There are approximately 3,400 RIBA architectural practices in the UK. Of those, 78% have ten people or fewer in them and around 62% have five people or fewer. This is significant because it shows there is huge competition among smaller firms, with over 2,500 practices of one to ten staff vying for business.
Small to mid-tier firms can find it harder to keep their cost base down unless they are able to delegate to less expensive staff members work which does not require input by a qualified architect. Smaller firms might also need to rely on external consultants if they do not have the capacity to do the work in-house and this can be expensive.
For all practices, small or large, KPIs are important tools to measure the success of your business.
Here are some KPIs to be aware of:
Fees per employee (fee income/number of employees).
A useful measure of growth and, if compared year-on-year, it will help you plan ahead.
Operating profit per employee (profit before interest & tax/number of employees).
A measure of the firm’s profitability. The operating profit figure and number of employees are publicly available at Companies House (generally for LLPs and Limited Companies above £6.5m turnover), making it easy to compare yourself with other architecture practices.
Overhead rate (indirect costs/direct staff costs x 100%)
A measure of the cost of the services you are providing. Indirect costs include rent, rates and other administrative expenses which can’t be attributed to a particular project. Direct staff costs refer to those that can be attributed to projects. The lower the rate, the more profitable you are and it will help decide how much you should be charging.
Break-even rate (overhead rate + hourly salary)
A measure of the cost of employing people. A more useful measure is to work out the break-even point on each project. This is the point at which income equals costs, above which profit is made.