Industry profit levels remain strong as firms work to improve efficiency
Architecture firms in the Greater Boston region maintained their profitability last year, but are now struggling to keep overhead rates in check, reported the 2017 national award-winning Architectural Survey conducted by CBIZ Tofias.
The results of the survey, now in its 32nd year, imply that industries related to architecture – such as real estate and construction – are experiencing similar headwinds, but overall high profit levels.
Increased overhead expenses, coupled with decreased direct billing activity, led to a surge of over 8 percent in overhead rates from $62.77 per direct hour in 2015 to $67.83 in 2016. The survey suggested the largest expense contributing to overhead is indirect labor.
Additionally, the average number of direct hours charged in 2016 decreased slightly from 2015. As a result, direct labor utilization rates dropped slightly from 62.7 percent in 2015 to 62.3 percent in 2016.
“A continued downward trend in direct hours could hurt the architectural industry’s overall profit per direct hour rates,” says David Swan, author of the report and Managing Director in charge of CBIZ Tofias’ Architecture, Engineering and Consulting (A/E/C) Practice. “We recommend firms focus their attention on their direct hour utilization rate by analyzing and rightsizing their staffing levels.”
Despite the unsavory overhead rates, the 2017 Architectural Survey also identified the following positive results and trends:
Profit per direct hour stays elevated: Profit per direct hour remained very strong at $15.76 in 2016. The four-year period from 2013 to 2016 yielded the highest individual and collective profit per direct hour rates in the history of this survey. Operating efficiency and decreases in indirect hours likely contributed to this strong performance.
Operating efficiency remains strong: Direct labor billing multiples have been high since 2013, and 2016 was no exception coming in at 3.15. Strong billing multiples indicate billable hours are being used efficiently. High billing multiples over the last four years may be a main contributor to high levels of profits per direct hour.
“Architecture firms have an opportunity for financial growth if they can find the optimal balance between billing rates and overhead costs, while building their revenues and increasing direct hours,” says Swan. “Maximizing the direct utilization of employee hours will be essential to maintaining efficiency and high revenue rates in the future.”
To download a copy of the survey, please click here. The survey is based on 2016 financial information supplied by CBIZ Tofias’ architectural clients representing a cross-section of Greater Boston architectural firms.
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