Withum’s Architecture and Engineering group’s Annual Benchmarking Study is a set of financial metrics that architecture and engineering firms can use to see how a company’s operations size up to the industry.

These financial metrics focus on a firm’s operating efficiencies and can be used to identify a firm’s financial strengths and weaknesses.

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Survey Metrics Description

Direct Labor Multiplier The net labor multiplier is calculated by dividing net revenue by direct labor, the cost of labor charged to projects. The net multiplier represents the actual revenue generated by the architecture or engineering firm, expressed as a percentage (or multiple) of total direct labor. The higher the firm’s multiplier, the more revenue the firm is generating from its direct labor investment.
Total Labor Multiplier (also called Revenue Factor) The total payroll multiplier is calculated by multiplying utilization by the net labor multiplier or dividing net revenue by the total labor. This is the most consistent single indicator of an A/E firm’s operating performance and provides a clear measure of how well a firm converts the total labor cost to revenue, combining the utilization rate and labor multiplier. This multiplier is driven by the (increasing) costs of labor and productivity and efficiency of the employees.
Net Income / Profitability % The operating profit on net revenue is calculated by dividing pre-tax, pre-distribution profit by net revenue. It is a preferred measure for A/E firm’s profit rate and it indicates an architecture or engineering firm’s effectiveness in completing projects profitably.
Overhead Rate The overhead rate is calculated by dividing total overhead by direct labor expenses. The overhead rate is the cost relationship of a firm’s non-chargeable costs (facility costs, corporate expenses, and administrative salaries) expressed as a percentage of total direct labor. One of the most critical of all the performance indicators, it is impossible to accurately determine the architecture or engineering firm’s profitability without an accurate picture of the rate. The lower the overhead rate, the higher the profit margin. Managing indirect expenses will help in reducing the overhead rate.
WIP + A/R – Net The average collection period is calculated by dividing accounts receivable and work-in-progress (WIP) by annual revenue times 365. This measures the average number of days it takes A/E firms to collect the accounts receivable. A/E firms should work towards a goal of 75 days. After 90 days, this should be a concern.
Backlog (x12) The backlog volume is the unbilled dollar amount of anarchitecture or engineering firm’s current fee contracts. Because monthly invoices continually reduce the firm’s backlog volume, it is essential to continually replace invoiced fees with newly contracted fees. A firm should strive for backlog volume greater than, the firm’s budgeted annual net operating revenue.
Utilization Rate The utilization rate is calculated by dividing the cost of direct labor to projects by total labor costs of the firm. The utilization rate measures the percentage of total staff labor charged to billable projects. It is not a measure of productivity. Some A/E firms track utilization on hours which is computed as the percentage of chargeable hours to total hours worked.
Net Revenue Per Employee The net revenue per employee is calculated bydividing the annual net revenue by the average total number of employees during the year. It is an excellent indicator of a firm’s operating performance compared to its peers. It is also useful in forecasting a realistic range for future annual net operating revenue.

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