Financial Health

Architecture Business Benchmarks: Understanding and Improving Net Cost per Full-Time Equivalent

Architecture Business Benchmarks: Understanding and Improving Net Cost per Full-Time Equivalent

Architects and architecture firms understand well that every dollar counts. It's not just about design; it’s also about healthy financial management that allows your firm to make larger impacts. The Net Cost per Full-Time Equivalent (FTE) is an essential measure of how effectively firms manage resources. It provides you with a deeper understanding of your firm's financial efficiency and can help shape your strategies moving forward.

But what exactly does this measure encompass? Why is it so crucial? And how can you work towards improving your firm's Net Cost per FTE? In this article, we delve into these questions and provide insights that can help enhance your firm’s financial health. Plus, I'll share a preview of data from our free 2024 Architecture Business Benchmarks Report.

Here's what we'll cover:

  • Understanding Net Cost per FTE: Explore the what’s, why’s and how’s of this crucial financial measure.
  • Benchmarking Data: Sneak-peak into top, bottom, and average Net Cost/FTE figures from our 2024 Architecture Business Benchmarks Report.
  • Tips for Improvement: Practical strategies for enhancing your firm's Net Cost per FTE.

Understanding Net Cost per Full-Time Equivalent: What it means for architects

Understanding the nuances of business metrics is an integral part of running a successful architecture firm. Net Cost/FTE holds a wealth of information, helping you evaluate the effectiveness of your resource allocation, and ultimately the overall financial health of your practice.

Let's delve into why this is such an important metric, what it represents, and how it can make a real difference in your firm's success. Also, stay tuned for a sneak peek into our latest report that sheds further light on the subject, the 2024 Architecture Business Benchmarks Report.

What is Net Cost per FTE?

Net Cost per FTE measures the average cost incurred by a firm for each full-time equivalent employee. It includes all costs (operational, administrative, etc.), direct and indirect, associated with each FTE. This metric provides a comprehensive view of the financial impact of staffing on the firm's overall expenses.

How is Net Cost per FTE calculated?

Net Revenue per FTE is a simple metric that can be easily calculated by dividing annual net cost by the number of full-time equivalent employees.

Why is Net Cost per FTE important for architects?

Net Cost per FTE helps assess the efficiency and cost-effectiveness of a firm’s staff. It provides a clear picture of how much it costs to employ each staff member, taking into account factors such as salaries, benefits, taxes, and overhead costs.

It’s used to identify areas where they may be overspending and evaluate the return on investment of their human resources. Net Cost per FTE is also valuable for budgeting and financial planning, allowing firms to make informed decisions about hiring, resource allocation, and cost management.

In general, high Net Cost per FTE may indicate inefficiencies in the firm's operations, while a low Net Cost per FTE suggests effective cost management, assuming employees are fully supported.

Comparison of Net Cost per FTE in architecture firms

The following sections will delve deeper into the figures and benchmarks of Net Cost/FTE. We'll be sharing data and insights from the 2024 Architecture Business Benchmarks Report, your go-to source for understanding and interpreting where your architecture firm stands.

Average Net Cost per FTE for architecture firms

The 2024 Architecture Business Benchmarks Report sheds light on the intricate relationship between firm size and financial performance. The data brings to our attention how different-sized firms navigate the complexities of operational costs, revealing patterns and exceptions that challenge conventional wisdom.

Overall, the 2024 Architecture Business Benchmarks Report indicates that the average Net Cost per FTE of architecture firms is $125,625.

But how does that break down across different firm sizes? Our data shows that a smaller firms tend occupy a larger share of firms that have a lower Net Cost per FTE. This could be due to a variety of factors, including but not limited to, the scale of projects they undertake, operational efficiencies, and the level of technology adoption which can differ significantly between smaller and larger firms.

Get your free copy of the 2024 Architecture Business Benchmarks Report

However, firms of all sizes are not immune to both high and low figures. This variance suggests that while size does have an impact, other factors such as management practices, operational efficiency, project selection, and geographic location also play crucial roles in determining a firm's Net Cost per FTE. For instance, a small firm located in a high-cost urban area might have a higher Net Cost per FTE than a larger firm in a more affordable region, due to differences in living costs and salaries.

