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Billing rate vs. pay rate

Mar 2 '06 66 Last Comment
Living in Gin
Mar 2, 06 10:14 am

Here at Dysfucntional Studios Ltd. I just came across a document that includes my hourly billing rate... Interesting stuff.

Although I'm still finishing up my undergrad degree, I have pretty much the same responsibilities on the project as those who have finished their M.Arch. degrees, IDP, and who are preparing for the ARE. My billing rate is the same as these people, but I'll eat my hat if my take-home pay is the same.

On average, roughly what percentage of your billing should be your take-home pay? Does that number include health insurance and benefits?

Inquiring minds want to know...

 

walter_
Mar 2, 06 10:27 am

all i know is we charge 150/hr for my work, i am only 22...and god knows i don't see anything remotely close to that number. maybe if you remove a zero...and then some...

Living in Gin
Mar 2, 06 10:34 am

Yikes... Our principals charge $175/hr. My take-home pay (not including benefits) is about 27% of my billing rate.

walter_
Mar 2, 06 10:37 am

yea i think our principal charges over 200. a bit ridiculous but we do only high-end. but i am quitting tomorrow, so frankly, i don't care.

myriam
Mar 2, 06 10:41 am

WHOA. 150$/hr??? what city are you located in? That seems REALLY high to me, for an intern. That's how much our principals' time is worth to our clients.

My pay is about 29% of billing rate, depending on the project (we have slightly diff. contracts for each, depending on the year the contract was signed).

I've heard that 30% of billing rate is typ. for pay rate, but I am not sure where I heard that or how reliable it is or whatever.

walter_
Mar 2, 06 10:46 am

ny - been more or less running the project, which has been an interesting first experience in the working world...

freebornman
Mar 2, 06 10:46 am

my pay rate falls right at 28% of my billing rate, sounds pretty typical from the posts above

walter_
Mar 2, 06 10:49 am

i guess im just getting exploited. awesome!

el jeffe
Mar 2, 06 10:51 am

most arch offices use a multiplier between 2.5 and 3. the larger, more corporate offices in large cities with lots of overhead and benefits justify a larger multiplier than that.
the multiplier is a multiple of your gross, not net pay.

Living in Gin
Mar 2, 06 11:00 am

Does the multiplier of your gross typically include benefits such as health insurance, or are those expenses counted as part of overhead?

citizen
Mar 2, 06 11:07 am

It costs more to run a firm than to pay salaries, as El Jeffe suggests. Rent, insurance, computers, copiers, plotters, utilities, non-billable staff and other things all cost money. O and P--overhead and profit--is a standard line item in construction contracts, and is what is contained in the multiplier. When you get old and craggy and are running your own office, trust me, you will NOT be paying your employees equal to their billing rate (unless you marry rich, and are insane.)

Now, if you're underpaid, that's another matter entirely.

cln1
Mar 2, 06 11:08 am

L.I.G. - one thing you have to take into consideration is rate of production...

an example,
at my firm the principles charge the same rate for me (8 yrs experience, march, idp completed, getting ready for ARE) as the do for a co-worker (barch, 4 yrs, just starting idp)

but i take home considerably more than he does, even though we have very similar roles on projects..

the reason: i can work a little quicker than him... i have to ask less questions of the principles, taking up less of their time, i never call in sick - while he calls in 3/4 times per year, etc, etc

the bottom line is - although we are billed at the same rate, they are able to pay me more because i use less resources and can complete more work...

maybe you could talk to your principle about your efficiency vs. the price you are billed out to clients - dont ask for figures, but ask where you can improve....

Living in Gin
Mar 2, 06 11:31 am

I understand that I won't (and shouldn't) be paid anywhere near my billing rate. But I'm trying to determine if 27% is reasonable, and if that includes health insurance and other benefits (which nobody has answered yet).

cln1
Mar 2, 06 11:31 am

another thing to consider about the multiplier... it is not the end all decision for payrate. the multiplier would be equal to the maximum that the firm will pay you, if you are at the top of your game...

if a firm bills someone out at 90/hr - the maximum they will pay that person is 30/hr (you'll never see someone paid the max though - there would be no cusion)

if they are paying that person $15/hr - then either the firm is either cheap, or the employee doesnt produce enough work

if that employee is billed at $90/hr and is paid $20-$25/hr then they are right where they should be.

cln1
Mar 2, 06 11:32 am

yes, the multiplier includes all expenses

health, computers, paper, pencils, printer ink, electrical bill - everything that you as an employee uses.

