Hoping some other firm ownership may be able to step in and help me out. My inclination is that we are undercharging for services.
Backstory, started the firm 10 years ago when I was 32. We have grown to 8 employees. Here are our 2021 financial parameters:
Overhead Rate = .96
Utilization Rate = 70-75%
Net Multiplier = 2.44
Profit to Revenue = 19.66%
We appear to be hitting all of the "targets" except one. Net multiplier, that is Total Direct/Indirect Labor to Revenue. It should be 3.0 to 3.5
I think our ability to hit our profit margin goal (20%) is supplemented by keeping our overhead rates really below average. Average is 1.5-1.75 labor.
This brings me to my point. Essentially, we do a good job of keeping overhead costs down, and are essentially passing those savings on to our customers by way of lower fees while maintaining profit margin.
Should this be an indicator that we are under billing and our lower overhead rate should further contribute to the 20% margin (taking it to 25-30%) instead of just washing it? I.e., should we be increasing billing rates?
How do you know that your prices are lower than your competitors? Are your clients hiring you mainly because of your low pricing, or could you raise fees and not lose a big chunk of your clients?
Our clients have told us. We are about 45 miles outside of a major metro, so our fees are less than the larger firms that would typically come out of the city. We have been slowly inching fees upwards, and I think we can continue that trend without impacting how much work we get. I think that would resolve the issue.
Jan 14, 22 5:10 pm ·
·
reallynotmyname
The current inflation situation has everyone conditioned to pay more for everything, so now is as a good a time as there ever will be to raise your fees.
Yes, it pays to be proactive these days about holding on to your staff. The costs of staff departures and the process of getting replacement people them can really mess up a firm's productivity and profits.
You realize that's a completely separate and different spelling? We have incorporated and trademarked our logo, so I guess I just don't get what you're getting to.
Jan 15, 22 6:23 pm ·
·
b3tadine[sutures]
Relax. The more you don't laugh at yourself, the bigger joke you become.
A tiny “young” office calling themselves the Carlile Group after a billion dollar financial services company…thought that was intentional. Should’ve called yourselves the Carlile Bunch instead perhaps.
You could be under charging, or you could be taking on projects that are difficult for your team to turn a larger profit on. As a smaller firm you're likely fairly flexible but will have a cap to the complexity and/or scale. Maybe you haven't found that sweet spot yet.
Ahh, I see now. haha. No, that wasn't Intentional, plus I figured the spelling difference would be enough to separate. The "Group" part came from the fact that my attorneys and accountants told me to keep all the companies separate which is a challenge for marketing. So we created "Carlile Group" simply as a streamlined marketing format.
I wish I owed Carlyle Group... but they spell their name wrong anyway. ;)
It's a long game. I would honestly say that we were in survival mode for many years. Profitable but not enough to turn away work and there were definitely slow times and delayed payments for clients. As the clients and our business acumen matured we became much more profitable and we can be very efficient on certain types of projects which carries the profit on other projects that are more heartfelt and where we burn up fees a bit more. I am okay with that and don't expect every project to roll out with the same level of effectiveness. Having a more diverse mixture of projects helps. Having multiple income streams helps too Ie First Nations, Private Developers, Public sectors projects. We pretty much avoid renovations and will only do the occasional SF home and only when the budgets and builder are likely of a reasonable high quality.
Growing to 8 people in 10 years is not too shabby in a lot of the USA. They could be very well be right-sized for the level of economic activity in their region. OP has the right idea by looking at how to be more profitable rather than just how to be "bigger" in terms of more employees. A good crew of 8 with the right skills and work ethic will run circles around an office of 25 marginal people.
Young firm, needs seasoned advice
Hi Everybody.
Hoping some other firm ownership may be able to step in and help me out. My inclination is that we are undercharging for services.
