Increased billing rates propel profits higher, while rising labor costs force firms to become more efficient
Architecture firms in the Greater Boston region enjoyed a record year in 2017 for profits and operating efficiency, reports the 2018 national award-winning Architectural Survey conducted by CBIZ and MHM New England.
The report disclosed a profit per direct hour of $21.54, the strongest result recorded in the 33-year history of the survey. This solid performance was driven by a 5.5 percent increase in billing rates from 2016 to 2017, which was offset only by a slight increase in the overhead rate and a flat direct employee hourly rate.
The direct labor billing multiple was also at the highest level in survey history – recorded at 3.31, up from 3.15 in 2016. High billing multiples over the past five years indicate that billable hours are being used efficiently throughout the industry, further contributing to the trend of escalating profits per direct hour.
“2017 was characterized by high profit levels for Greater Boston architectural firms, driven mainly by increased billing rates,” says David Swan, author of the report and Leader of the New England Architecture, Engineering and Consulting (A/E/C) Practice. “However, it’s crucial that firms remain diligent to improve operating efficiency as the industry continues to face decreases in staff utilization and creeping labor costs.”
Other notable findings of the 2018 Architectural Survey include:
Overhead rates increase modestly: Overhead rates rose from $67.83 per direct hour in 2016, to $68.44 in 2017. This was caused by a combination of factors, including a very slight decrease in direct billing hours and increased overhead expenses. Indirect labor is the largest expense contributing to overhead, so firms may be able to reduce overhead rates by maximizing their direct-labor utilization rate.
Direct hours remain consistent: The number of direct hours spent in 2017 remained steady with 2016 levels, despite the utilization rate decreasing from 62.3 percent to 61.5 percent. Indirect hours increased by 3 percent, while total hours remained flat. The increase in indirect hours may be a result of firms “staffing up” in preparation for future growth.
“We anticipate firms will experience an increase in labor rates moving forward,” says Rick Strout, co-author of the report. “Maximizing the direct utilization of employee hours will be essential to counter these increases and maintain efficiency. Firms have an opportunity for financial growth in 2018 and beyond if they can find a balance between billing rates and overhead costs, while growing revenue and increasing direct hours.”
To download a copy of the survey, please click here.
The results of the report are based on 2017 financial information supplied by CBIZ and MHM New England’s architectural clients, representing a cross-section of firms based in the Greater Boston region.
About CBIZ and MHM New England
CBIZ and MHM New England is part of the nation’s 10th-largest national accounting provider. We uniquely combine national resources with local decision-making by experienced, New England-based professionals. Our New England offices are located in Boston and Providence and employ over 200 people, including more than 35 Managing Directors. Nationally, CBIZ and MHM has over 75 offices in 34 states.
CBIZ, Inc. provides professional business services that help clients better manage their finances, employees and insurance needs. CBIZ provides its clients with financial services, including accounting, tax, financial advisory, government healthcare consulting, risk and advisory, and valuation services. Benefits and insurance services include group health benefits consulting, property and casualty insurance, retirement plan consulting, payroll, and HR consulting. As one of the largest accounting, insurance brokerage and valuation companies in the United States, the company’s services are provided through more than 100 company offices in 33 states.
CBIZ’s expertise can be supplemented with resources available through its close association with MHM (Mayer Hoffman McCann P.C.). MHM is a national, independent CPA Firm with 29 offices nationwide and 200 shareholders. MHM specializes in attest services for mid-market and growing businesses, not-for-profit organizations and government agencies. Services include financial statement audits of public and private companies, employee benefit plan audits, audits over internal controls of service organizations (formerly known as SAS 70), review, compilations, litigation support and reports on performance of agreed-upon procedures. Together, CBIZ and MHM are one of the Top Ten accounting providers in the country.