Gravitas
Mar 2, 06 11:35 am

I'm at 25%. cln 1, you honestly believe that someone calling in sick 3 or 4 times a year versus no times a year is a factor that can justify a higher salary (I understand there are larger differences)? I could understand if said empolyee consistently uses their entire sick leave, but 3 or 4 sick days a year seems pretty average to me, am I off? How many sick days a year do most archinecters use??

Living in Gin
Mar 2, 06 11:52 am

Agreed... Anybody who never takes a sick day either has a superhuman immune system, or is somebody who comes in sick and infects the rest of the office. 3-4 sick days per year seems reasonable, and employees shouldn't be penalized for taking them for legitimate reasons.

cln1
Mar 2, 06 11:57 am

calm down, that was just an example - this particular person calls out at awkward times which leads the principals to believe that he is blowing off work (sometimes during critical deadlines)

this creates a negative stigma towards that person, which directly relates to payroll - if the boss is giving out raises and there is one person who blows off work for no reason (unproveable) that person isnt going to get too good of a raise

it is all tiny pieces of the large picture

j
Mar 2, 06 12:51 pm

el jeffe pretty much got it. your salary should be anywhere from 1/2.5 of your billing rate to 1/3.5. the ratio between the two should increase as you gain experience, just because younger, more inexperienced employees tend to cost the firm more (what cln 1 alluded to).

the multiplier accounts for everything that the company will have to pay on your behalf: unemployment, social security, rent, etc. it also includes profit and generally accounts for your level of productivity (i.e. more productive employees don't require higher multipliers). so you should really making (gross) 28%-40% of you billing rate as part of your salary.

i don't work in a traditional architecture firm, so our billing is a little quirky. i make 60% of my billing rate but, again, no one in any sort of normal practice should expect such a rate.

digger
Mar 2, 06 1:14 pm

Most financial statistics surveys for design firms will show that the average architectural firm will need to bill 2.7-2.9 times your raw salary to pay your benefits, cover office overhead and make a modest profit (i.e. 6-7% on Gross Revenue, before bonuses and taxes) on your labor.

Of course, this assumes all of the work is invoiced hourly ... fixed fee work makes the analysis a little more difficult. But, as a general rule of thumb, you should expect your billing rate (or "full job-cost rate" + "profit") to be something on the order of 2.5 - 3.0 times your actual hourly pay rate.

A caution: in my experience, some firms will establish a billing rate for a group of employees ... e.g. all 3rd Year Interns will be billed at $___ and all Architect IIs will be billed at $___; in such cases, the billing rate will be based on the average pay rate of the people in that group ... depending on how much wages vary within each particular group, for any individual the 2.5-3.0 multiplier mentioned above might, or might not, apply.

My main advice --- if you're curious about this topic, rather than just guess why not approach one of the firm's partners and politely ask for an explanation ... when this happens to me, I'm happy to explain how billing rates in our firm are calculated and I appreciate a member of my staff wanting to know. It's a really good basis on which to have a useful conversation about the economics of professional practice.

Rim Joist
Mar 2, 06 1:30 pm

Aside from the issue of what an employee brings home for a moment... Ever wonder if what a person can actually provide in return for billing someone, say, 120 dollars an hour?

What can you actually do for someone -- in our profession that is, ya freaks! -- that is clearly worth 2 bucks every minute that passes?

This should be good...let 'er rip.

A
Mar 2, 06 1:33 pm

Take your gross hourly wage and multiply it by three. That's about what you should be getting billed at. I'm skeptical of the firms that use multipliers less than that and assume they are working out of someones basement with 4 total employees and no non-billable employees. Even billable employees can't be billable 100% of their time.