Backstory, started the firm 10 years ago when I was 32. We have grown to 8 employees. Here are our 2021 financial parameters:
Overhead Rate = .96
Utilization Rate = 70-75%
Net Multiplier = 2.44
Profit to Revenue = 19.66%
We appear to be hitting all of the "targets" except one. Net multiplier, that is Total Direct/Indirect Labor to Revenue. It should be 3.0 to 3.5
I think our ability to hit our profit margin goal (20%) is supplemented by keeping our overhead rates really below average. Average is 1.5-1.75 labor.
This brings me to my point. Essentially, we do a good job of keeping overhead costs down, and are essentially passing those savings on to our customers by way of lower fees while maintaining profit margin.
Should this be an indicator that we are under billing and our lower overhead rate should further contribute to the 20% margin (taking it to 25-30%) instead of just washing it? I.e., should we be increasing billing rates?
Any help is appreciated.
is your staff compensated properly (OT, competitive wages, etc)?
Yes. Most staff has been here multiple years and all wages and benefits exceed what's typical.
Are you turning away work, have the right amount of work, or need more work?
We are probably over worked to some degree. Running 70-75% utilization, our staff doesn't have much down time.
Well that's easy then, raise fees.
How do you know that your prices are lower than your competitors? Are your clients hiring you mainly because of your low pricing, or could you raise fees and not lose a big chunk of your clients?
Our clients have told us. We are about 45 miles outside of a major metro, so our fees are less than the larger firms that would typically come out of the city. We have been slowly inching fees upwards, and I think we can continue that trend without impacting how much work we get. I think that would resolve the issue.
The current inflation situation has everyone conditioned to pay more for everything, so now is as a good a time as there ever will be to raise your fees.
Don't know about your local market, but elsewhere it's an employee hiring market, so you might want to think about that with compensation as well.
Yes, it pays to be proactive these days about holding on to your staff. The costs of staff departures and the process of getting replacement people them can really mess up a firm's productivity and profits.
Grown to 8 employees in a decade while calling yourself thé Carlile Group, sorry but I had to laug
Guess I am not really sure what's funny.
Google “yourself” much? https://en.m.wikipedia.org/wiki/The_Carlyle_Group
You realize that's a completely separate and different spelling? We have incorporated and trademarked our logo, so I guess I just don't get what you're getting to.
Relax. The more you don't laugh at yourself, the bigger joke you become.
I guess the jokes are just bad. It is what it is.
A tiny “young” office calling themselves the Carlile Group after a billion dollar financial services company…thought that was intentional. Should’ve called yourselves the Carlile Bunch instead perhaps.
That's funny.
You could be under charging, or you could be taking on projects that are difficult for your team to turn a larger profit on. As a smaller firm you're likely fairly flexible but will have a cap to the complexity and/or scale. Maybe you haven't found that sweet spot yet.
Ahh, I see now. haha. No, that wasn't Intentional, plus I figured the spelling difference would be enough to separate. The "Group" part came from the fact that my attorneys and accountants told me to keep all the companies separate which is a challenge for marketing. So we created "Carlile Group" simply as a streamlined marketing format.
I wish I owed Carlyle Group... but they spell their name wrong anyway. ;)
It's a long game. I would honestly say that we were in survival mode for many years. Profitable but not enough to turn away work and there were definitely slow times and delayed payments for clients. As the clients and our business acumen matured we became much more profitable and we can be very efficient on certain types of projects which carries the profit on other projects that are more heartfelt and where we burn up fees a bit more. I am okay with that and don't expect every project to roll out with the same level of effectiveness. Having a more diverse mixture of projects helps. Having multiple income streams helps too Ie First Nations, Private Developers, Public sectors projects. We pretty much avoid renovations and will only do the occasional SF home and only when the budgets and builder are likely of a reasonable high quality.
Growing to 8 people in 10 years is not too shabby in a lot of the USA. They could be very well be right-sized for the level of economic activity in their region. OP has the right idea by looking at how to be more profitable rather than just how to be "bigger" in terms of more employees. A good crew of 8 with the right skills and work ethic will run circles around an office of 25 marginal people.
Block this user
Are you sure you want to block this user and hide all related comments throughout the site?
Archinect
This is your first comment on Archinect. Your comment will be visible once approved.