ❚ ❚ Efficiency Ratio = Direct Salary Expense/Total Salary Expense ❚ ❚ Direct Salary Expense = Total Salary Expense x Efficiency Ratio So how do we know the efficiency ratio for your firm? Accord-

Cost Rate and Ideal Bill Rate

Project Architect

Architect Intern $35,000 $5,250 $4,000 $1,050 $45,300

Principal

$100,000 $75,000 $15,000 $11,250

Gross Annual Salary Payroll Tax (15%) Health Insurance Retirement Plan

$8,000 $3,000

$4,000 $2,250

$126,000 $92,500

Net Cost/Year

2,080 (120)

2,080

Gross Hours/Year

(80) (80)

Vacation

(80)

Holiday/Personal Leave Net Hours Worked/Year Net Cost Rate/Hours Worked Planned Net Multiplier

1,880

1,920

$67

$48

$24

2.85 $191

2.85 $137

2.85 $67

Ideal Billing Rate

As long as your office maintains the 65 percent efficiency rate, you must bill your principal at $191 an hour, your project ar- chitect at $137 an hour, and your architect interns at $67 an hour to obtain the desired profit. “Granted, some firms don’t like to look at the global efficiency rate, opting instead to evaluate the ideal bill rate for each em- ployee based on their true efficiency level,” Burns says. “But that’s a whole other discussion.” For more information on how to set your fees and bill rates, check out Zweig Group’s 2015 Fee & Billing Survey of Architec- ture, Engineering, Planning & Environmental Consulting Firms , the standard guideline for architecture, engineering, plan- ning and environmental firms looking to find the balance be- tween competitive pricing, quality design, and firm profitabil- ity: zweiggroup.com/surveys .

UST 31, 2015, ISSUE 1118

Made with FlippingBook Annual report