Engineering and Architecture firms often overlook data. Learn how benchmarking can transform your data into actionable insights for success.
As engineering and architecture firms grow and mature they should be looking at their data for insights into areas they can improve. The focus should be using data in order to increase operational efficiency to drive better financial business performance. Benchmarking is one of the key ways to do this. Rather than looking at your data in a vacuum, compare your metrics against industry averages to see where you are succeeding, and where you have opportunities for improvement.
This is why BQE has analyzed data from around 1,400 firms representing over 20,000 active users to create industry benchmarks that your firm can use to compare your performance against best practice from other A&E firms.
Now that firms have access to data management tools like firm management software, leaders have access to a wealth of information and can look at their data in a variety of ways - reports, graphics, charts and graphs, etc.. Owners and even project managers can track employee time, project details, financial information, and more. It's possible to see how every dollar is earned and spent, how teams are spending their time, and we can better estimate the hours and costs for our projects and the corresponding earnings. This data is immensely valuable and benchmarking can help us maximize the use of it.
Most firms use their data for internal analysis and review. We previously discussed the importance of KPIs (key performance indicators), which are the first step in understanding our data. Without KPIs, you will be drowning in abstract numbers without having meaning behind them. Once we have software tools in place that clarify the data in ways that can guide you to make smarter decisions.
When benchmarking your firm's performance, you should be looking at how your firm performs compared to other firms across a range of key metrics. The goal is to see how you stack up against your competitors, and then use the results to identify strengths and weaknesses in your firm. From there you want to work with the leadership team to devise a strategy to improve in the areas of weakness.
Although we are publishing benchmarking reports for the A&E industry based on the data sets from our software, it's important that you don't limit yourself into just comparing your business against other architecture firms or engineering firms. We encourage you to look beyond the A&E industry and find lessons learned from others like tech companies or other professional service industries like marketing firms or law firms. Often these other industries will lead to new ideas to improve your business and give you a competitive advantage against your competitors.
Whatever type of projects you work on or services your firm offers, you want to deliver great work, you want to be profitable, you want your clients to be happy, and you want your peers to admire your achievement.
As you read more about the benchmarking report we publish, the metrics we recommend you track, and you dive into the data and charts in the report remember to look beyond just the categories that fit your firm. For example, we break down each metric into groups of firms based on firm size. Definitely look at the metrics that correspond with your peer groups. But also look at the other categories so you can learn from other groups. This can also give you some targets as you plan for growth.
Benchmarking is critical for engineering and architecture firm owners - actually for all business owners - because it provides a clear, data-driven view of how your firm performs compared to industry standards. While reviewing internal reports and data is important, without an external reference point, it’s difficult to know if your metrics truly reflect success or if there are areas for improvement.
By comparing your firm’s Key Performance Indicators (KPIs) against industry averages, you gain valuable insight into how your firm stacks up against peers. Benchmarking highlights strengths, identifies weaknesses, and offers a path to growth. It allows you to set realistic, informed goals, helping you stay on track for long-term success.
Below are the KPIs we recommend you track over time to identify trends and to compare your numbers against others in the industry. These correspond with the annual Benchmarking Report we publish at BQE, so all of our customers and firms across the industry have best practices to use as targets.
Below are the twelve benchmarking metrics we are tracking across our users. We are pulling actual data to identify industry averages and high performing targets. Below gives an overview of the metrics, how they are calculated, and what they mean. You can download the annual benchmarking report to see the metrics themselves so you can compare your firm's performance against your peers.
Equation: Net Revenue / Number of Full Time Employee
What Does This Tell You: How much money does your business generate per employee.
Net Revenue per Full-Time Employee is used to assess the efficiency of a firm. It is calculated by dividing the firm's net revenue by the number of full-time equivalent (FTE) employees, including all people working for the business (firm owners or principals and non-billable staff like office managers, marketing staff, or financial people).
This metric provides insight into how effectively the firm is generating revenue relative to its size. This allows you to compare your firm’s performance with firms of different sizes. A higher value indicates that the firm is generating more revenue per employee, which generally reflects higher productivity, better utilization of staff resources, and higher profitability. It is often used as a benchmark to compare performance over time or against industry standards.
