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The Cost of Construction

ColorBlindArchitect

Hello everyone!

I'm putting together a business plan for an entrepreneur competition at Louisiana Tech University, where I am a graduate student. 

I need some information about the fees that architects, contractors, sub-contractors, brokers, etc. are paid during the process of planning, designing, and constructing residential building types. Where exactly does all of that money go? For example, how much of a 10% fee goes to things like keeping the lights on and paying employees, and what goes back into the firm/company as profit or reinvestment? What does that fee breakdown look like for all participants?

I ask this because my business plan rethinks the entirety of the process and, therefor, how all of the money moves. The goal is to rid the of the "Do a job and get paid" model and replace it with the more financially stable "We're building assets" model. I know that's kind of vague, but I would rather not bore you with all the details, or give away all my secrets (unless we're both sharing, of course!) 

If anyone has any information they would rather share privately, please feel free to contact me directly. I have a Mutual NDA if that's necessary.

 
Jun 25, 17 7:10 pm
architeckton

Are you looking strictly at the architecture fee? And if so, how much of that goes into direct salary expense, overhead (benefits, rent, utilities, software, hardware, etc.), and profit?

Or are you looking more generally at how does a savvy architecture firm capitalize on their profits?

Mar 27, 18 11:41 am  · 
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3tk

I think much of that depends on the firm size and age.  Insurance can be a high portion of it (for architects and contractors) and multipliers can vary geographically (rent can shift considerably, and some firms own their own real estate).

Rules of thumb I've heard from owners is a 1.5x to 4x multiplier (most small to mid size firms seem to be in the 2.5x and 3x) and 90-95% billable time.  Translates to an employee should be billing 90-95% of their time to a project (remainder being internal organization, etc) with the fee 1.5x to 4x the cost of employing them (salary+benefits, hardware/software costs can be in the cost of employment or in overhead).  The multiplier is there for insurance, real estate, marketing and what remains is profit.

The 'value added' model works with upper end developers and 'branded' architecture, but it's a tough sell when there is no back-up.  Analytics is changing some parts of the real-estate industry, but I personally feel like there still is a lot of propter hoc issues with them.

Mar 27, 18 12:01 pm  · 
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wurdan freo

So you want people to give away their proprietary information that has taken years of struggle, mistakes and success so you can enter some stupid business plan competition. Additionally you have the nerve to think your idea is so special that in exchange for that info we could sign a NDA... ha... here's a goal for your competition... go fuck yourself :)

Mar 27, 18 3:34 pm  · 
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10%?

Hahahahahahahahahahaha

Mar 27, 18 10:35 pm  · 
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architeckton

That’s not unreasonable in residential work. But in the commercial world definitely on the high end.

Mar 27, 18 11:52 pm  · 
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If I understand this correctly (likely not), the model is something akin to asking the client to buy your hardware, software, and lights for you on a project by project basis. Interesting idea until the client figures out they bought a compute that will bur used for another project client. Unless what you are really asking is if you can create coworker spaces with all the software/hardware needs built, and thats mother mess entirely. 

Mar 27, 18 10:45 pm  · 
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