That said, if you are a student working for $15/hr no firm is going to "give away" your talent for $45/hour. You are basically stuck in that spot where yes, you may be getting taken advantage of, but the common argument is that you cost the company more in training. Trust me, many times I've argued that isn't entirely valid. You are just stuck in a crappy place. Sorry dude.

Sir Arthur Braagadocio
Mar 2, 06 1:35 pm

billing is fun

ever heard of Joseph Pell Lombardi he bills himself out at $300 an hour, saw a proposal once....

lets break the billing rate down

you get paid for 2080 hours a year

hypothetcially you make $41,600 in a 20 person firm in NYC

your pay is $20 an hour

your health insurance costs your employer $4200 a year (if single)

+$2 an hour

lets say rent for the firm is $10,000 a month, in NYC that's a 20 person firm max in a decent neighborhood

+$3 an hour

utitilies are probably avergaging out over the year $2,000 a month

+ $0.60 an hour

some firms consider in your hourly rate the money to pay for an administrators, so lets say there are 3 administrators for the 20 person office with an average salary of $30,000

+$2.15 an hour

architectural insurance, this varies per firm per size of projects, but a 20 person firm easily pays $20K+ a month (SOM is rumored to pay $3 million a year) lets just use $20k, they do interiors mainly...

+$5.75 an hour

without other compensations and insurances you are billed at

$33.50 so lets just round this number up to $40 an hour to cover our asses here (workman's comp, unemployment, etc...)

so at $40 an hour the company breaks even, assuming your production rate is consistant with consistant work

the odds are you probably do things twice, fuck things up on occasions, spend too much time smoking a cigeraette outside one day...etc... you production rate is already to say 75%, so in reality your employer needs to bill you at

$57 an hour

we are almost at the typical $75-$90an hour is what your company bills for somebody with a $41,600 salary

your firm probably can not give you 2080 hours worth of work a year so let's say they actually can give you enough work for 85% of the time, that's an an hour a day where you check emails and bug managers to find out what you're doing (not productive)

so now your hourly rate for the company to make ends meet is

$67 an hour

they bill you at say $85 an hour, that leaves them with a profit of $18 an hour per employee

but the reality is that the Partners really do not produce anything worht paying for, they spend all the time getting jobs. so lets say of this 20 person firm there are two partners.

$18 profit * 18 employees * 2080 a year = $673,920 profits for the two partners who probably pay themselves $200,000 a year

leaving the company profiting $273,920

a company doing this well as architects without gready employers probably give out two bonuses a year averaging $6000 a year total per person, some get more some get less...

18 * 6000 = $108,000

leaving the company with a whopping $164,920 assuming clients always pay on time

ok that was a rough guess based on what I know, but I hope that clears things up....firms really do not make that much money















A
Mar 2, 06 1:38 pm

Rim Joist - Ok, I'll bite.

What makes an auto mechanics time worth $100/hour?

Why are attorneys commonly worth $200/hour?

Why is the UPS truck driver worth $25/hour?

What the hell do doctors make per hour to see patients for only a few minutes?

I think that hiring an architect is probably one of the most valuable things you can do for the cost.

digger
Mar 2, 06 1:51 pm
"the Partners really do not produce anything worth paying for, they spend all the time getting jobs"

metamechanic

... you are an idiot and your analysis is crap

Rim Joist
Mar 2, 06 2:02 pm

I know, "A"...I'm just sayin'...

Rim Joist
Mar 2, 06 2:06 pm

Clicking on my mouse for 5 minutes: 10 bucks please.

Ms Beary
Mar 2, 06 2:07 pm

personal experience:

job #1, billed out at 5.5 times gross pay. A bargain for my employer.

job #2, billed out at 3.4 times gross pay. A bargain for our clients.



Rim Joist
Mar 2, 06 2:13 pm

Enjoying a sip of coffee: 30 cents.

Enjoying a sip of coffee, pausing to indulge a moment of creative brilliance, then, why not, another sip: 70 cents.

Sir Arthur Braagadocio
Mar 2, 06 3:29 pm

how so digger?


what your partners draft and project manage and spend time getting the architecture built? if they do its not like they work 10 times faster than a drafstman and project manager.

hence they spend most their times getting jobs.

or do jobs just appear magically digger?

by the way digger you ever actually done billing and invoicing and writing contracts I have and I can guarantee i do it better than you.

