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Architecture and Engineering Billing Rate Trends

Billing Rates for AE Firms

by Dan Daniels, PSMJ survey editor

Last year’s survey results indicated that most firms were holding their billing rates relatively flat. This year’s results are very similar as a strong economic recovery appears to be further off in the future. In general, firms responding to the 2011 PSMJ A/E Fees & Pricing Benchmark Report, 26th Edition, report the following:

Median: zero overall billing rate change
Average: 0.8 percent decrease in billing rates
Maximum increase: 11 percent for job site inspectors
Maximum decrease: 10 percent for project architects

The billing rate survey results are presented in Table 1.

Table 1: Comparison of 2010 and 2011 Billing Rates

Billing Rates for Architectural and Engineering Firms

Variations

Variations were found to exist in each individual billing rate category. For example, for a project manager there is a $30 per hour difference, which is more than a 25 percent fluctuation. To see specific data on billing rate variation, send your request to Melissa D’Amico (mdamico@psmj.com). The data you will receive has been extracted from the 2011 PSMJ Fees & Pricing Benchmark Tool. This tool provides the range in hourly billing rates for the lower (25th) and the upper (75th) quartile points, and the median values for the overall survey results.

Why benchmark billing rates?

Benchmarking your firm’s billing rates is important because your rates directly impact revenue. If you bill your services at rates lower than other firms in your peer groups without simultaneously winning a higher volume of work or obtaining a larger number of hours, it limits your profitability.

Additional benchmarks

Following are the results for a few other key benchmarks shown in Figure 1:

Win rate on competitive proposals: 40 percent
Percentage of business obtained from repeat clients: 80 percent
Negotiated profit on government projects: 10 percent
Percentage of work with a retainer: only 1 percent
Percentage of fee covered by liability limitations: only 20 percent
Percentage of work done under lump sum contracts: 49 percent

Additionally, only 44 percent of participating firms report using a documented go/no-go process, and the opportunity to respond was declined only 25 percent (median) of the time. Note, however, that these percentages vary significantly within the different peer groups.

Remember: chasing every business opportunity that is discovered does not improve your firm’s win rate—it decreases profitability. If your firm is like the 56 percent of firms in this survey that hasn’t implemented a strong go/no-go process, now’s the time to do so. This will help you to bring a higher percentage of hard earned dollars to the bottom line.

This article originally appeared in the May 2011 PSMJ Newsletter

About the author

admin has written 112 articles for Axium411

Axium Digital Marketing Specialist

4 Responses to "Architecture and Engineering Billing Rate Trends"

  • Mike Hurtubise 11:43 AM 03/6/2011

    40% win rate on competitive proposals seems pretty high given current economic conditions. Is this trending relatively flat as most of the other parameters seem to be? Just curious – Thanks.

    • Dan Daniels 04:04 PM 09/6/2011

      Hit Rates for Proposals Submitted over the past 10 years (PSMJ Fees & Pricing Benchmark Surveys)
      2001 30%
      2002 33%
      2003 43%
      2004 40%
      2005 50%
      2006 45%
      2007 50%
      2008 50%
      2009 48%
      2010 42%
      2011 40%
      As you can see, the hit rates have varied over the past ten years…are now at a low point but not as bad as during the early 2000 periods. Also keep in mind that, unfortunately, many firms choose to define how they calcualte their hit rates–some drop out cancelled projects, etc.

  • Philip C. Steiner 02:12 PM 09/6/2011

    Can you please direct me to information on the go/no go process mentioned in the blog?

    Thank you,

    Phil Steiner

  • Dan Daniels 04:09 PM 09/6/2011

    The following is an extract from the 2011 PSMJ Fees & Pricing Benchmark Survey. It should provide a general idea of the go no-go process. If you are interested in the tables, etc. the survey is availbable for purchase on the psmj website at http://www.psmj.com. Thanks

    Go No-Go Process
    The process of investing the firm’s funds into new business opportunities is an extremely important decision for all firms. Pursuing every new opportunity that comes in the door will rapidly expend the firm’s discretionary business development budget. Every dollar spent to pursue new business that is not awarded to the firm is a dollar off the bottom line and does not produce new revenue. Maintaining control of this critical investment is the purpose of implementing a go no-go decision process. As Table 36 indicates, only about half of firms (44%) have a documented process for submitting proposals, though it appears to become more common as a firm grows in size. Unfortunately, many firms that have this important process in place may never actually use it.
    Go No-Go Criteria Results
    Table 36 presents specific criteria used in go no-go analyses and the percentage of firms that take these factors into consideration before submitting a proposal. The results indicate:
    • About a third of firms check client credit references before submitting a proposal. Larger firms are more likely to check these references than smaller firms.
    • The percentage of firms that verify the availability of project funds prior to submitting the proposal is 64%. A/E and full-service firms and those in the government sector report higher percentages than other types of firms.
    • A quarter of firms (25%) check the client’s litigation history before moving forward with a proposal. Full-service (A/E/P/I) firms and those in the industrial market do so 100% of the time, while most other markets do not typically check this history.
    • The percentage of firms that verify that the project competition is open and not wired to a specific firm is 93%. With a few exceptions, most firms across all peer groups make sure projects are open before proceeding. Similarly, with even fewer exceptions, nearly all firms (98%) estimate to make sure the client’s budget is adequate for the fee budget.
    • Across the board, all firm types make sure that they have the resources to commit the required staff to the project and nearly all determine whether they’ve worked for this client on a prior project.
    • The percentage of firms that track the project before the RFP/RFQ was issued is 89%. Firms in the commercial (developers) market are least likely to determine if the project was previously tracked.
    • All firm types (100%) ensure that they have the required expertise to compete effectively for the project.
    • While nearly all firms (98%) ensure they know which firms will be competing for the project, the largest firms and those in Canada are less likely to identify their competition before moving forward.

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