Billing per direct hour reaches five-year high

The 2016 Architectural Survey from CBIZ Tofias & MHM reported that the Greater Boston architecture industry remains strong, though the industry is at a crossroads as it needs to find new ways to reduce its overhead costs.

The survey results also indicate that industries tangential to architecture – such as real estate and construction – are similarly seeing positive economic indicators and growth.

While billing per direct hour reached a five-year high of $116.88 in 2015 – up from $114.41 in 2014 – profit per direct hour dipped slightly. The approximate $2.50 rise in the average billing per direct hour, along with the billing multiple of 3.17 times direct labor, contributed to this year’s profit per direct hour of $17.40, the second-highest seen in the survey’s history.

“2013 and 2014 represented some of the most profitable periods for the architecture industry in the history of this survey, and we were pleased to see that 2015 continued on that trend. We can surmise that construction and real estate are experiencing similar positive momentum,” says David Swan, author of the report and Leader of CBIZ Tofias’ Architecture, Engineering and Consulting (A/E/C) Practice in New England. “However, firms may find it difficult to maintain the high billing multiple and profit per direct hour rates recently reported by the Architectural Survey. To achieve financial growth, firms must find the optimal balance between billing rates and overhead costs while building their revenues by increasing their direct hours and/or the average billing per direct hour.”

The 2016 Architectural Survey yielded the following trends and analyses:

• Overhead rates increased year over year by 4.3 percent to $62.77 per direct hour, which can largely be explained by an increase in indirect labor. To stymie this trend, architecture firms must increase the utilization of staff to boost the direct labor utilization rate which will reduce their largest overhead cost.
• Operating efficiency continues to be strong. For the fourth consecutive year, firms reported a high billing multiple of 3.17 times direct labor, indicating that firm personnel are efficiently working on projects. This appears to be the main driver of the historically high levels of effective billing rates achieved and profit per direct hour over the past few years.
• The direct labor utilization rate (percentage of time worked on billable projects) decreased to 62.7 percent in 2015 from 63.7 percent in the prior year. Most of the more profitable firms that participated in the survey achieved direct labor utilization rates of 65 percent or more, with some around 70 percent.

To download a copy of the survey, click on CBIZ Tofias 2016 Architectural Survey. The survey is based on 2015 financial information supplied by CBIZ Tofias’ architectural clients representing a cross-section of Greater Boston architectural firms.

CBIZ Tofias (www.cbiztofias.com) is a leading accounting provider with offices nationwide including Boston and Providence. CBIZ Tofias, a business consulting, tax and financial services provider, works closely with MHM (Mayer Hoffman McCann P.C.), an independent CPA firm that provides audit, review and attest services. CBIZ Tofias and MHM are members of Kreston International Limited, a global network of independent accounting firms.Together, the companies rank as a top 10 accounting provider in the U.S. (Source: Accounting Today).