The simple answer is grow revenue - ideally through increasing your prices. The goal is not to get more projects that necessitate hiring more people to do the work, but rather increase the amount you earn for the same amount of work. For example, if you have 20 full-time people at your firm, and did $3,000,000 in revenue least year, that is $150,000 per FTE. To do better this year, you want to increase your revenue without having to increase the team. With the same 20 people you want to aim for doing $3,500,000 worth of services, increasing this metric to a healthy $175,000 - putting you at well above average across the industry.
A good target to shoot for is just around $200,000 per employee, which would put you in the top quartile of all firms, and should translate to a very profitable business.
This is the design problem you should work on solving. How can you design systems and process in your workflow to get more done with your existing team? How can you position yourself in the market to increase your prices? How can you improve your marketing and business development efforts to bring in the work needed to hit this goal?
Equation: Net Expenses / Number of Full Time Employee
What does this tell you: How much money does your business spend per employee.
Net Expense per Full-Time Employee measures the average amount of expenses incurred by a business for each full-time equivalent (FTE) employee. It is calculated by dividing the firm's total net expenses by the number of full-time equivalent employees.
This metric helps assess how much the firm is spending per employee, which can be useful for budgeting, cost control, and financial planning. A lower amount suggests more efficient use of resources, while a higher value may indicate rising costs or inefficiencies that need to be addressed. It is often used alongside Net Revenue per FTE, to evaluate the overall financial health and operational efficiency of a business.
This metric can vary quite significantly by location. Expensive places like New York, San Francisco, or Los Angeles will have a higher expense per FTE as things like rent and labor is much higher in those locations. For this reason it is important to look at benchmarking numbers but also to understand your regional costs, and look at your firm's performance over time to see if anything gets out of line.
It's also important to look at this metric along with Revenue/FTE and Profit/FTE to get a full picture of your firm's performance in these areas. Even if you have a high Expense/FTE you may be doing fine if you also have higher that average revenue.
Equation: Net Profit / Number of Full Time Employee
What does this tell you: How much profit does your business make per employee.
Net Profit per Full-Time Employee measures the average amount of profit generated by a business for each full-time equivalent (FTE) employee. It is calculated by dividing the firm's total net profit by the number of full-time equivalent employees.
This metric helps assess the firm’s profitability per employee, which can be useful for projecting future profit and growth plans. This is also important as growth in revenue and team size is only a good decision if you are increasing your profit per person.
A low profit metric suggests you need to be more efficient with your team’s time, while a higher value indicates a strong team and may suggest growing the team is a wise business decision.
Obviously this is closely related to the previous metrics Revenue/FTE and Expenses/FTE. It is probably wise to have a report that combines all three of these into one chart and visualizes the trends over time - probably quarterly and annually is the right cadence, although some firms look at this monthly.
Equation: Net Expenses / Direct Labor Costs
What does it tell you: How much do you have to multiply someone’s hourly cost rate by to cover all business expenses.
The Break-Even Multiplier determines the multiple of direct labor costs that must be billed to clients to cover all business expenses and thus break even financially. It helps firms understand the minimum amount they need to charge per hour of labor to cover their costs, including both direct salaries and indirect business expenses, without making a profit or incurring a loss. This value can then be used to set your hourly billing rates and calculate profitability of projects.
Once this number is known, you can take the hourly rate of anyone’s salary, multiply it by the break even number and you can see how much money that person needs to generate per hour simply to cover the operating expenses of the business. For example, if a project architect at your firm gets paid $50/hour and your firm’s break-even rate is 2.5, you will need to bill that role out at $125/hour simply to break even, thus generating no profit.
To develop the appropriate billing rate, take their break even billable amount and add your profit goal on top of the break-even hourly rate to set your billing rate for that role. In the example above, if you wanted to generate a 20% profit for that employee their hourly billing rate should be $156.25. I'd recommend rounding that up to $160/hour to cover inefficiencies.
What does this tell you: How much above someone’s base cost do you have to charge to cover operational expenses
Equation: Overhead expenses / Direct Labor Cost
Or Break Even Rate - 1
Where the Break-Even Multiplier calculates the multiple needed to cover all business expenses including overhead expenses and labor costs, the Overhead Multiplier only shows the multiple needed to cover the overhead expenses. Too often this term is confused with the break even rate, so when in doubt please check what background data is being used to make the calculation. The main difference is that for the overhead multiplier you are removing the direct labor cost from your expenses. I think looking at your total expenses, including labor is more important because at the end of the day you need your revenue to cover all costs.
Since these two metrics are closely related it is most important to know the break even rate of your business at all times. You can always simply subtract 1 to get the overhead multiplier.
