Hello there. I understand that the economy isn't doing so well and fewer jobs are coming around, but I wanted to ask how to get projects as a newly established firm in LA. Our principal has a lot of experience but unfortunately doesn't have many connections with people. I am sending him to various networking events as others have recommended but I'm trying to do more. We are only doing residential work and would like to switch to Industrial/Commercial since he has experience in both. What's the best way to market without projects or connections?
proto
Mar 4, 23 8:23 pm
well, you’ve asked this here twice before, so maybe this isn’t the place to get answers?
Wood Guy
Mar 6, 23 9:36 am
I might have mentioned this before, but I'd check out this site: https://entrearchitect.com/. They exist solely to support small-firm architects in being better at the business end of things. They have a lot of great podcasts, do weekly webinars, have mastermind groups, etc.. Many of the members are older so your dad/principal wouldn't feel left out.
Full disclosure, I have been on one of their podcasts, presented at their annual conference last year and will do a webinar for them sometime this year, but I would recommend them even if that weren't the case.
Sameeksha Medewar
Mar 7, 23 2:36 am
As a newly established firm without many connections or projects, it can be challenging to attract new clients and establish a reputation in the industry. Here are a few strategies that you could consider to market your firm:
Develop a strong online presence: In today's digital age, having a strong online presence is crucial for any business. Ensure that your website is professional, easy to navigate, and showcases your work effectively. You can also leverage social media platforms like LinkedIn, Twitter, and Instagram to connect with potential clients and showcase your expertise.
Attend networking events: Attending networking events is a great way to meet potential clients and industry peers. Look for local events related to your industry and attend them regularly. Bring business cards and be prepared to introduce yourself and your firm to others.
Offer pro bono services: Offering pro bono services to nonprofit organizations, community centers, or schools can be an excellent way to gain exposure for your firm while also giving back to the community. It can also be a great way to build relationships and network with potential clients.
Leverage referrals: Reach out to past clients, colleagues, and other industry professionals and ask for referrals. A satisfied client or colleague is likely to refer your firm to others if they had a positive experience working with you.
Develop a niche: Consider developing a niche within the commercial or industrial sector that you have experience in. Focusing on a particular area can help you stand out from the competition and establish your expertise in that area.
Remember, building a successful business takes time and effort. By implementing these strategies and consistently delivering high-quality work, you can establish your firm as a reputable player in the industry.
kjpn
Mar 7, 23 9:34 am
Hello chat GPT
Chad Miller
Mar 7, 23 9:52 am
It's actually good advice.
Richard Balkins
Mar 22, 23 3:11 pm
I'd agree in principle because those pro bono projects can get you you in the ocal newspaper which is essentially free advertising. The first step you need to do is build awareness. As a new firm, no one knows you exist (more or less). Over time, your firm name will become known but there is faster means of building awareness than just being in business. Of course, you need to limit pro bono work for non-profit type organizations because you need to make money from the rest of the clientele such as for-profit / commercial. Larger government/schools/etc. project, you get paid... don't do pro bono but small little projects for those entities and smaller non-profits, pro bono is fine.
Richard Balkins
Mar 22, 23 3:42 pm
Don't do pro bono for residential clients. They are not a non-profit organization so you can't use it as a tax deduction as a form of charitable contribution. Besides, if you do it for one, others may except the same especially if they heard you did the work fo free for one. Doing work for free doesn't pay the bills because landlords expects their rent payment regardless of your income (or you get out), utility companies and other services (internet, phone, TV, etc.) are going to expect their money, too. For a small firm, I'd probably recommend not more than 20% of the projects being pro bono. Keep enough projects to pay the bills, pay your employees, etc. I do recognize exceptions to the 20% rule especially if you have fewer than 5 projects but higher yield projects so if one is pro bono, you'd probably be ok, financially.
kjpn
Mar 22, 23 12:30 pm
Has anyone tried out the Architect Marketing Institute's business development program? Does anyone have any feedback or would be willing to share their experience if they are an enrollee or graduate?
newguy
Mar 22, 23 1:11 pm
I'm gonna be honest with ya, if I worked for a firm and was the one who felt responsible for helping my boss get clients, I'd start to question whether or not I wanted to keep working for him/her. Being an architecture firm owner/principle is ostensibly the reason why they demand more of the revenue generated by their staff, with the understanding that they are the ones securing the clientele that keeps the doors open. If they can't even do that, and are asking their staff to pick up the slack, then what value do they even bring to the firm? The prevailing capitalistic wisdom that justifies bosses making more money (which I abhor, but here it is anyway) is that they assume the risk (their capital) and leverage their experience and connections (clients) to bring in work. Their staff generates the wealth (labor) that the firm uses, of which the boss receives the largest amount (surplus labor). If they can't uphold their end of the bargain, then what is the point of working for them? Unless I was being offered some sort of ownership of the firm in return for securing future revenue, I'd decline to take on the risk of getting clients. Because if I was able to get clients, I'd do it for myself, not someone else who can't.
Chad Miller
Mar 22, 23 1:17 pm
Kind of. I'm not a managing partner of our firm but I am a part owner. I help get clients through various means. Even when I wasn't part owner I still helped get clients through doing good work and simply being out in the community (networking).
betonbrut
Mar 22, 23 2:48 pm
That is an oversimplification of firm structure, ownership, and risk. Frankly, architecture firms’ owners don't have much financial capital at risk. What they may have at risk is their own professional reputation. I agree with Chad, helping your firm bring in clients isn't reserved only for firm management. If you treat your role as transactional as you suggest, then ownership will treat you the same way.
For example, most medium firms and larger have an owner who is the design principal, someone who runs the operations of the firm, a CFO, etc. All have a specific job relative to the success of the firm outside of bringing clients in (business development). Regardless of size and corporate structure, some of the best company cultures are built on everyone networking and bringing clients to the table.
Chad Miller
Mar 22, 23 2:57 pm
It's important to note that 'networking' doesn't have to mean you go out after work and on weekends to networking events where you spend your own money to try and bring in clients. It means that when you're out you talk to people who need and architect about your firm.
newguy
Mar 22, 23 4:23 pm
"If you treat your role as transactional as you suggest, then ownership will treat you the same way"
The very nature of at-will employment is transactional. That's exactly why compensation is structured as a flat salary rather than as a percentage of total revenues. The very use of the word "ownership" implies the existence of a hierarchy that views their employees as ..well....property
"Regardless of size and corporate structure, some of the best company cultures are built on everyone networking and bringing clients to the table."
Culture is not a substitute for fair compensation. If an employee is networking and bringing in clients without being compensated, then he/she is, by definition, providing un-paid labor to secure capital. If a companies "culture" demands that all employees equally share the burden of securing capital in addition to providing the labor of the firm (drawings, permitting, etc), then what, exactly, justifies the existence of the bosses?
Chad Miller
Mar 22, 23 4:59 pm
FYI - bosses do more than bring in clients. While all employment is transactional it's foolish to say that you're not willing to help bring in clients by simply being out in public. I'm not talking about going to networking events on your own time and money. If more work comes then you get to keep your job. Now any good boss will compensate you for the work you bring in with raises and or bonuses. If they don't then it's time to leave.
newguy
Mar 22, 23 5:27 pm
"it's foolish to say that you're not willing to help bring in clients by simply being out in public"
It's foolish to do this without being fairly compensated. If you're out there securing clients that keeps the firm afloat without having any ownership stake, then you're a mark
x-jla
Mar 22, 23 5:37 pm
That’s when it’s time to negotiate salary + commission.
x-jla
Mar 22, 23 5:39 pm
As a professional you are expected to bring in clients. It’s common in many industries. Law, RE, etc. If you have relationships with clients, you will be the point of contact for referrals most likely. But of course make sure you are compensated.
