@tempdrive: "(Yearly Salary/2080) * 2.5 to 3 = Billable Rate"
Sure, this is the traditional way to calculate billing rates. So, when wages are depressed there's an automatic reduction in billing rates. Does that make any sense? I think not.
Use that formula to set a floor for your billing rate - that's the MINIMUM you should charge if you don't want to go backwards. But, if you want to move forward, base your rates on some rationale more closely aligned to the value you bring to your clients. That let's you go much higher.
Don't let tradition hold you back. Just be prepared to make a case for the value you bring.
Quizz - the only reason I mentioned the size of the firm is to indicate that we will not be carrying as much overhead. We won't have a marketing department or a hr department, etc. Yes we will have costs in those areas, but they can be flexible for competition and the risk associated with permanent personnel that is found in larger firms does not need to be accounted for in the rate. We don't have rent. We don't have a large network to maintain or hundreds of software licenses. Our cost of doing business will be less.
What I am trying to establish is a floor to work off of. I used 3.5 as a modifier to establish those rates.
I hear what you're saying about value. Thanks again.
depends where you are in the midwest, too. our billable rates - universal across all staff - are below $100/hr. (actually, we don't even count admin staff in our billable hrs.) the market here in ky doesn't seem like it would support higher.
those rates sound competitive with medium to large size offices in the metro detroit area. i am less familiar with smaller practices. the principal rate is maybe a little low, but at larger offices, the principal has very little involvement with projects on a day-to-day basis. in a three man shop, it sounds like the principal is going to be more actively involved.
however i do question a multiplier of 3.5 with as little overhead as you describe. if you can maintain profitibility, i would consider dropping your rates. unless you have a real name in the market (which sounds unlikely as a start-up) being price competitive is an advantage.
quizzical, your comment is very interesting. you've also mentioned this idea of the 'value you bring' in other threads.
when you say this, are you referring to learning how to properly market general design skills, or rather developing a specialty set of skills and properly leveraging it?
An important factor in keeping your head above water is your utilization rate: what percentage of your time is actually billable to jobs vs. spent chasing new work doing administrative work etc. My experience has been that the fewer people we have in the office the higher our multiplier calculates out, as expensive people are spending time on non-billable work.
And if you think you are charging too much, I recently had dinner with a lawyer who bills out at $750 (in San Francisco); at least he paid for dinner.
EKE, your post reminds me of a joke that was circulating around our office a few months ago when we had a corporate mega-firm as a consultant to us on a planning project, and we thought it would be fun to hire sally struthers to film a promo for us, "for the price of one hour of mr. [fill-in corporate mega-firm principal here] you could feed a whole office of our interns for a month," in the background, a room full of gaunt emaciated interns cadding away
Your rates should be a combination of what you want them to be and what the market will allow. In other words, you may need to do some research to not price your self either too low or too high but just right for your overhead and profit in the market your are trying to compete in. A good start is to research your competition to death.
wurdan -- seems a little low to me. Not sure what you're trying to accomplish (e.g. maybe you're trying to compete primarily on price?) but if you don't build-in sufficient margin above your costs on all labor sold (both staff and principals) then you'll never have any funds available to grow the firm.
Also, as I view your calcs, you seem to assume your drafter will be 100% billable -- which is doubtful. You need to build in some markup for those non-billable hours for which you'll still need to pay your employee -- your billing rates need to assume some downtime.
While I can't possibly know anything about the market in which you compete, around my neck of the woods you'd probably see drafters of the sort you describe being billed at $60-75 / hour and we rarely, if ever, see principals billing for less than $100 / hour.
druf - the scolding for collusion would come not from the AIA but from the US Department of Justice, which is a considerably bigger deal. However, sharing fee information generally is not, in and of itself, collision - particularly in a public setting. There would have to be some concerted effort to 'enforce' a minimum level of fees for Justice to start getting excited. That would be considered restraint of trade.
As suggested you need to know the firm Utilization Rate (60-65%) and each individual employees Utilization Rate (75-85%). Firm Utilization Rates are lower to account for admin staff and time spent by principals and others for biz dev, etc. The rates shown are industry averages.
You also need to know your Overhead Rate and your Breakeven Rates before you can calculate Hourly Billable Rates.
I think the point of assigning an hourly rate to the insurance etc. is to make sure that each billable hour is contributing to overhead. Liability insurance runs about 1-1.5% of net revenue, so if you are billing out a drafter @ $75/hr, .$75 of that is going to insurance.