Sir Arthur Braagadocio
Mar 2, 06 3:46 pm

i am guessing you are missing my basis for billing....

production. one charges for production and for overhead and this is tangible, partners typically do the stuff that isn't so clear what it is worth...

i.e. how much is a painting worth?

priceless. really nothing worth paying for or is it.

for example there are many many developers who would never pay Frank Gehry his hourly rate to design something for them, because what Gehry would design for them meets none of their needs and is completely useless.

and why do you think a guy like Lombardi makes $300 an hour, actual work and knowledge....I would argue politics and who he knows..

Maestro
Mar 2, 06 4:44 pm

I am intrigued by this discussion because it seems that many of you are in denial that the profession is the most underpaid of professions except for teaching. This is true not only at the employee level, but at the owner level. The only way to make a profit running a firm is (and this is in the words of my former boss) is to underpay the employees. There is no other place where you can cut expenses to the degree that impact the profitability of the firm. I think in comparison to what your dentist earns per hour, lawyer, or hockey player, we are underpaid as a profession, and will remain that way. Also, metamechanic's breakdown was pretty good, but omitted taxes, which depending on where you live, cost your bosses another 10-15% on top of your salary.

More disturbing than billing rates or salaries, is the issue of job and career advancement. As more companies deal with employees as commodities, licensing, connections and the ability to generate projects and sell work will count for more than anything

southpole
Mar 2, 06 5:00 pm

I agree with most of you guys,
One thing that has not been motioned id that it takes several month to get paid on jobs and most firms have open or revolving line of credit (with interest) from which they borrow money to make payroll , an keep the office running. Payroll is the greatest expense in any firm, and it should be watch carefully. 2.5 to 3.0 mentioned is very marginal in my experience, and the benefit anyone is getting are minimal, just above what the law requires, probably having to pay a portion of then out of pocket-
Taxes and personal time off are also taken in consideration while considering a multiplier. My experience in this subject is that firms that want to retain their staff will give additional perks such as dental, educational seminar allowances flex hours, and incentive bonuses are more in the range of 3-4 for a multiplier. At my last job it was understood that everyone should be at least 80% billable and a base line of 120k per person per year.

Sir Arthur Braagadocio
Mar 2, 06 6:00 pm

Maestro good point

the only way to make a lot of money is cut your employees salaries...so many architects do this.

well if you figure in 10%-15% taxes on my scenario, that firm would make basically make no money

But there are some smart firms out there like Gensler....

every firm should have one of these a Vesting Schedule.

say you make the company $18 an hour profit (i actually made my last employer $100 profit an hour once) this goes into a fund under your name or is part of the profits which is also in a fund (hopefully wisely avoiding taxes via a safe harbor fund, etc...) the longer you are at the firm the more percentage you get of the profits you have made the company upon leaving, the incentive obviously being you'll get the most when you properly retire after put your 40 years in

so say you average the company $20 an hour profit- thats roughly $40,000 a year, this is put into a fund that grows enough to pay whatever taxes need, so you always make the company at least $40,000 a year multiply this by a 40 year career (assuming this firm stays around that long, i think Gensler is only 25 years old or something) you should have made the company $1.6 million, of this it would be nice to see at least 75% of it for all the hard work you put in when you quit - that's roughly $1.2 million and of course you have a retirement plan in addition to all this

my theory is all firms with vesting schedules should invest money in real estate and become developers, this is my goal with one day...let me know if you're intersted we are legally forming Metamechanics LLC or Inc. whatever attorney says is best soon with this structure in mind



digger
Mar 2, 06 9:01 pm
metamechanic

- for the record, i hold an architecture degree from a top school and an MBA from an ivy - i've been licensed for 25 years - i've studied the management side of professional practice for 30 years and i'm currently the business partner / ceo for a 75-person design firm in the mid-West - we win frequent design awards - our firm did 18% pre-tax / pre-bonus in 2005. - yes, i've "actually done billing and invoicing and writing contracts ... and I can guarantee i do it better than you."