Chad Miller
Mar 22, 23 5:44 pm
newguy wrote:
"It's foolish to do this without being fairly compensated. If you're out there securing clients that keeps the firm afloat without having any ownership stake, then you're a mark" -
Yes and no. You need to read the entire comment.
You can be securing clients by simply doing a good job and being active in your community. Not extra work or preparation requited.
I don't go to any networking events unless my firm is paying for them. More often I bring in clients by simply being myself out in public. People ask what I do and I tell them. That can lead to new clients. That's my extent of networking. That and clients referring me to others.
If you think that acting in such a way qualifies me as a 'mark' then I wonder about your frame of mind. Any projects I bring in gets me raises, boness, and now that I'm part owner a percentage of the proffits.
newguy
Mar 22, 23 5:48 pm
Chad, this is highly sector specific. If you are working on single family kitchen remodels, then yes, you can hand your business card to newlyweds and secure small jobs. If you work on hospitals or high-rise offices, it's very unlikely that Joe Revit from the office is going to be rubbing shoulders and sipping cocktails with the CEO of Kaiser Permanente
"Any projects I bring in gets me raises, boness, and now that I'm part owner a percentage of the proffits."
I don't know why you are taking exception to anything I said, then, as I was pretty clearly saying that people who bring in work should be compensated with ownership shares, which it sounds like you've done
Chad Miller
Mar 22, 23 5:52 pm
True. If you're just production staff you won't have the experience to be able to speak to anything about your firm.
I work in educational, medical, multi family, and government.
I've been meeting with clients, rubbing shoulder and sipping cocktails with CEO's since I was a first year intern, at the firms expense mind you. The other CEO's I'd meet where in my day to day life. Don't get me wrong - I'm not at golf courses or spas meeting people. Just out on the trials biking or hiking.
Chad Miller
Mar 22, 23 7:17 pm
newguy wrote:
"I don't know why you are taking exception to anything I said, then, as I was pretty clearly saying that people who bring in work should be compensated with ownership shares, which it sounds like you've done. "
I take exception to your views that:
You think that partners are only good for getting work.
You think that the only way to get work is by having drinks with a CEO after work and on weekends.
You think that for every project someone brings in they should get ownership shares.
You think there is a risk involved with getting clients.
You think it’s foolish to help bring in work unless you’re getting compensated.
As I’ve said from the beginning, I believe that if you bring in work you should get some type of compensation. The degree of compensation is going to depend on the project size. It could be a raise, a bonus, or profit sharing. To think that it should always be profit sharing shows you don’t understand much about the economics of running a firm.
I’ve also said from the beginning that bringing in work is more than just attending networking events. Just go about your normal day and interact with your community. It’s not difficult and takes no work at all. You make it sound like it’s a part time job that you have to do on nights and weekends. It’s not.
Richard Balkins
Mar 22, 23 7:29 pm
If you are an owner / co-owner, you have a general obligation to bring in work for the firms. I agree they on occassion, a partner in a firm might bring other value but there should be sufficient partners in firm bringing in work. Generally, if you are talking like 2-3 partners, all partners have a duty to bring in work to support themselves and pay the employees. Employees might not need to bring in work for the firm but when they do, that might help them in the long run towards considering adding them to the firm partnership. Adding business to a firm is a major and important consideration when it comes to who should be part of the firm's ownership and directors/business firm leadership. Typically, but not always the case, a partner is a "Principal" and is part of the firm's leadership because a Principal's role is essentially an executive role of most firms. If you are dead weight, you're sinking the firm and its success. Running a firm is runnning a business and its time to be business people not just the "artist" at the drafting table or CAD/BIM workstation. You are a business man/woman now. To an extent, and within certain context, newguy's point is reasonable as is yours.
I agree with you getting some piece of the pie but it might be that you'll be in the lead project architect/designer in charge of that project and therefore might be getting a bump up in pay but you would already be expected to be in a role of leading projects. What happens to firm profits is that some portion is reserved for lean times (especially if you are managing your finances well).
newguy
Mar 22, 23 8:06 pm
Dude, you are being deliberately tedious and insisting on missing the very broad point that I am making: The interests of labor are at odds with the interests of the bosses. They have to be. That's how it's set up. That's what differentiates "owners" from "workers" At every firm, at the end of the day, there is a spreadsheet with some variation of the following equation:
[Value created] - [Overhead] - [Labor] = [Profit]
The bosses are on one side of the ledger (profit), the workers are on the other (labor). That's the math
Chad Miller
Mar 23, 23 10:06 am
I understand that.
My issue with your posts are that you classify people into one of two categories - worker and owner. You think the relationships between these two categories must b adversarial. I've NEVER worked at firm like that. We're team members. We each bring something to the group and we work together to design buildings.
I think that you either work (or worked) at a very miserable firm and that has jaded you. That or you're mediocre at your career and have become bitter because your not viewed as special.
newguy
Mar 23, 23 1:21 pm
"I understand that."
You really don't, though.
"My issue with your posts are that you classify people into one of two categories - worker and owner."
This is literally how every business is structured.
"You think the relationships between these two categories must b adversarial."
Correct. There's a finite dollar amount that is generated by the company. Who gets what is determined by the owners (that's why they're "owners," the hint is in plain site with the language we use).
"We're team members. We each bring something to the group and we work together to design buildings."
I'm not talking about company morale, I'm talking raw numbers. Math. Whether a team gets along and enjoy each other's company is irrelevant, because the breakdown of wealth is determined by the hierarchies in place as determined by the bosses.
"That or you're mediocre at your career and have become bitter because your not viewed as special."
This is just petty and unnecessarily personal. I don't attack you for being boring and intellectually incurious, so perhaps refrain from speculating on my mental health. I do just fine. But I'm still not an owner, which makes me a worker subject to the whims of the bosses. Whether or not I like them personally is beside the point. The only point I'm making is that a boss that is incapable of securing work is not a boss worth working for.
Chad Miller
Mar 23, 23 1:36 pm
You really have no idea what it means to be part of team that respects you both personally and professionally. I think that speaks volumes to your character and abilities.
newguy
Mar 23, 23 1:45 pm
I'd argue that anyone who works for someone who doesn't adequately compensate them for their labor isn't being respected personally or professionally. You can have your character, I'd rather have the money
Chad Miller
Mar 23, 23 1:52 pm
I agree with you. You should be adequately paid for the work you do. I NEVER work for free unless I've chosen to volunteer my time to a good cause. That's not what this discussion has been about though. You thing that every interaction between anyone is transactional.
You like numbers - run the numbers on:
$10 million dollar MOB project
7% fee
You have civil, landscape, MEP, and structural consultants
Your staff is two interns ($85 hour billable rate), one PA ($110/hr), and a partner ($150/hr). The partner will only spend 10 hours of billable time in each phase.