Equation: Net Revenue – Net Expenses / Net Revenue x 100
What does this tell you: What was your profit as a percentage of revenue.
At the end of the day, this may be the most important metric as the goal of running a business is to turn a profit. Plus, if any of the other metrics are below the best practice but your profit percentage is healthy, your firm is probably doing just fine.
It is important to note that profit margin is measured after all business expenses including paying owners or partners a market rate salary. If you pay yourself as owner draws and are paying yourself below market rate salary and there isn’t money left over, your firm is not profitable.
As firm leaders, it is important to consider longer term goals when looking at metrics like revenue growth or profit margin. Although some owners want to grow their businesses into large firms, others make a conscious decision to stay smaller. However, both should look to optimize profit margin. If you are growing your revenue, but profits aren't growing then you are taking on much higher risk. It is important to maintain a healthy profit throughout the lifecycle of your firm.
This is also a vital metric if you are ever going to want to sell the business. Profit margin and EBIDTA are some of the biggest factors to valuing firms for mergers and acquisitions. Although many firm owners make decisions to lower their annual profits for tax purposes, there are some very good reasons to show that your business is profitable, and that both your revenue and profits are growing over time.
Equation: Total Billable Hours / Total Logged hours
What does this tell you: What percentage of hours are spent on billable work.
Utilization Rate measures the percentage of an employee’s or full team’s available hours that are spent on billable tasks, as opposed to non-billable activities like administration, training, marketing, or internal meetings. It illuminates how effectively employees are being utilized in generating revenue with a higher utilization rate indicating that employees are spending more time on revenue-generating activities.
A higher utilization rate means there are more billable hours that could be charged to your clients and can reflect higher revenue potential. For example, there are about 2080 available hours in a year for a full time employee. If and individual has a 75% utilization rate that means they spent 1,560 hours on billable projects. If their UR increases to 80%, they spent 1,664 hours on billable projects. Meaning you have an extra 104 hours that you could invoice your clients for assuming hourly contracts. At $150/hour that means a potential revenue increase of $15,600 for the business.
However, there are some important limitations of this metric.
While a high utilization rate may indicate efficient resource use, a higher number is not always better. Excessively high rates either for an individual or a team, indicates that important non-billable work isn’t getting done, and it also may lead to employee burnout. It's essential to balance utilization with overall employee well-being and satisfaction. It is also important to budget non-billable time for all employees to do things like professional development, training, team building, and management.
Again, it is important to add some context as you analyze your numbers. A good target is to hit between 60-65% as the average across all people who work at the firm including the non-billable staff like administrative or marketing staff. If your firm is well above 65% it could be a red flag that important non-billable tasks aren’t getting done.
On the other hand, some firms may have lower utilization rates then recommended but see high profitability. Spending non billable time on marketing, business development, and training could lead to lower utilization but much higher revenue and profits – a goal all firms should aspire to.
Utilization rates for individuals should change depending on role. For billable employees UR tend to go down as experience level goes up. Drafters, junior architects, and even project architects should probably be in the 75-85% range. As people get more experienced and step into management and leadership roles their utilization tends to fall as they have more administrative or business development responsibilities.
One more important factor to consider when figuring out utilization targets.For a full time employee, remember that right off the bat a significant percentage of those hours are automatically non-billable due to holidays, vacation days, sick days. When you factor in the paid holidays your firm offers along with individual PTO, most employees probably already have about 8% of their total hours committed to non-billable time. This means on a weekly basis someone would have to be about 90% billable just to hit an overall UR of 82%.
It's also important to look at utilization rates for individuals over time. On a small scale basis they can fluctuate wildly. If someone takes a vacation or is out sick, their UR on a monthly or even quarterly basis could look very low. Although it is worth tracking this metric, it is better to look for trends over time rather than look at small sample sizes and make rash decisions.
Equation: Net Revenue / Value of billable work
What does this tell you: For all the billable work you did, what percentage of that work was paid for?
Realization Rate measures the percentage of the billable value a firm creates that is then invoiced and collected by the firm. It reflects how much of the work performed at standard billing rates is turned into revenue, providing insight into pricing effectiveness, client management, and financial performance. For example, if a firm uses a billing rate of $150/hour and works 10,000 hours they should be able to invoice for $1,500,000. If this firm only collects $1,350,000 their Realization Rate would be 90%.
