This blog content comes from an interview conducted on September 3, 2026. For more information or context, learn more about the AE Financial Performance Benchmark Survey Report.
“The firms that are still sticking by the old model just aren’t doing very well anymore. The firms that are doing well have adopted a new model.”- Dave Burstein, Senior Consultant, PSMJ
For AEC firms, the past few years brought record-setting numbers. But the story behind them is more interesting than the headline. On this episode of the AEC GrowthCast, host Greg Hart asks Dave Burstein, PSMJ senior consultant and a longtime reader of the firm’s benchmark data, to walk through the 2026 AE Financial Performance Benchmark Survey. Burstein takes a long view of what has changed in the business model and what separates the firms pulling ahead. (The figures are industry medians, so firms sit above and below them.)
1. The old business model is running out of room
“The old business model, which has been around forever, is sell more work, hire more people, bill more hours. And that’s how you increase profits. The metrics have traditionally been headcount and utilization. A lot of focus on that. And some firms are still operating under the old business model. But we’re finding that it’s not working anymore.”
His explanation starts with how the workforce has changed:
“Back in the day, there were places that were called drafting rooms. And they charged 40 or more hours every week, all to projects, virtually none to overhead. Fast forward and they’ve been replaced by engineers and architects who basically do their own CAD work, so they don’t need all those drafters. And they’ve also been replaced by IT departments that didn’t even exist back in the old days, and they charge almost all their time to overhead. So you have a decrease in direct labor and an increase in indirect labor.”
Technology costs have climbed, too:
“Back in 2004, the median firm spent 3.3% of direct labor on technology costs, not including labor. Fast forward to 2025, and it’s gone from 3.3% to 10.8%. So firms as a percent of direct labor are spending way more money on technology. And in fact, the trends seem to be accelerating as new technologies are coming in. We’re seeing a lot more interest in drones and in reducing survey crews by using technology, AI, just all kinds of things.”
Together, those trends push overhead up:
“When you combine those factors, what you’re seeing is a long-term increase in overhead rate. And that means that the break-even multiplier has been going up.”
2. The new model starts with what clients really want
“The new model starts out with finding out what it is your clients really want. Yeah, they’re going to hire you to do a building or to design a treatment plant or whatever, but what is it they really want? What are their critical success factors? Once you figure that out, what can you do to add more value? What is it really that’s going to affect their lives? And once you’ve figured that out, now you can leverage your hours and charge a higher multiplier.”
“The metrics have changed from headcount and utilization to the direct labor multiplier and profit per employee. Firms are moving from cost-based pricing to value-based pricing.”
The results show up in target multipliers: “The target multiplier, which for years in the 1990s and early 2000s was kind of stuck at a 3.0 median, between 2005 and about 2018 jumped up to about a 3.1 median. And then from 2019 to 2024, we saw it jump up again from 3.1 to 3.2. In the most recent survey, we’re seeing it closer to 3.3. So you can see that as the firms have adopted this new model, they really are increasing their target multiplier.”
3. Better project management turns deficits into surpluses
Burstein has watched the industry’s project management practices change firsthand: “I remember back when Frank Stasiowski and I first started doing the AEC Project Management Bootcamp. It was 1980. We were the only people doing PM training in this industry at all. So the total amount of formal training was like 75 people!”
In those days, tracking was rudimentary: “Job cost accounting systems were either non-existent, or if they were existent, they were very primitive. PM training was almost always on the job. We targeted a 3.0 multiplier. We never got there. We always achieved a multiplier of maybe 2.6 or 2.7 or 2.8. That we call net revenue deficit.”
Today looks very different: “We have way better job cost accounting systems. Everybody complains about their job cost accounting system, but trust me, it’s way better than they used to be. People are investing way more in project management training. PSMJ trains thousands of project managers every year, and there’s other people that do it as well. And they’re implementing a lot better project management practices.”
The results show up in the numbers: “Regardless of which sector you’re in, just about, we’re seeing not just the disappearance of net revenue deficits, we’re now seeing the appearance of net revenue surpluses. Even though people have raised their target multiplier, their achieved multipliers actually exceeded their targets, whereas it used to just fall short. Not only are people charging more, they’re actually taking more of that to the bottom line.”
4. Profit has doubled, but the gap between firms is widening
“The achieved direct labor multiplier has gone from about 2.8 in the 1990s up to over 3.4 today. Huge increase. That means that we’re leveraging our staff a whole lot better. If you go back to 2011, there’s been about a 62% increase in net revenue per total staff. The increase in profit per staff has been a 600% increase in that same period of time, which is amazing.”
“If you look at profitability, back in 1986, it was a little over 10%. Today, it’s over 20%. So we basically doubled our profitability as a percent of net revenue.”
But averages hide a divide: “Back in 2000, the bottom quartile was getting 8% profitability as a percent of net revenue. In 25 years, it went from 8% to 11%. But if you look at the upper quartile, they went all the way up to 29%. And the difference between the lower quartile and the upper quartile has really increased in the last 25 years.”
When Hart asks whether everyone is moving in lockstep, Burstein says no: “There’s a lot of difference in how well people are adapting to the new world that we’re living in today. Those who are adapting well are doing well, those who are not adapting well are doing less well.”
He adds that the market alone doesn’t explain it: “Regardless of the market, firms that are managing themselves well and really positioning themselves well, whether architecture or engineering, continue to thrive. We continue to see architecture firms in our Circle of Excellence, for example. A lot of it has to do with just how well you run your firm.”
5. Bill faster, collect faster, and build a stronger balance sheet
“Back in 2000, it took about 27 days on average to get the invoices out. Fast forward to 2025, and it’s down to 15 days. That’s a pretty big decrease, and it indicates that firms are doing better, not just at getting the bills out more quickly, but at other things that reduce WIP. For example, getting retainers up front. Doing more work lump sum and billing ahead of expenses. Firms are doing better at that.”
Collections have improved, too: “Since 2023, we’ve seen some pretty dramatic reductions in AR days. So firms are not only billing quicker, they’re collecting their accounts quicker.”
He puts that in perspective: “If you were to show these graphs to a banker, they would be horrified. Compared to just about any other industry, our industry is pretty bad at both billing and collecting accounts. Maybe we’re moving more toward what the norm is and really should be.”
Balance sheets are stronger as well: “Starting in around 2012-2013, we saw equity per total staff really increase dramatically, from around $20,000 per employee to about $60,000 per employee. That’s triple since 2012. The Great Recession of ‘08 and ‘09 really created a lot of problems with firms that had very skinny balance sheets. They had to go back to their partners and do a capital call and say, ‘Hey guys, remember those bonuses we gave out? Well, we need that money back.’ That’s not a very pleasant conversation. So I think a lot of firms swore that they didn’t want to have that conversation again.”
6. Technology will end the hourly fee, so move to lump sum
“Looking forward, as technology becomes more and more important, people who charge by the hour are going to be left behind, because technology is reducing the number of hours that it takes to do a project. And if you just charge by the hour, all it’s going to do is reduce your fee. And so we really need to move completely into a lump sum environment.”
There’s some good news: “The good news is that trend has already begun. We’ve gone from about 40% of revenue being lump sum back in the early 1990s to closer to 60% today, but it’s going to have to be 100% if we’re really going to succeed as an industry.”
Hear the full conversation
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