Assume an average overhead of 18%
Assume your staff makes 1/3 or so of their billable rate.
How much is the profit on this project?
How much do you think you should be paid for helping to bring this project in?
Show your work.
newguy
Mar 23, 23 2:25 pm
You do understand that in your scenario, the "profit" is earmarked for the partner, who will only spend 10 hours per phase, who didn't even bring in the project. You're out here painting fences for Tom Sawyer, my man
Non Sequitur
Mar 23, 23 2:32 pm
newguy, no and unless you're doing one job at a time, profits are not even as clear-cut as Chad tries to explain. I know he knows this but it's obvious it's simplified to make it easier for you to understand. Anyways, project profits need to looked at holistically across the entire breath of active and dormant projects. i.e. One project in the black may be supporting 3 in the red... or covering staff salaries while they chase comp work. Your cynicism about the partner making bank on 10hr of work is evidence that you don't know much about the work in the background in a arch office.
newguy
Mar 23, 23 2:44 pm
If one project is in the black supporting 3 projects in the red, then it is the partners who don't understand the business of architecture, not me. You cannot support staff salaries while operating at a loss.
Richard Balkins
Mar 23, 23 2:46 pm
Chad Miller, you're confusing or conflating ownership/employee(worker) structue and project management/team work. Team work is about setting aside organizational structure, title, and ego and working in an egalitarian format. This is completely different from to interests of business owners to that of employees.
Newguy is correct to that and that there will be distinct and opposing interest yet you are also correct about team work and how functional teams works together. Any successful firm to be functional and successful, the owners (employer) will need to care about the welfare and needs of the employees but also the employees needs to care about the welfare and needs of the employers.
The "relationship" as with all good functional relationships is a two way road. Where newguy is making a point that there will be a certain inherent (at times) adversarial interests because employees got their absolute extreme ideals, they get all the firms money and the owners get nothing. (Of course it may not always be the case of individual employees)
The interest of business owners in fundamentals of business (business 101) is minimize expenses and labor wages/salaries of employees is business expenses. Naturally, in business, the ideal is to maximize profit. That means minimize expenses. The CEO's job is to make the owners (shareholders in corporations) money. Generally, under law, the owners are to be paid last (or at the same time employees are paid, and dividends even later).
Historically, and still relevant by organization structure, the owners (Principals) are legally responsible for all employees, even the licensed ones. The licensing laws simply makes it so the licensee can still be held accountable but the firm owners are not exempt from vicarious liability. Before licensing laws, the owners of the architectural firms used the title architect. The workers underneath the architect was not called "Architect". They would be some other title such as draughtsman, project designer, etc. Today, the title is more linked to the license but a lot of firms, the principals are the ones who can contractually enter the contractual relationship between firm and client. They may also have one principal as architect of responsible charge or lead architect in charge of the project. You two are needlessly arguing.
Newguy did not intend to imply that firm owners and employees(workers) are going to argumentative, dysfunctional, and adversarial to each other, all the time. Firm culture is the culture of interaction not necessarily the legal organizational structure. Not all employers are assholes, all the time, to their employees. We got that. Let's stop arguing needlessly.
Richard Balkins
Mar 23, 23 2:55 pm
Arguing over semantics resulting from oversimplication and generalization meant to reduce verbosity is a little distracting. That is and to a point my prior reply is directed to both of you.
Chad Miller
Mar 23, 23 2:58 pm
New- you really don't understand the business side of architecture.
Here is a very simplified explanation.
The profit margin (and profits made) on a project are not the same a realized profits. If a project makes a 10% profit then that means that the direct cost of labor (staff and consultants fees) was 10% below the total fee the architect was paid. That proffit now needs to be put towards things like: rent, insurance, utilities, tech upgrades, software licenses, ect. Only after all of that has been paid you you get the realized profits.
Chad Miller
Mar 23, 23 2:58 pm
newguy wrote:
"If one project is in the black supporting 3 projects in the red, then it is the partners who don't understand the business of architecture, not me. You cannot support staff salaries while operating at a loss."
True. But it's the partners that will fire you if business fails. It's also the partners that will be left with the debt and bankruptcy.
Also - from your comments I take it you've never had to determine a fee on a project before. That's another exercise for you - using the stats in my original exercise determine the fees for a $10 million, 15,000 sf MOB. Go ahead, I'll wait.
newguy
Mar 23, 23 3:00 pm
"The interest of business owners in fundamentals of business (business 101) is minimize expenses and labor wages/salaries of employees is business expenses."
Well said, and I wish more professional architects understood this: Labor/wages (i.e, ones salary) go into the company books as a liability/expense to be managed. Many employees assume that they are on the "profit" side of the ledger, but they are not. They may see some of it as a year end bonus, but that is usually discretionary and not necessarily directly tied to their labor/efforts. I don't think it's "cynical" to acknowledge this
Richard Balkins
Mar 23, 23 3:10 pm
Unless everyone hired is both a business partner (co-owner) and employee, there will always be some sort of inherent opposing interest. Generally, employees do not own interest in the business of the firm. Therefore, employees come and go. Whereas, ownership stake is something intended to retain people for long term. Some firms may provide some sort of transition process to raise those who stay long-term to rise to lead the firm in the future whereas regular employees without ownership stake come and go, and readily (more or less) replaceable (from the business point of view)
Chad Miller
Mar 23, 23 3:21 pm
True. Although employees do have a interest in keeping the firm profitable - ie bringing in cost of labor below the overall fee.
Ownership doesn't necessarily retain people either. I know plenty of partners who left for other firms. They had to have their ownership stock bought out.
Regardless, you should be paid fairly for the work you do. I know a lot of firms that will offer people profit sharing in addition to bonuses for doing good work and / or bringing in work.
Richard Balkins
Mar 23, 23 3:36 pm
Chad, I agree. Firm owners can certainly leave and like you said, the buying out of their interest. In general, an ownership stake in a firm is an incentive for retaining individuals for long term but some do leave for a number of reasons.
Richard Balkins
Mar 23, 23 3:51 pm
I agree, employees should be paid and reasonable compensation. Generally, (I do acknowedge exceptions) as a rule of thumb, employees will almost always want more than what they are paid, regardless of the amount. However, employees and employers will need (or should) to respect each others respective needs and see things from each others point of view. They need/should have a respectful dialogue and find acceptable solutions for fair and reasonable compensation and a solution to generating sufficient revenue. I also believe, employers should consider (when possible), some reward to employees who bring in work for the firm (generating revenue). How that is arranged is up to each firm and their relationship with employees and other specifics of each employment relationship context.
Non Sequitur
Mar 23, 23 3:52 pm
The horror that a firm owner... the one who runs the business efficiently can't take home the fruits of their labour. Staff get a salary and some, depending on their agreements, get office profit shares. If Newguy thinks it's unfair then they are free to start their own gig. Otherwise, it's best you make a better effort at understanding how this works in the real world.
Chad Miller
Mar 23, 23 3:53 pm
I agree. The thing to recognize is that this isn't a 'black and white' type of situation. Even when dealing with the math of running a business there are shades of grey that make 'hard and fast' rules nearly worthless.