you are an idiot because if the principals at your firm didn't bring in new business, you would not have a job and there would not be a firm. moreover, at most quality firms, the principals know more about design and document production and client management and construction than anybody else in the office - given the risk they take by stamping the drawings you create, the principals have a strong motivation to see that the work is done reasonably well. for the most part, principals are responsible for marketing and studio management - tasks that are infinitely more difficult to do well than putting a drawing together

your analysis is crap because you go through this long, rambling list of suspect analysis above to prove a point that firm's are making obscene profits by taking advantage of their employees and then close your post by saying "firms really do not make that much money"

then you proceed with "the only way to make a lot of money is cut your employees salaries" -- an absolute suicidal approach to profitability - at our firm, we concentrate on helping our staff grow more productive, through investing in training and technology - we pay above average salaries, provide solid benefits and we pay really good bonuses when we do well.

i stand by my original post ... you're an idiot and your analysis is crap

Living in Gin
Mar 2, 06 9:36 pm

Digger: Can I come work for you? I'm fairly certain that my firm's principals follow the metamechanic school of business management.

Sir Arthur Braagadocio
Mar 3, 06 1:26 am

dear digger

did you even read my follow up, since I realized i didn't mention my basis for billing (production). and management is a natural predisposition irrelevant of schooling, so once again intangible, but this is another discussion altogether...

i am amazed someone in your position spends time on this website in forums discussing billing, very impressive trying to stay hip huh? maybe you could give us a more detailed lesson in billing, please do, because you speak very vague and abstractly, as if you have someone in your office handle the financial side of things for you. now how does their pay figure into your billing process?

also what is your architectural insurance and through who, i've been looking into and have found certain companies that allow you to choose your liability, what do you think? or recommend, since you are the expert here.

what do you guys do with your profits? and do you pay as many consultants at the end of the year as possible to reflect less profits for tax purposes? do you drop a portion into safe harbor funds to avoid taxes or anything similar?

i am sorry if i am not more clear, but since this is a service profession, profitability can only be made off the hourly wages or getting things done quickly and inexpensively. yes investing in employees is beneficial to keep them around...so pop quiz how much more do you have to charge an hour to create these benefits for your employees...

let me guess you'll respond, i am thinking of this all wrong and how it really is done...is...please tell me...actuall details...

you know, like do you have a program where your transportation costs can be deducted from your pay pre-tax, and how does your system work.

is your firm a PLLC, LLC, INC....or do you divide it up depending on what aspect the business is handling.

so my analysis was a fly by quickly put together...please with your expertise match...

otherwise i guess you're just full of crap...and this would be disappointing to have someone with your expertise on this site of young architects willing to learn how to bill correctly.

does your firm have a vesting schedule and do you allow free lancing?






Sir Arthur Braagadocio
Mar 3, 06 7:00 am

before you get confused, there are aspects of management which can be gauged via time data, but then like you are saying there are those excecutive decisions and people management that principals do so well, or not....like most firms

but yours apparently not, right.

so at 75 people with 18% profits you guys are probably listed in ENR top 500 design firms in the nation, which number are you, so I can look you up?

Sir Arthur Braagadocio
Mar 3, 06 7:04 am

i am going to guess your revenues were roughly $20 million + in 2005, so you def. made ENR's local midwest listing. let me know...

thanks

freq_arch
Mar 3, 06 9:12 am

Geez - meta / digger catfight!
Let it go
meta - your analysis and digger's don't seem that opposed to me: employees should understand the realities of overhead (employers aren't out to screw them - if so - quit), and employers have to be sensistive to the needs and aspirations of the employees (to ignore them is suicide).
I'm in a place where understanding on both parts happens - as I suspect is the case at most successful firms.
Nobody ever knows fully what the previaling opinion on the other side is.
F

Nevermore
Mar 3, 06 9:23 am

are you guys architects or accountants ? ! ?! ?!

sheesh.