You can think of this as an efficiency calculations. The above firm was 90% efficient with their time, and wasted 10% of their hours that weren't paid for.
A common range for architecture or engineering firms would be somewhere in the 80-90% range. Higher performing, more profitable firms would be above 90%. In some cases, you can achieve a Realization rate of over 100%, and many firms do. This happens when you have fixed price agreements and are very efficient in executing the work, meaning the fees collected are higher than the time spent times your billing rates.
Our vision for the A&E industry is to have all firms achieve 100% or higher realization rates. You deserve to be paid for all the time and effort you put into projects. To achieve this, we think firms should move to fixed price contracts, and use tools like BQE CORE and other technology to improve operational effectiveness to manage projects and get the work done in less time. Software like CORE can also make tracking billable time easier and make sure that it gets added to invoices. Too often human error can cause billable time to not be invoiced for. Firm management software can help avoid this omission.
Note: There is a relationship between Realization Rate and Utilization Rate. If your Utilization Rate goes up – your team does more billable hours – and your revenue stays the same, your Realization Rate will drop. Yet if you get the word done faster - have less billable hours and thus a lower utilization rate - but still bill the same amount, your realization rate will rise.
Equation: Total Contract Value / # of Contracts
What does this tell you: How much do you earn per project on average
Average Contract Value is used to determine the average revenue your business generates from a single contract. This is often looked at alongside metrics like Customer Acquisition Cost to determine a business' financial health and growth potential. It is also used in order to develop marketing and business development strategies and targets.
Firms can use this value to help predict future revenues by multiplying the value by your typical number of annual contracts signed. Combined with calculating win-rates of your proposals, you can also estimate the number of leads or opportunities you need to get from your marketing efforts.
An examples of how to use this: If you want to know how many new projects you need to sign in order to hit a revenue target you can divide the revenue goal by the average contract value. Say you want to do $1m in new revenue in the next 12 months. If your average contract value is $100,000 you need to sign 10 new projects. This may be easier said than done, but at least you know the target.
Not that you know you need 10 new projects, if you know your win rate on proposals sent is 40% then you can calculate that you need to send 25 proposals to achieve your goal. This is super helpful for your marketing team to develop an effective strategy.
This metric doesn’t have a specific best practice as it varies greatly depending on project type. If you specialize in smaller scale projects - think renovations, ADUs, or retail interiors - you may do lots of projects and a relatively low average contract value. While if you large commercial developments you may do a lot fewer projects at a very high average value.
With this in mind, it may be useful to calculate the average contract value for the various types of projects you take on. Meaning, if your firm does public schools, medical retail clinics, and hospitality projects, you may want to calculate the average contract value for each of those buckets, and build targets for each, rather than lumping them all together.
Some advisors suggest a good target for small or medium sized firms is for a firm to undertake between 10 and 20 total projects per year. Thus, you can take your annual revenue, or a future revenue goal, and divide it by 10 to 20 to get the ideal contract value you should be targeting in your proposals. The goal should be to see an increase in Average Contract Value over time, as a firm grows.
Equation: Accounts Receivable Balance divided by Annual Net Sales times 365
What does this tell you: How long does it take on average from sending an invoice to collecting the payment.
This metric is an important number to know in order to manage your firm’s cash flow. Especially when using accrual based reporting - which we highly recommend - you want to have a sense on when you will see the cash from your invoices hit your accounts so you can cover your firm's operating expenses.
For each invoice you send you should be able to track the day it was sent and the day it was paid and know on average how many days between those averaged across all invoices. If you aren't using software that can generate these sorts of reports to show your average collection period, I recommend you adopt a firm management platform that gives you the needed reports and analytics. The goal here is to be able to estimate when you will receive payment so you can project future cashflow and plan for revenue and expenses.
The best way to improve this metric is to make it as easy as possible to pay your invoices. If you aren't sending invoices electronically, and don't accept epayments then you are far behind the times. It should be your top priority to move to e-invoices and e-payments immediately. We've seen the average collection period decrease by over 30% between firms that offer epayments and those that don't.
After adopting epayments, the next step is to move to a predictable invoicing cadence. Pick the frequency and day(s) of the month that work for your workflow and send invoices at the same time each month. Typically we recommend moving to a monthly invoicing schedule, where you send all invoices on the same day each month to all clients. This predictability actually helps your clients manage their finances and often leads to people paying faster.