Non Sequitur
Mar 23, 23 4:01 pm
Chad, it's like those one-post ponies that pop-up in the forum every few months proudly claiming that they brought in a project to their office and moreover, ask about how much of the fee they should get as compensation. That's simply not how it works.
newguy
Mar 23, 23 4:08 pm
"The horror that a firm owner... the one who runs the business efficiently"
This thread was started by an employee who is working for a boss who cannot find work. I wouldn't classify that as efficient
"can't take home the fruits of their labour"
What labor? The labor the staff is providing trying to find work? The bosses labor at the top of this thread is providing zero fruit.
"If Newguy thinks it's unfair then they are free to start their own gig"
I literally said that this is what I would do if I was being tasked to bring in projects that my boss was not able to do. It was my very first comment in this thread. Why would I work for someone who doesn't have work?
Chad Miller
Mar 23, 23 4:09 pm
I was thinking the same thing NS. That's why I wanted NewGuy to take some time and do the math on how much time, fee, and proffit are made on a $10 million project. Apparently NewGuy doesn't want to do the math and learn something. He really should though. Better yet he could just ask one of the project managers he works for. Notice I didn't say with.
Richard Balkins
Mar 23, 23 4:43 pm
"The profit margin (and profits made) on a project are not the same a realized profits. If a project makes a 10% profit then that means that the direct cost of labor (staff and consultants fees) was 10% below the total fee the architect was paid. That proffit now needs to be put towards things like: rent, insurance, utilities, tech upgrades, software licenses, ect. Only after all of that has been paid you you get the realized profits."
The appropriate term for the so-called "per project profit" is called contribution margin or gross margin. The same as for "per goods sold profit". The term profit should not be used until you calculate the take those other expenses into account.
Technically the general term "margin" should be used. When you are talking per service "sold" (rendered) (just like unit of goods sold), the term gross margin or gross profit margin (don't forget the word margin) or contribution margin should be used. The sum of gross margin on all services or goods "sold" (not counting rent, and stuff like that is called "gross profit".
Now, technically, the margin is percentage ratio and the actual dollar amount of the margin could be described and should be explicitly stated as "Per unit of sale profit" for each service (project services were rendered for) or individual goods sold. Or you can call it "per unit gross profit" (unit being a more nebulous term that is adapted to your sales (services rendered or goods sold). Once you taxe out your expenses, then it is your net profit.
Chad Miller
Mar 23, 23 4:48 pm
I'm aware. I was trying to keep things short and simple.
Chad Miller
Mar 23, 23 4:51 pm
NewGuy wrote:
"Well said, and I wish more professional architects understood this: Labor/wages (i.e, ones salary) go into the company books as a liability/expense to be managed. Many employees assume that they are on the "profit" side of the ledger, but they are not. They may see some of it as a year end bonus, but that is usually discretionary and not necessarily directly tied to their labor/efforts. I don't think it's "cynical" to acknowledge this"
EVERYTHING that isn't gross profit is considered a liability/expense. No intelligent staff member would think that their entire billable rate is part of the gross profit. I assume you've heard of the 1/3 guideline?
square.
Mar 23, 23 4:58 pm
i agree with newguy on this one - what incentive is there for staff to bring in new work if they are not compensated from a monetary stand point, but also from a "power," or management, or decision making standpoint? i hope you have equal say in all aspects of design too. if you want to do the extra work for your boss, go for it. at the end of the day though who is the one getting credit for the work?
there's nothing wrong or immoral with seeing work as transactional, especially if you are faithfully fulfilling the duties you were hired to do, which for the majority of architectural staff is production or existing project management.
only in architecture do we think it's somehow morally dignified for staff to help the boss, whose name is on the door, bring in more work.
Chad Miller
Mar 23, 23 5:02 pm
Never said that a person shouldn't be compensated for bringing in work. What a disagree with is NewGuy's view that if you help bring in any work you should be given profit sharing.
Richard Balkins
Mar 23, 23 5:04 pm
Chad, in business accounting, wages and salaries are business expenses not only for that but also for tax purposes. When employees bring in projects to the firm, the income, that would be on the opposite side of the balance sheet. For-profit entities like most architectural firms, the income should be greater than the expenses because if expenses exceed income, you have a real problem because you can't continuously do that or you probably go out of business. Your reserves will be dried up if you don't rectify the issue.
square.
Mar 23, 23 5:05 pm
i think if you bring in a project you absolutely either deserve some form of profit sharing or very real credit beyond your typical wage/title. this might not be realistic, but again, that's why there is little incentive from the standpoint of staff.
Chad Miller
Mar 23, 23 5:08 pm
No kidding Rick. Income and profit are different though. Profit is anything left over after paying for all the liabilities and expenses. This includes bonuses but doesn't include profit sharing.
Richard Balkins
Mar 23, 23 5:10 pm
Everything that is not net profit is your expenses. There is a difference between gross profit and net profit. Net profit is the real profit after all expenses including taxes. This is not known until after taxes are paid. You may have an estimated net profit but the exact amount is after it is calculated for. It's also called net income. It is theoretically possible to have a gross profit and end up with a net loss (when all expenses exceeded the income revenue).
Chad Miller
Mar 23, 23 5:11 pm
I agree square - you should be compensated for bringing in projects.
That compensation should be dependant on the project size. On small projects (under $10 million) this would normally be done via a bonus. Giving someone a profit sharing option for all of the firms profits because you helped bring in one $10 million projects isn't feasible.
Richard Balkins
Mar 23, 23 5:14 pm
"Never said that a person shouldn't be compensated for bringing in work. What a disagree with is NewGuy's view that if you help bring in any work you should be given profit sharing."
I agree with some profit sharing (finder's award) when it is financially feasible. The situational context at the moment in time should be considered. Otherwise, I would agree that it would be a morally nice thing to do. It is among the things to build a good rapport and incentives for employees to want to stay.
Richard Balkins
Mar 23, 23 5:23 pm
"Income and profit are different though. Profit is anything left over after paying for all the liabilities and expenses. This includes bonuses but doesn't include profit sharing."
To correct you, that's NET PROFIT.
There is income (gross revenue). There is gross profit where some of the expenses and liabilities are factored in. (The negative of gross profit is called gross loss).
When *ALL* expenses are taken out, any money left over from revenue is net profit. If all expenses exceed all income, it is a net loss. The opposite of net profit.
Non Sequitur
Mar 23, 23 5:27 pm
Square, my comment via "finders" fee is when staff think that just because they brought it a client, that they get a chunk of the fee. Say there are 50k fees... it's not uncommon for some to think they can get a couple k to themselves. This is not the way offices function. The staff that does bring in clients should receive compensation tho, but that should be through wage raise or end of year bonus. Not a cut off the top before anyone even knows if the project will be profitable.
Richard Balkins
Mar 23, 23 5:27 pm
Chad, I recognize you understand the concepts but some of the terms are off or misused. The correction is for people who read the thread so they can check and verify and hopefully understand the terms and concepts and hopefully are better off by that educational aspect.
Richard Balkins
Mar 23, 23 5:35 pm
"Square, my comment via "finders" fee is when staff think that just because they brought it a client, that they get a chunk of the fee. Say there are 50k fees... it's not uncommon for some to think they can get a couple k to themselves. This is not the way offices function. The staff that does bring in clients should receive compensation tho, but that should be through wage raise or end of year bonus. Not a cut off the top before anyone even knows if the project will be profitable."
