How to Measure Performance for Architecture and Design Firms?
The field of architecture and design is a dynamic one, often managing large-scale investments and involving a wide array of professionals. It stands to reason that, in this type of environment, success is not simply defined by just the quality of the completed structures, but also by the internal ability of architecture firms to effectively manage their business operations. For architects and designers, measuring performance goes beyond financial metrics; it encompasses a diverse range of factors that reflect the firm’s efficiency, creativity, and impact within the industry.
Several key metrics can be measured, from financial goals to client relationship management, innovation, influence, and professional development, all helping architects and designers gauge their performance from different perspectives. As the famous saying goes, “What gets measured gets managed.” To help in this effort, Monograph‘s 2024 Architecture Business Benchmarks Report offers a thorough examination of five key metrics.
The report, centered around the five metrics, offers benchmarks and statistics for what numbers are considered high, average, and low in terms of performance, as it is designed as a tool to understand the firm’s position compared to the industry. It showcases the average Net Revenue and Net Cost generated by each full-time employee (FTE), the Utilization Rate as a measure of productivity, the Realization Rate for assessing the billing effectiveness across invoices, and the Time to Payment, or the amount of time between sending an invoice and receiving the payment.
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Knowing the basics like the Cost per FTE and Revenue per FTE allows you to set business development goals, project future revenues and profits, and make decisions regarding growing or downsizing your team based on your project pipeline. Time to payment helps you predict future cash flow. Utilization Rate can empower you to understand if your team is spending the right amount of time on billable work vs non-billable activities. And most importantly, it is important to track these metrics over time. – explains Lucas Gray
Monograph also spoke with a selection of industry experts, to analyze what are the important measures that architects should pay attention to when managing a business in this field. Among the experts, there is Evelyn Lee, the founder of Practice of Architecture and host of the podcast Practice Disrupted; Julia Gamolina is the Founder and Editor-in-Chief of Madame Architect; Rion Willard, architect turned architecture business consultant and host of the Business of Architecture podcast; and Lucas Gray, Senior Business Consultant at Charrette Venture Group and a guest design critic at the University of Oregon. Below is a selection of their answers and input regarding the evolution of the business of architecture and their key takeaways.
The Impact of Measuring
In analyzing the most impactful benchmark for architecture firms in the next five years, Evelyn Lee emphasizes the crucial role of Net Revenue per FTE, highlighting how technology integration can drive efficiency and innovation while empowering employees to focus on high-value tasks. Rion Willard underscores the significance of this metric, as it can serve as a guide for assessing operational efficiency. Lucas Gray chooses to focus more on the Realization Rate, a metric defined by the percentage of billable work that is actually charged and invoiced to clients.
Realization Rate is a clear indication of whether you are earning the right revenue compared to effort, and it shines a light onto your team’s operational efficiency. Further, it can be an indicator of whether you have enough billable work for the size of your team. – Lucas Gray
Advice for Managing Architecture Firms
Further discussing the potential impact of benchmarks, Evelyn Lee emphasizes the need to consider innovations in the larger context of collaboration within the industry, pointing out the need to openly share the best practices and lessons learned. Similarly, both Julia Gamolina and Rion Willard highlight the need to invest in the business itself and the employees. Willard shares four areas of interest that he focuses on: the art of sales and negotiation, the masterful work that can be performed by a good team, the need to constantly monitor the numbers to create efficiency, and the impact of having a coherent vision to guide this effort.
To succeed in today’s market, I would tell architecture firms to invest in their employees! Flexibility and adaptability are key, and with so much in flux today, the cultivation of new skills and being able to synthesize seemingly disparate tasks and responsibilities will be a key driver in the multitude of professional services that each one of us can offer. – Julia Gamolina
Fostering Conversations of Better Business Practices
Key performance indicators represent a starting point for better assessing the impact and challenges of an architecture firm. “By undertaking this journey of introspection and adaptation, firms can enhance their performance and cultivate a culture of continuous improvement and resilience in the face of evolving challenges” declares Evelyn Lee. Reports such as those released by Monograph “paint a picture of what high performance looks like in a business” in the words of Rion Willard, potentially allowing architects to correctly evaluate the value of their work.
How practices operate greatly influences what practices can do. More organized operations create better cash flow, more opportunities that firms can take on, and the ability to take on more talented staff, which altogether leads to a more significant impact on our built world. – Julia Gamolina
In conclusion, the field of architecture and design thrives on innovation, collaboration, and adaptability. By embracing key performance indicators and benchmarks, firms can navigate challenges, improve operational efficiency, and foster a culture of continuous improvement. As highlighted by industry experts, investing in employees, embracing technological advancements, and fostering conversations around better business practices are essential steps toward achieving sustainable success in an ever-evolving landscape.