I was taught to calculate hourly rates by:
first figuring utilization rate to get a quantity of billable hours (2 weeks vacation + 8 holidays = .93 if every other hour is spent on billable work; .8 = more reasonable),
the non-billable hours are soft overhead
then calculate hard overhead (taxes, rent, insurance etc)
add overhead to total salary cost - this is your cost of operations
divided by billable portion of salary (firm utilization rate * total salary) - this gives you the break even multiplier
add profit (no less than 15%) and now you have your billable rates.
if the rates are too high for the market, cut some overhead and lower salaries 'till it works.
please be advised, and this goes for AIA member architects as well as architects in general in some cases, architects discussing specific fee structures is actually illegal - brush up on anti-trust law, or at least look at a summary by the AIA on the subject:
The document seems to read as some kind of official AIA document, as opposed to a general guideline for architects. I don't think that a discussion of fee structures would be inherently problematic? It seems like it would be important to have for statistical purposes (e.g., how much architectural services cost).
Even a range would be helpful (as opposed to some kind of official 'guideline' or 'average'). When collecting information on an industry, I would think that these sorts of numbers would be very helpful when describing trends.
Otherwise, it seems like it would be okay for some outside entity to collect information on fee structures and other economic indicators, but architects themselves were prohibited from doing so for antitrust reasons!
The AIA tries to flex it's muscle all the time. They don't want us poking around finding information that hasn't been spoon fed.
Discussions like this are helpful to young professionals. There is a lack of education for interns regarding establishing fees. Competition is fierce enough right now, knowing how to position yourself to get work and make money doing it, is important to learn.
Three Man Firm - Billable Rates
Do these rates seem high, low... or just right for a three man firm in the midwest?
Principal - $125
Project Architect - $112
Cad/BIM - $70
Admin- $50
With respect, what does the size of your firm have to do with your billing rates?
Billing rates should reflect a) the cost of doing business, and b) the value of the services your provide your clients.
The fact that you're a small firm should not cause you to artificially depress (or inflate) your rates.
(Yearly Salary/2080) * 2.5 to 3 = Billable Rate
All depends on project types and the experience of the folks... I've seen principals bill at over $180 to less than $100.
@tempdrive: "(Yearly Salary/2080) * 2.5 to 3 = Billable Rate"
Sure, this is the traditional way to calculate billing rates. So, when wages are depressed there's an automatic reduction in billing rates. Does that make any sense? I think not.
Use that formula to set a floor for your billing rate - that's the MINIMUM you should charge if you don't want to go backwards. But, if you want to move forward, base your rates on some rationale more closely aligned to the value you bring to your clients. That let's you go much higher.
Don't let tradition hold you back. Just be prepared to make a case for the value you bring.
Thanks for all your input.
Quizz - the only reason I mentioned the size of the firm is to indicate that we will not be carrying as much overhead. We won't have a marketing department or a hr department, etc. Yes we will have costs in those areas, but they can be flexible for competition and the risk associated with permanent personnel that is found in larger firms does not need to be accounted for in the rate. We don't have rent. We don't have a large network to maintain or hundreds of software licenses. Our cost of doing business will be less.
What I am trying to establish is a floor to work off of. I used 3.5 as a modifier to establish those rates.
I hear what you're saying about value. Thanks again.
depends where you are in the midwest, too. our billable rates - universal across all staff - are below $100/hr. (actually, we don't even count admin staff in our billable hrs.) the market here in ky doesn't seem like it would support higher.
those rates sound competitive with medium to large size offices in the metro detroit area. i am less familiar with smaller practices. the principal rate is maybe a little low, but at larger offices, the principal has very little involvement with projects on a day-to-day basis. in a three man shop, it sounds like the principal is going to be more actively involved.
however i do question a multiplier of 3.5 with as little overhead as you describe. if you can maintain profitibility, i would consider dropping your rates. unless you have a real name in the market (which sounds unlikely as a start-up) being price competitive is an advantage.
quizzical, your comment is very interesting. you've also mentioned this idea of the 'value you bring' in other threads.
when you say this, are you referring to learning how to properly market general design skills, or rather developing a specialty set of skills and properly leveraging it?
An important factor in keeping your head above water is your utilization rate: what percentage of your time is actually billable to jobs vs. spent chasing new work doing administrative work etc. My experience has been that the fewer people we have in the office the higher our multiplier calculates out, as expensive people are spending time on non-billable work.
And if you think you are charging too much, I recently had dinner with a lawyer who bills out at $750 (in San Francisco); at least he paid for dinner.
I am a principal at a medium-sized firm in Los Angeles. My rate is $275.
EKE, your post reminds me of a joke that was circulating around our office a few months ago when we had a corporate mega-firm as a consultant to us on a planning project, and we thought it would be fun to hire sally struthers to film a promo for us, "for the price of one hour of mr. [fill-in corporate mega-firm principal here] you could feed a whole office of our interns for a month," in the background, a room full of gaunt emaciated interns cadding away
wdw - holy cannolis that's a funny mental image. please post video.