I agree because as a business owner, if I had employees, I might not always be in a position to give a "finder's fee" but if cumulatively, we make a good net profitable year, the reward in bonus and possibly in some cases, those that brought in work may get a little extra in the bonus but that would be more of an end of the year the project is completed or something. It has to be assessed with fiscal responsibility. Otherwise, fair and reasonable compensation or pay increase could be a reward but it needs to be a responsible business decision.
joseffischer
Mar 23, 23 6:52 pm
@newguy You are arguing with an Owner who had a very clean and relatively quick advancement from production to ownership... you're wasting your time.
joseffischer
Mar 23, 23 7:02 pm
Two owners pushing the game and totally ignoring the fact that of course owners are going to push the game, not everyone who brings in work can/will be compensated and/or promoted and/or brought into ownership... there's just not enough room at the top.
When ownership miscalculates who should be enshrined you get people starting side hustles and often branching off to start their own company, typically stealing clients and employees as they go
Richard Balkins
Mar 23, 23 7:21 pm
Being an owner of an architectural firm isn't necessarily that difficult if you create the firm. Getting someone to give up interest or turn their own stake to an employee, that can be difficult. However, starting your own firm or business (in any occupational field), and making it successful and grow, that can be difficult but is definitely a lot of work in any case. It's easy to fill out some forms and pay some fees and so forth but that's the easy work. That's the simple stuff. The real work is what comes next, getting clients and oh yeah, you will be either by yourself or as a small group of partners also have to do all the work. You likely won't have employees other than yourselves as the owners. At least not until you have enough work secured and enough money in the bank.
newguy
Mar 23, 23 4:57 pm
Wrong thread
newguy
Mar 23, 23 4:59 pm
EVERYTHING that isn't gross profit is considered a liability/expense. "
Hence the competing financial interests between employer vs employee
Goddamnit. Accidentally started a new chain thread. My bad
Chad Miller
Mar 23, 23 5:03 pm
Even the employers salary and benefits are a liability / expense. Just to be clear - this doesn't include profit sharing but does include any bonuses to employees or employers.
Richard Balkins
Mar 23, 23 5:17 pm
Yes, any money going out is expenses. Any money coming in is income.
Hello there. I understand that the economy isn't doing so well and fewer jobs are coming around, but I wanted to ask how to get projects as a newly established firm in LA. Our principal has a lot of experience but unfortunately doesn't have many connections with people. I am sending him to various networking events as others have recommended but I'm trying to do more. We are only doing residential work and would like to switch to Industrial/Commercial since he has experience in both. What's the best way to market without projects or connections?
well, you’ve asked this here twice before, so maybe this isn’t the place to get answers?
I might have mentioned this before, but I'd check out this site: https://entrearchitect.com/. They exist solely to support small-firm architects in being better at the business end of things. They have a lot of great podcasts, do weekly webinars, have mastermind groups, etc.. Many of the members are older so your dad/principal wouldn't feel left out.
Full disclosure, I have been on one of their podcasts, presented at their annual conference last year and will do a webinar for them sometime this year, but I would recommend them even if that weren't the case.
As a newly established firm without many connections or projects, it can be challenging to attract new clients and establish a reputation in the industry. Here are a few strategies that you could consider to market your firm:
Develop a strong online presence: In today's digital age, having a strong online presence is crucial for any business. Ensure that your website is professional, easy to navigate, and showcases your work effectively. You can also leverage social media platforms like LinkedIn, Twitter, and Instagram to connect with potential clients and showcase your expertise.
Attend networking events: Attending networking events is a great way to meet potential clients and industry peers. Look for local events related to your industry and attend them regularly. Bring business cards and be prepared to introduce yourself and your firm to others.
Offer pro bono services: Offering pro bono services to nonprofit organizations, community centers, or schools can be an excellent way to gain exposure for your firm while also giving back to the community. It can also be a great way to build relationships and network with potential clients.
Leverage referrals: Reach out to past clients, colleagues, and other industry professionals and ask for referrals. A satisfied client or colleague is likely to refer your firm to others if they had a positive experience working with you.
Develop a niche: Consider developing a niche within the commercial or industrial sector that you have experience in. Focusing on a particular area can help you stand out from the competition and establish your expertise in that area.
Remember, building a successful business takes time and effort. By implementing these strategies and consistently delivering high-quality work, you can establish your firm as a reputable player in the industry.
Hello chat GPT
It's actually good advice.
I'd agree in principle because those pro bono projects can get you you in the ocal newspaper which is essentially free advertising. The first step you need to do is build awareness. As a new firm, no one knows you exist (more or less). Over time, your firm name will become known but there is faster means of building awareness than just being in business. Of course, you need to limit pro bono work for non-profit type organizations because you need to make money from the rest of the clientele such as for-profit / commercial. Larger government/schools/etc. project, you get paid... don't do pro bono but small little projects for those entities and smaller non-profits, pro bono is fine.
Don't do pro bono for residential clients. They are not a non-profit organization so you can't use it as a tax deduction as a form of charitable contribution. Besides, if you do it for one, others may except the same especially if they heard you did the work fo free for one. Doing work for free doesn't pay the bills because landlords expects their rent payment regardless of your income (or you get out), utility companies and other services (internet, phone, TV, etc.) are going to expect their money, too. For a small firm, I'd probably recommend not more than 20% of the projects being pro bono. Keep enough projects to pay the bills, pay your employees, etc. I do recognize exceptions to the 20% rule especially if you have fewer than 5 projects but higher yield projects so if one is pro bono, you'd probably be ok, financially.
Has anyone tried out the Architect Marketing Institute's business development program? Does anyone have any feedback or would be willing to share their experience if they are an enrollee or graduate?
I'm gonna be honest with ya, if I worked for a firm and was the one who felt responsible for helping my boss get clients, I'd start to question whether or not I wanted to keep working for him/her. Being an architecture firm owner/principle is ostensibly the reason why they demand more of the revenue generated by their staff, with the understanding that they are the ones securing the clientele that keeps the doors open. If they can't even do that, and are asking their staff to pick up the slack, then what value do they even bring to the firm? The prevailing capitalistic wisdom that justifies bosses making more money (which I abhor, but here it is anyway) is that they assume the risk (their capital) and leverage their experience and connections (clients) to bring in work. Their staff generates the wealth (labor) that the firm uses, of which the boss receives the largest amount (surplus labor). If they can't uphold their end of the bargain, then what is the point of working for them? Unless I was being offered some sort of ownership of the firm in return for securing future revenue, I'd decline to take on the risk of getting clients. Because if I was able to get clients, I'd do it for myself, not someone else who can't.
Kind of. I'm not a managing partner of our firm but I am a part owner. I help get clients through various means. Even when I wasn't part owner I still helped get clients through doing good work and simply being out in the community (networking).
That is an oversimplification of firm structure, ownership, and risk. Frankly, architecture firms’ owners don't have much financial capital at risk. What they may have at risk is their own professional reputation. I agree with Chad, helping your firm bring in clients isn't reserved only for firm management. If you treat your role as transactional as you suggest, then ownership will treat you the same way. For example, most medium firms and larger have an owner who is the design principal, someone who runs the operations of the firm, a CFO, etc. All have a specific job relative to the success of the firm outside of bringing clients in (business development). Regardless of size and corporate structure, some of the best company cultures are built on everyone networking and bringing clients to the table.
