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
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 (firstname.lastname@example.org). 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.
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