You should also talk with your key clients during their onboard process to better understand their financial process. Ask how they process invoices and what days of the month they issue payments. Ask when they need to receive an invoice by in order to pay it that month. Simply trying to coordinate when your invoices are sent with how they issue payments can often save weeks or even a month between sending an invoice and receiving payment.
You may not want to customize your invoicing process for each client, in order to match their payment process, but it might be worth considering for larger jobs, more important clients, or if you find you are having issues with cashflow.
Equation: Net Revenue in current year – Net Revenue in previous year / Net Revenue in previous year *100
What does this tell you: By what percentage did revenue grow (or shrink) from the previous year to this year.
Year-over-Year (YoY) Revenue Growth measures the percentage change in a company’s revenue from one year to the next. It indicates your company’s growth trajectory and performance over time. A positive YoY Revenue Growth indicates that the company’s revenue is increasing, which is generally a sign of healthy business growth. Conversely, a negative YoY Revenue Growth suggests a decline in revenue, which is a red flag indicating potential challenges or market changes.
Like some of the earlier metrics, this one is all about increasing your overall net revenue. As you are planning for a new year, you should be setting growth targets which would then trickle down into defining your marketing and business development targets. Aiming for a 10-20% growth is probably the right goal to shoot for.
There are a few ways to think about this though. You could aim to win more projects. Say you do about 10 projects a year with about $100,000 in revenue per project. You could hit your YoY growth goals by signing two new projects. The other approach is to increase your prices or increase the size of projects you work on. Maybe keep the target at 10 new projects signed, but at a higher average contract value of $120,000 per project. Same growth % but less project management.
Both are valid approaches and would probably vary by firm, by market, by project type, etc. Often what we end up seeing is a combination of the two. As firms grow, as they bring on new team members, and as they expand their area of expertise, we often see prices increase, the size of projects increase, and the capacity to take on more projects increase as well.
Creating a benchmarking report involves gathering and analyzing data to help firms understand their performance in key areas compared to industry standards. In this report, we've aggregated anonymized data from over 1,400 Architecture and Engineering firms across the US, representing over 21,000 active users of BQE CORE software. By filtering this anonymous data, we're able to provide a clear snapshot of industry averages and best practices for the KPIs firms should regularly monitor.
We've also split the data sets for Architecture and Engineering firms, publishing two reports to allow for more relevant comparisons.
To provide meaningful insights, we focused on 12 metrics that we believe all firms should be tracking and then calculated average values for each. These averages serve as a baseline target for firms. To offer a clearer picture of performance variation, we broke the data into quartiles, showing where the highest and lowest-performing firms fall within the industry. This approach gives firms a range of aspirational numbers to aim for as they work to improve their own metrics. .
Our methodology also involved eliminating outliers on the top and bottom ranges of each metric, which could skew the data beyond industry norms. The resulting metrics give a clear benchmark for what constitutes high performance and allow firms to gauge their own progress in comparison to their peers.
With your benchmarking data defined, it is time to focus on upgrading your systems and process to improve your business operations. To open up your time to focus on higher value tasks, it is important to have documents standard operating procedures for all aspects of your firm. This ebook outlines some of the areas to focus un including:
Design: Treat Your Business Like A Design Problem
Document: Create repeatable systems and Processes
Hire: The Right People In The Right Seats
Manage: Transparency, Data and People
Communicate: Customer Experience Is Key
Train: Foster Continued Learning
Automate: Embrace Technology
As the Director of Content & Community at BQE, Lucas Gray researches and writes about best practices for Architecture and Engineering firms. He also fosters community across the AEC industries. The content and community interaction focuses on providing business advice derived from his wealth of experience in architectural design, firm operations, and business consulting. Lucas's background includes co-founding Propel Studio Architecture in Portland, Oregon in 2013. He led the firm’s operations, focusing on business development, marketing, team management, financial management, and design direction. Specializing in addressing housing issues, Lucas has designed over 50 Accessory Dwelling Units (ADUs), various infill housing developments, and custom homes. He has worked internationally in Shanghai, Bangkok, and Berlin, on a wide range of large-scale design projects as well as community engagement processes. After working in the Architecture profession for about 20 years, Lucas transitioned into business consulting for A&E firms as part of CVG. Here he worked with small growing A&E businesses, helping guide them to improved operations and profitability. Passionate about the built environment, urban planning, transit, and public art, Lucas also writes about these topics on his blog and creates abstract art in his spare time.
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