It's important to note that 'networking' doesn't have to mean you go out after work and on weekends to networking events where you spend your own money to try and bring in clients. It means that when you're out you talk to people who need and architect about your firm.
"If you treat your role as transactional as you suggest, then ownership will treat you the same way"
The very nature of at-will employment is transactional. That's exactly why compensation is structured as a flat salary rather than as a percentage of total revenues. The very use of the word "ownership" implies the existence of a hierarchy that views their employees as ..well....property
"Regardless of size and corporate structure, some of the best company cultures are built on everyone networking and bringing clients to the table."
Culture is not a substitute for fair compensation. If an employee is networking and bringing in clients without being compensated, then he/she is, by definition, providing un-paid labor to secure capital. If a companies "culture" demands that all employees equally share the burden of securing capital in addition to providing the labor of the firm (drawings, permitting, etc), then what, exactly, justifies the existence of the bosses?
FYI - bosses do more than bring in clients. While all employment is transactional it's foolish to say that you're not willing to help bring in clients by simply being out in public. I'm not talking about going to networking events on your own time and money. If more work comes then you get to keep your job. Now any good boss will compensate you for the work you bring in with raises and or bonuses. If they don't then it's time to leave.
"it's foolish to say that you're not willing to help bring in clients by simply being out in public"
It's foolish to do this without being fairly compensated. If you're out there securing clients that keeps the firm afloat without having any ownership stake, then you're a mark
That’s when it’s time to negotiate salary + commission.
As a professional you are expected to bring in clients. It’s common in many industries. Law, RE, etc. If you have relationships with clients, you will be the point of contact for referrals most likely. But of course make sure you are compensated.
newguy wrote:
"It's foolish to do this without being fairly compensated. If you're out there securing clients that keeps the firm afloat without having any ownership stake, then you're a mark" -
Yes and no. You need to read the entire comment.
You can be securing clients by simply doing a good job and being active in your community. Not extra work or preparation requited.
I don't go to any networking events unless my firm is paying for them. More often I bring in clients by simply being myself out in public. People ask what I do and I tell them. That can lead to new clients. That's my extent of networking. That and clients referring me to others.
If you think that acting in such a way qualifies me as a 'mark' then I wonder about your frame of mind. Any projects I bring in gets me raises, boness, and now that I'm part owner a percentage of the proffits.
Chad, this is highly sector specific. If you are working on single family kitchen remodels, then yes, you can hand your business card to newlyweds and secure small jobs. If you work on hospitals or high-rise offices, it's very unlikely that Joe Revit from the office is going to be rubbing shoulders and sipping cocktails with the CEO of Kaiser Permanente
"Any projects I bring in gets me raises, boness, and now that I'm part owner a percentage of the proffits."
I don't know why you are taking exception to anything I said, then, as I was pretty clearly saying that people who bring in work should be compensated with ownership shares, which it sounds like you've done
True. If you're just production staff you won't have the experience to be able to speak to anything about your firm.
I work in educational, medical, multi family, and government.
I've been meeting with clients, rubbing shoulder and sipping cocktails with CEO's since I was a first year intern, at the firms expense mind you. The other CEO's I'd meet where in my day to day life. Don't get me wrong - I'm not at golf courses or spas meeting people. Just out on the trials biking or hiking.
newguy wrote:
"I don't know why you are taking exception to anything I said, then, as I was pretty clearly saying that people who bring in work should be compensated with ownership shares, which it sounds like you've done. "
I take exception to your views that:
As I’ve said from the beginning, I believe that if you bring in work you should get some type of compensation. The degree of compensation is going to depend on the project size. It could be a raise, a bonus, or profit sharing. To think that it should always be profit sharing shows you don’t understand much about the economics of running a firm.
I’ve also said from the beginning that bringing in work is more than just attending networking events. Just go about your normal day and interact with your community. It’s not difficult and takes no work at all. You make it sound like it’s a part time job that you have to do on nights and weekends. It’s not.
If you are an owner / co-owner, you have a general obligation to bring in work for the firms. I agree they on occassion, a partner in a firm might bring other value but there should be sufficient partners in firm bringing in work. Generally, if you are talking like 2-3 partners, all partners have a duty to bring in work to support themselves and pay the employees. Employees might not need to bring in work for the firm but when they do, that might help them in the long run towards considering adding them to the firm partnership. Adding business to a firm is a major and important consideration when it comes to who should be part of the firm's ownership and directors/business firm leadership. Typically, but not always the case, a partner is a "Principal" and is part of the firm's leadership because a Principal's role is essentially an executive role of most firms. If you are dead weight, you're sinking the firm and its success. Running a firm is runnning a business and its time to be business people not just the "artist" at the drafting table or CAD/BIM workstation. You are a business man/woman now. To an extent, and within certain context, newguy's point is reasonable as is yours.
I agree with you getting some piece of the pie but it might be that you'll be in the lead project architect/designer in charge of that project and therefore might be getting a bump up in pay but you would already be expected to be in a role of leading projects. What happens to firm profits is that some portion is reserved for lean times (especially if you are managing your finances well).
Dude, you are being deliberately tedious and insisting on missing the very broad point that I am making: The interests of labor are at odds with the interests of the bosses. They have to be. That's how it's set up. That's what differentiates "owners" from "workers" At every firm, at the end of the day, there is a spreadsheet with some variation of the following equation:
[Value created] - [Overhead] - [Labor] = [Profit]
The bosses are on one side of the ledger (profit), the workers are on the other (labor). That's the math
I understand that.
My issue with your posts are that you classify people into one of two categories - worker and owner. You think the relationships between these two categories must b adversarial. I've NEVER worked at firm like that. We're team members. We each bring something to the group and we work together to design buildings.
I think that you either work (or worked) at a very miserable firm and that has jaded you. That or you're mediocre at your career and have become bitter because your not viewed as special.
"I understand that."
You really don't, though.
"My issue with your posts are that you classify people into one of two categories - worker and owner."
This is literally how every business is structured.
"You think the relationships between these two categories must b adversarial."
Correct. There's a finite dollar amount that is generated by the company. Who gets what is determined by the owners (that's why they're "owners," the hint is in plain site with the language we use).
"We're team members. We each bring something to the group and we work together to design buildings."
I'm not talking about company morale, I'm talking raw numbers. Math. Whether a team gets along and enjoy each other's company is irrelevant, because the breakdown of wealth is determined by the hierarchies in place as determined by the bosses.
"That or you're mediocre at your career and have become bitter because your not viewed as special."
This is just petty and unnecessarily personal. I don't attack you for being boring and intellectually incurious, so perhaps refrain from speculating on my mental health. I do just fine. But I'm still not an owner, which makes me a worker subject to the whims of the bosses. Whether or not I like them personally is beside the point. The only point I'm making is that a boss that is incapable of securing work is not a boss worth working for.
You really have no idea what it means to be part of team that respects you both personally and professionally. I think that speaks volumes to your character and abilities.
I'd argue that anyone who works for someone who doesn't adequately compensate them for their labor isn't being respected personally or professionally. You can have your character, I'd rather have the money
I agree with you. You should be adequately paid for the work you do. I NEVER work for free unless I've chosen to volunteer my time to a good cause. That's not what this discussion has been about though. You thing that every interaction between anyone is transactional.