Ok. So this is what I have for a draftsman w/ 0-3 years experience and CAD/revit intermediate experience.
$35 hr for wage, taxes, workers comp, umemployment ins.
$10/hour for Professional liability, computer, phone, software, etc. and
$10 for +/- 20% profit/contingency
= $55/hr for a position that pays $22/hr no benefits.
Using similar thought process
Principal rate is $85/hr.
What do you think?
Your rates should be a combination of what you want them to be and what the market will allow. In other words, you may need to do some research to not price your self either too low or too high but just right for your overhead and profit in the market your are trying to compete in. A good start is to research your competition to death.
wurdan -- seems a little low to me. Not sure what you're trying to accomplish (e.g. maybe you're trying to compete primarily on price?) but if you don't build-in sufficient margin above your costs on all labor sold (both staff and principals) then you'll never have any funds available to grow the firm.
Also, as I view your calcs, you seem to assume your drafter will be 100% billable -- which is doubtful. You need to build in some markup for those non-billable hours for which you'll still need to pay your employee -- your billing rates need to assume some downtime.
While I can't possibly know anything about the market in which you compete, around my neck of the woods you'd probably see drafters of the sort you describe being billed at $60-75 / hour and we rarely, if ever, see principals billing for less than $100 / hour.
Expensive sure, but hey - you're worth it!
Nobody wants to state their rates because they fear being scolded by the AIA for collusion.
P.S. - small firm, not big city: Principal = $190, Architect = $140, Drafter = $80, Admin = $45
druf - the scolding for collusion would come not from the AIA but from the US Department of Justice, which is a considerably bigger deal. However, sharing fee information generally is not, in and of itself, collision - particularly in a public setting. There would have to be some concerted effort to 'enforce' a minimum level of fees for Justice to start getting excited. That would be considered restraint of trade.
As suggested you need to know the firm Utilization Rate (60-65%) and each individual employees Utilization Rate (75-85%). Firm Utilization Rates are lower to account for admin staff and time spent by principals and others for biz dev, etc. The rates shown are industry averages.
You also need to know your Overhead Rate and your Breakeven Rates before you can calculate Hourly Billable Rates.
What draftsman has any "professional liability" at stake?
The guy with the stamp is taking all of the liability.
I think the point of assigning an hourly rate to the insurance etc. is to make sure that each billable hour is contributing to overhead. Liability insurance runs about 1-1.5% of net revenue, so if you are billing out a drafter @ $75/hr, .$75 of that is going to insurance.
I was taught to calculate hourly rates by:
first figuring utilization rate to get a quantity of billable hours (2 weeks vacation + 8 holidays = .93 if every other hour is spent on billable work; .8 = more reasonable),
the non-billable hours are soft overhead
then calculate hard overhead (taxes, rent, insurance etc)
add overhead to total salary cost - this is your cost of operations
divided by billable portion of salary (firm utilization rate * total salary) - this gives you the break even multiplier
add profit (no less than 15%) and now you have your billable rates.
if the rates are too high for the market, cut some overhead and lower salaries 'till it works.
please be advised, and this goes for AIA member architects as well as architects in general in some cases, architects discussing specific fee structures is actually illegal - brush up on anti-trust law, or at least look at a summary by the AIA on the subject:
http://www.aia.org/aiaucmp/groups/aia/documents/pdf/aiap074119.pdf
be careful -
@archadvocate,
From the looks of the document, I think that's for if you work at the AIA and are doing official AIA things.
Not an official professional organization? Collude away!
Otherwise, how would we have any industry statistics?
To clarify:
The document seems to read as some kind of official AIA document, as opposed to a general guideline for architects. I don't think that a discussion of fee structures would be inherently problematic? It seems like it would be important to have for statistical purposes (e.g., how much architectural services cost).
Even a range would be helpful (as opposed to some kind of official 'guideline' or 'average'). When collecting information on an industry, I would think that these sorts of numbers would be very helpful when describing trends.
Otherwise, it seems like it would be okay for some outside entity to collect information on fee structures and other economic indicators, but architects themselves were prohibited from doing so for antitrust reasons!
The AIA tries to flex it's muscle all the time. They don't want us poking around finding information that hasn't been spoon fed.
Discussions like this are helpful to young professionals. There is a lack of education for interns regarding establishing fees. Competition is fierce enough right now, knowing how to position yourself to get work and make money doing it, is important to learn.
I lost track of this for a while, but wanted to say thank you to everyone who contributed.
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