Median architecture and engineering (A/E) firm operating profit as a percentage of net revenue (before incentive/bonus payments and taxes) has reached an all-time high of 18.8 percent, according to PSMJ's 2019 A/E Financial Performance Benchmark Survey Report.
This annual report also finds that target and achieved direct labor multipliers have reached all-time highs of 3.20 and 3.21 respectively.
After posting all-time highs in 2007 and remaining stable in 2008, profit margins started to decline significantly beginning in 2009, due to the severe downturn in the economy. Over the past ten years, median operating profit on net revenue has fluctuated, yet has been on a gradual upswing. Hitting a high of 16.2 percent in 2016, profitability increased to 15.9 percent in 2018 from 15.0 percent in 2017.
“A/E firm profitability has been on the rise in recent years, yet this year’s financial results are impressive,” says Frank A. Stasiowski, FAIA, Founder and CEO of PSMJ Resources. “The exuberance that has driven the current peak, however, is also accompanied with cautious optimism. A/E firms are busy as ever, yet still face staffing challenges. Staff growth is driving revenue growth, yet staffing shortages remain the limiting factor to growth in many A/E firms.”
A/E firms’ target direct labor multiplier also fluctuated with the Great Recession, but some pricing flexibility levelled it to 3.10 in recent years. Meanwhile, the achieved direct labor multiplier has been on the upswing since 2010, and, last year, exceeded the target multiplier for the first time ever.
This year’s highs in target and achieved direct labor multipliers not only indicate continued pricing flexibility in today’s A/E marketplace, but also that firms continue to make more money on their projects than they planned to make. “A 3.21 achieved multiplier off of a 3.20 target multiplier is a major accomplishment,” Stasiowski says. “This is awesome project management, meaning that even as clients accept X amount of project fees, project managers have found ways to do better.”
With data from 353 A/E firms across the United States and Canada, the 2019 A/E Financial Performance Benchmark Survey Report is the go-to industry resource for firms wanting to increase cash flow, lower overhead, and improve overall financial results. Now in its 39th edition, the comprehensive report provides the most valuable research and insight available for making critical decisions that impact the success of a firm.