You like numbers - run the numbers on:
$10 million dollar MOB project
Assume an average overhead of 18%
Assume your staff makes 1/3 or so of their billable rate.
How much is the profit on this project?
How much do you think you should be paid for helping to bring this project in?
Show your work.
You do understand that in your scenario, the "profit" is earmarked for the partner, who will only spend 10 hours per phase, who didn't even bring in the project. You're out here painting fences for Tom Sawyer, my man
newguy, no and unless you're doing one job at a time, profits are not even as clear-cut as Chad tries to explain. I know he knows this but it's obvious it's simplified to make it easier for you to understand. Anyways, project profits need to looked at holistically across the entire breath of active and dormant projects. i.e. One project in the black may be supporting 3 in the red... or covering staff salaries while they chase comp work. Your cynicism about the partner making bank on 10hr of work is evidence that you don't know much about the work in the background in a arch office.
If one project is in the black supporting 3 projects in the red, then it is the partners who don't understand the business of architecture, not me. You cannot support staff salaries while operating at a loss.
Chad Miller, you're confusing or conflating ownership/employee(worker) structue and project management/team work. Team work is about setting aside organizational structure, title, and ego and working in an egalitarian format. This is completely different from to interests of business owners to that of employees.
Newguy is correct to that and that there will be distinct and opposing interest yet you are also correct about team work and how functional teams works together. Any successful firm to be functional and successful, the owners (employer) will need to care about the welfare and needs of the employees but also the employees needs to care about the welfare and needs of the employers.
The "relationship" as with all good functional relationships is a two way road. Where newguy is making a point that there will be a certain inherent (at times) adversarial interests because employees got their absolute extreme ideals, they get all the firms money and the owners get nothing. (Of course it may not always be the case of individual employees)
The interest of business owners in fundamentals of business (business 101) is minimize expenses and labor wages/salaries of employees is business expenses. Naturally, in business, the ideal is to maximize profit. That means minimize expenses. The CEO's job is to make the owners (shareholders in corporations) money. Generally, under law, the owners are to be paid last (or at the same time employees are paid, and dividends even later).
Historically, and still relevant by organization structure, the owners (Principals) are legally responsible for all employees, even the licensed ones. The licensing laws simply makes it so the licensee can still be held accountable but the firm owners are not exempt from vicarious liability. Before licensing laws, the owners of the architectural firms used the title architect. The workers underneath the architect was not called "Architect". They would be some other title such as draughtsman, project designer, etc. Today, the title is more linked to the license but a lot of firms, the principals are the ones who can contractually enter the contractual relationship between firm and client. They may also have one principal as architect of responsible charge or lead architect in charge of the project. You two are needlessly arguing.
Newguy did not intend to imply that firm owners and employees(workers) are going to argumentative, dysfunctional, and adversarial to each other, all the time. Firm culture is the culture of interaction not necessarily the legal organizational structure. Not all employers are assholes, all the time, to their employees. We got that. Let's stop arguing needlessly.
Arguing over semantics resulting from oversimplication and generalization meant to reduce verbosity is a little distracting. That is and to a point my prior reply is directed to both of you.
New- you really don't understand the business side of architecture.
Here is a very simplified explanation.
The profit margin (and profits made) on a project are not the same a realized profits. If a project makes a 10% profit then that means that the direct cost of labor (staff and consultants fees) was 10% below the total fee the architect was paid. That proffit now needs to be put towards things like: rent, insurance, utilities, tech upgrades, software licenses, ect. Only after all of that has been paid you you get the realized profits.
newguy wrote:
"If one project is in the black supporting 3 projects in the red, then it is the partners who don't understand the business of architecture, not me. You cannot support staff salaries while operating at a loss."
True. But it's the partners that will fire you if business fails. It's also the partners that will be left with the debt and bankruptcy.
Also - from your comments I take it you've never had to determine a fee on a project before. That's another exercise for you - using the stats in my original exercise determine the fees for a $10 million, 15,000 sf MOB. Go ahead, I'll wait.
"The interest of business owners in fundamentals of business (business 101) is minimize expenses and labor wages/salaries of employees is business expenses."
Well said, and I wish more professional architects understood this: Labor/wages (i.e, ones salary) go into the company books as a liability/expense to be managed. Many employees assume that they are on the "profit" side of the ledger, but they are not. They may see some of it as a year end bonus, but that is usually discretionary and not necessarily directly tied to their labor/efforts. I don't think it's "cynical" to acknowledge this
Unless everyone hired is both a business partner (co-owner) and employee, there will always be some sort of inherent opposing interest. Generally, employees do not own interest in the business of the firm. Therefore, employees come and go. Whereas, ownership stake is something intended to retain people for long term. Some firms may provide some sort of transition process to raise those who stay long-term to rise to lead the firm in the future whereas regular employees without ownership stake come and go, and readily (more or less) replaceable (from the business point of view)
True. Although employees do have a interest in keeping the firm profitable - ie bringing in cost of labor below the overall fee.
Ownership doesn't necessarily retain people either. I know plenty of partners who left for other firms. They had to have their ownership stock bought out.
Regardless, you should be paid fairly for the work you do. I know a lot of firms that will offer people profit sharing in addition to bonuses for doing good work and / or bringing in work.
Chad, I agree. Firm owners can certainly leave and like you said, the buying out of their interest. In general, an ownership stake in a firm is an incentive for retaining individuals for long term but some do leave for a number of reasons.
I agree, employees should be paid and reasonable compensation. Generally, (I do acknowedge exceptions) as a rule of thumb, employees will almost always want more than what they are paid, regardless of the amount. However, employees and employers will need (or should) to respect each others respective needs and see things from each others point of view. They need/should have a respectful dialogue and find acceptable solutions for fair and reasonable compensation and a solution to generating sufficient revenue. I also believe, employers should consider (when possible), some reward to employees who bring in work for the firm (generating revenue). How that is arranged is up to each firm and their relationship with employees and other specifics of each employment relationship context.
The horror that a firm owner... the one who runs the business efficiently can't take home the fruits of their labour. Staff get a salary and some, depending on their agreements, get office profit shares. If Newguy thinks it's unfair then they are free to start their own gig. Otherwise, it's best you make a better effort at understanding how this works in the real world.
I agree. The thing to recognize is that this isn't a 'black and white' type of situation. Even when dealing with the math of running a business there are shades of grey that make 'hard and fast' rules nearly worthless.
Chad, it's like those one-post ponies that pop-up in the forum every few months proudly claiming that they brought in a project to their office and moreover, ask about how much of the fee they should get as compensation. That's simply not how it works.
"The horror that a firm owner... the one who runs the business efficiently"
This thread was started by an employee who is working for a boss who cannot find work. I wouldn't classify that as efficient
"can't take home the fruits of their labour"
What labor? The labor the staff is providing trying to find work? The bosses labor at the top of this thread is providing zero fruit.
"If Newguy thinks it's unfair then they are free to start their own gig"
I literally said that this is what I would do if I was being tasked to bring in projects that my boss was not able to do. It was my very first comment in this thread. Why would I work for someone who doesn't have work?
I was thinking the same thing NS. That's why I wanted NewGuy to take some time and do the math on how much time, fee, and proffit are made on a $10 million project. Apparently NewGuy doesn't want to do the math and learn something. He really should though. Better yet he could just ask one of the project managers he works for. Notice I didn't say with.