Money isn't everything in Life, gentlemen.There's ALSO art and music.

e
Mar 3, 06 12:05 pm

geez, this thread has gotten nasty. easy up everyone.

nevermore, money isn't everything, but architecture is a business and one that is notorious for those involved being underpaid. the more we understand the financial implications of our decisions, the better off all in the industry will be.

since starting my own business, i have made huge efforts to focus on the financial end. to make money? yes. you betcha. i also do it because i do not seek out clients based on money. i seek out clients based on what they do, and they do not always have money. i do a lot of work for non-profit organzations, so the better i understand my financial position, the better i am able to help them out. my business is profitable. i have money in the bank, and i did it without borrowing a dime.

Sir Arthur Braagadocio
Mar 3, 06 12:08 pm

sweet e! got any pointers....

i had this idea once.

why don't we all make a site where we can compare and unofficially create a fee curve for the industry, since officially would be against anti-trust laws as they determined back in the day.

anybody interested. that way we could raise the industry standard unofficially.

Nevermore
Mar 3, 06 12:20 pm

e,

architecture is not only a business..how CAN you forget emotion and the spirit to create ?



el jeffe
Mar 3, 06 12:20 pm

feester?

SuperHeavy
Mar 3, 06 12:27 pm

e, in the words of a not so great man, "I like your moves, I like your style".

I'll have to look you up if my comments for this thread don't pan out.

e
Mar 3, 06 12:30 pm

nevermore, did i ever say that architecture wasn't about those things? i think most on this site do not discount the passion involved. that is true of any business. if you do not love what you do, you will not be successful. and just for clarity, success does not only mean financial rewards.

Nevermore
Mar 3, 06 12:32 pm

e



dude.





I was kidding.

e
Mar 3, 06 1:05 pm

sorry nevermore. that was a tough one to read especially when you came back with the second jab at this discussion.

superHeavy, thx. stay focused with your t-square. the world needs it.

meta, pointers are tough especially since the focus of my business is not architecture. each of my clients are different. their focus, needs, resources, size, how much they stand to make off of the work that i create for them all factors into my decision of what to charge. there are similar issues on my end. how important is the work of my client to me? does it open new doors? if they do not have great resources, am i in the financial position and time to donate a portion of my services to a client in need? relationships, of any kind, are extremely complex and need to work for all involved. i know i am speaking in generalities, but i think we all need to start with that and then move to specificities of how to get there.

i have one potential client that i am hoping to get and probably will. they have started a organization to make films focusing on the human rights struggle around the world. the first film is on augusto pinochet, the former dicator of chile to justice.

this project is important to me because of the very subject of human rights struggles, but also because my wife's family left chile in '73 due to the pinochet coup. my father-in-law used to work for the allende government and saw his friends and family being killed and tortured. will i make much money at this? no, but i have other projects that are highly profitable that allow me to do this one. i also know that doing this will lead to other work just because future clients will find it of interest. all relationships involve a give and take, and it is that balance that i strive for.

A
Mar 3, 06 1:38 pm

I love it...

for the record, i hold an architecture degree from a top school and an MBA from an ivy - i've been licensed for 25 years - i've studied the management side of professional practice for 30 years and i'm currently the business partner / ceo for a 75-person design firm in the mid-West - we win frequent design awards - our firm did 18% pre-tax / pre-bonus in 2005

Not calling anyone a liar, but in pretty much on every message board/blog everyone's got that awesome degree, great job, excellent experience, is an award winner and pretty much knows everything.

If you really want to know how all the finances of your employer works just ask. If they don't want to tell you it's probably writing on the wall that you're either underpaid or the firm isn't doing so well. Simple plain fact is that many many firms take huge advantage of the young in their profession. And yes, we are all underpaid from the lowly intern to the principal in the corner office. I think a simple way to figure what your fair hourly wage should be is using a multiplier of 3, or 1/3 your billable rate. I've seen this used in medium-large sized offices with generous benefits. Of course the finances of every office is unique, but if you're getting less than 1/3 billable, there is another office out there that will pay you that.

southpole
Mar 3, 06 1:57 pm

e-

you gatta going on, I love the idea of the project you mentioned above- Chile holds a special place in my Heart just because my Genoese grandparent started a new life there after WWII, and my mom was born there, I personally spend 5 years at the UC playing soccer and travel down there to teach a studio at UC . What a small world-
I hope you get the client and you can do your thing-

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