Top and bottom Net Cost/FTE benchmarks for architecture firms

Diving deeper into data to understand top and bottom performers unveils a distinct spectrum:

  • Firms in the top quartile exemplify efficiency, maintaining a Net Cost per FTE at $76,490, showcasing their ability to manage expenses effectively.
  • At the industry's midpoint, the median Net Cost per FTE stands at $108,873, reflecting the standard operational cost.
  • Conversely, firms in the bottom quartile navigate higher financial pressures, with a Net Cost per FTE of $155,663, indicating areas for potential improvement in cost management.
Get your free copy of the 2024 Architecture Business Benchmarks Report

What makes Net Cost/FTE better for Monograph users?

Monograph is a popular, design-centric project management platform built exclusively for Architecture and Engineering (A&E) firms. Due to Monograph's real-time tracking, easy-to-use reports, and simplified staffing process, architects are able to manage projects and firm health very effectively, avoiding many common business pitfalls of other architecture firms.

For example:

  • HDG, a 13-person firm in Washington, decreased their time spent on admin tasks by up to 50%, allowing the team to focus on more billable work. They also have 25% less need for overtime work.
  • Garrison Architects, a 9-person firm in New York, cut their invoicing process time by 66% and sped up time-to-payment by 2.6x, while cutting costs of their management  and billing systems by 50%.
  • Woodhull, a design-build firm with 25 architectural staff, reduced the time to prepare weekly scheduling reports for firm owners by 95% and sped up invoice generation by 53%.

Altogether, firms that use Monograph are able to make improvements and drive efficiencies that decrease Net Cost/FTE.

How can architecture firms improve Net Cost per FTE?

Net Cost per FTE is crucial for sustaining profitability and enhancing business performance. It directly impacts a firm's bottom line and its ability to compete in a tight market. A lower Net Cost per FTE signifies more efficient utilization of resources, while a higher figure could indicate areas where improvements are necessary.

Understanding how Net Cost/FTE impacts business performance

Firms with a lower Net Cost per FTE can reinvest their savings into innovative services and unique value propositions, distinguishing themselves in a crowded market. This strategic allocation of resources towards enhancing service offerings or sustainability practices, for example, can significantly elevate a firm's appeal to potential clients.  Furthermore, efficient cost management enables firms to invest in growth opportunities, such as expanding into new markets, investing in research and development, or enhancing employee benefits to attract top talent.

Conversely, a high Net Cost per FTE can strain an architecture firm's resources, limiting its ability to compete effectively. It can lead to a vicious cycle where the firm has to either cut corners to save costs, potentially compromising on quality, or increase prices, which may result in lost business. Moreover, high operational costs can inhibit a firm's ability to respond to market changes swiftly, impacting its long-term sustainability.

5 ways architecture firms can improve Net Cost/FTE

Here are several strategies that architecture firms can use to improve their Net Cost per FTE:

  1. Streamline operations and processes to reduce operational costs.
  2. Implement cost-effective strategies in human resource management, like flexible staffing models that align workforce size with project demands.
  3. Invest in technology and tools that enhance employee productivity and reduce time spent on non-billable tasks.
  4. Conduct regular financial audits to identify and eliminate unnecessary expenses.
  5. Provide training and development to employees, enabling them to work efficiently and contribute more value.

Next Steps

Dive into the full 2024 Architecture Business Benchmarks Report! It offers an in-depth analysis of five essential metrics beyond Net Cost per FTE, including Net Revenue per FTE, Utilization Rate, Realization Rate, and Time to Payment. This comprehensive report is designed to provide architects with an insightful overview of their firm's performance, featuring detailed averages, quartiles, informative charts, and actionable strategies.

Get a free copy of the report to leverage precise data for your firm.

"We’ve certainly noticed that there's a lack of real, factual data points in the industry for architects to benchmark against. Industry reports have historically been based on self-reported surveys of architecture firms. But there’s a lot of variability in how firms interpret certain metrics, which can lead to skewed and unreliable results.

Monograph’s Architecture Business Benchmarks Report uses first-party data directly from the source of Monograph’s thousands of users. For that reason, I believe it’s the most accurate report of business metrics to ever be shared in the architecture industry."

- Robert Yuen, CEO and Co-founder, Monograph

And when you're ready to elevate your firm's operational efficiency, consider Monograph as your solution. Join over 1,000 architecture firms that trust Monograph daily to effectively manage their practice and projects.

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