"The profit margin (and profits made) on a project are not the same a realized profits. If a project makes a 10% profit then that means that the direct cost of labor (staff and consultants fees) was 10% below the total fee the architect was paid. That proffit now needs to be put towards things like: rent, insurance, utilities, tech upgrades, software licenses, ect. Only after all of that has been paid you you get the realized profits."
The appropriate term for the so-called "per project profit" is called contribution margin or gross margin. The same as for "per goods sold profit". The term profit should not be used until you calculate the take those other expenses into account.
Technically the general term "margin" should be used. When you are talking per service "sold" (rendered) (just like unit of goods sold), the term gross margin or gross profit margin (don't forget the word margin) or contribution margin should be used. The sum of gross margin on all services or goods "sold" (not counting rent, and stuff like that is called "gross profit".
Now, technically, the margin is percentage ratio and the actual dollar amount of the margin could be described and should be explicitly stated as "Per unit of sale profit" for each service (project services were rendered for) or individual goods sold. Or you can call it "per unit gross profit" (unit being a more nebulous term that is adapted to your sales (services rendered or goods sold). Once you taxe out your expenses, then it is your net profit.
I'm aware. I was trying to keep things short and simple.
NewGuy wrote:
"Well said, and I wish more professional architects understood this: Labor/wages (i.e, ones salary) go into the company books as a liability/expense to be managed. Many employees assume that they are on the "profit" side of the ledger, but they are not. They may see some of it as a year end bonus, but that is usually discretionary and not necessarily directly tied to their labor/efforts. I don't think it's "cynical" to acknowledge this"
EVERYTHING that isn't gross profit is considered a liability/expense. No intelligent staff member would think that their entire billable rate is part of the gross profit. I assume you've heard of the 1/3 guideline?
i agree with newguy on this one - what incentive is there for staff to bring in new work if they are not compensated from a monetary stand point, but also from a "power," or management, or decision making standpoint? i hope you have equal say in all aspects of design too. if you want to do the extra work for your boss, go for it. at the end of the day though who is the one getting credit for the work?
there's nothing wrong or immoral with seeing work as transactional, especially if you are faithfully fulfilling the duties you were hired to do, which for the majority of architectural staff is production or existing project management.
only in architecture do we think it's somehow morally dignified for staff to help the boss, whose name is on the door, bring in more work.
Never said that a person shouldn't be compensated for bringing in work. What a disagree with is NewGuy's view that if you help bring in any work you should be given profit sharing.
Chad, in business accounting, wages and salaries are business expenses not only for that but also for tax purposes. When employees bring in projects to the firm, the income, that would be on the opposite side of the balance sheet. For-profit entities like most architectural firms, the income should be greater than the expenses because if expenses exceed income, you have a real problem because you can't continuously do that or you probably go out of business. Your reserves will be dried up if you don't rectify the issue.
i think if you bring in a project you absolutely either deserve some form of profit sharing or very real credit beyond your typical wage/title. this might not be realistic, but again, that's why there is little incentive from the standpoint of staff.
No kidding Rick. Income and profit are different though. Profit is anything left over after paying for all the liabilities and expenses. This includes bonuses but doesn't include profit sharing.
Everything that is not net profit is your expenses. There is a difference between gross profit and net profit. Net profit is the real profit after all expenses including taxes. This is not known until after taxes are paid. You may have an estimated net profit but the exact amount is after it is calculated for. It's also called net income. It is theoretically possible to have a gross profit and end up with a net loss (when all expenses exceeded the income revenue).
I agree square - you should be compensated for bringing in projects.
That compensation should be dependant on the project size. On small projects (under $10 million) this would normally be done via a bonus. Giving someone a profit sharing option for all of the firms profits because you helped bring in one $10 million projects isn't feasible.
"Never said that a person shouldn't be compensated for bringing in work. What a disagree with is NewGuy's view that if you help bring in any work you should be given profit sharing."
I agree with some profit sharing (finder's award) when it is financially feasible. The situational context at the moment in time should be considered. Otherwise, I would agree that it would be a morally nice thing to do. It is among the things to build a good rapport and incentives for employees to want to stay.
"Income and profit are different though. Profit is anything left over after paying for all the liabilities and expenses. This includes bonuses but doesn't include profit sharing."
To correct you, that's NET PROFIT.
There is income (gross revenue). There is gross profit where some of the expenses and liabilities are factored in. (The negative of gross profit is called gross loss).
When *ALL* expenses are taken out, any money left over from revenue is net profit. If all expenses exceed all income, it is a net loss. The opposite of net profit.
Square, my comment via "finders" fee is when staff think that just because they brought it a client, that they get a chunk of the fee. Say there are 50k fees... it's not uncommon for some to think they can get a couple k to themselves. This is not the way offices function. The staff that does bring in clients should receive compensation tho, but that should be through wage raise or end of year bonus. Not a cut off the top before anyone even knows if the project will be profitable.
Chad, I recognize you understand the concepts but some of the terms are off or misused. The correction is for people who read the thread so they can check and verify and hopefully understand the terms and concepts and hopefully are better off by that educational aspect.
"Square, my comment via "finders" fee is when staff think that just because they brought it a client, that they get a chunk of the fee. Say there are 50k fees... it's not uncommon for some to think they can get a couple k to themselves. This is not the way offices function. The staff that does bring in clients should receive compensation tho, but that should be through wage raise or end of year bonus. Not a cut off the top before anyone even knows if the project will be profitable."
I agree because as a business owner, if I had employees, I might not always be in a position to give a "finder's fee" but if cumulatively, we make a good net profitable year, the reward in bonus and possibly in some cases, those that brought in work may get a little extra in the bonus but that would be more of an end of the year the project is completed or something. It has to be assessed with fiscal responsibility. Otherwise, fair and reasonable compensation or pay increase could be a reward but it needs to be a responsible business decision.
@newguy You are arguing with an Owner who had a very clean and relatively quick advancement from production to ownership... you're wasting your time.
Two owners pushing the game and totally ignoring the fact that of course owners are going to push the game, not everyone who brings in work can/will be compensated and/or promoted and/or brought into ownership... there's just not enough room at the top.
When ownership miscalculates who should be enshrined you get people starting side hustles and often branching off to start their own company, typically stealing clients and employees as they go
Being an owner of an architectural firm isn't necessarily that difficult if you create the firm. Getting someone to give up interest or turn their own stake to an employee, that can be difficult. However, starting your own firm or business (in any occupational field), and making it successful and grow, that can be difficult but is definitely a lot of work in any case. It's easy to fill out some forms and pay some fees and so forth but that's the easy work. That's the simple stuff. The real work is what comes next, getting clients and oh yeah, you will be either by yourself or as a small group of partners also have to do all the work. You likely won't have employees other than yourselves as the owners. At least not until you have enough work secured and enough money in the bank.
Wrong thread
EVERYTHING that isn't gross profit is considered a liability/expense. "
Hence the competing financial interests between employer vs employee
Goddamnit. Accidentally started a new chain thread. My bad
Even the employers salary and benefits are a liability / expense. Just to be clear - this doesn't include profit sharing but does include any bonuses to employees or employers.
Yes, any money going out is expenses. Any money coming in is income.