We have worked with firms in this business that had average labor multipliers above 4.5. It can be done, and you can do it!
I have always said that the most important aspect of A/E project management and one that is rarely discussed is how to get a better fee in the first place. That makes “management” a much easier task!
More than 35 years ago, when I worked as the director of marketing at Carter & Burgess, we had a principal who sold millions of dollars of work. It was the beginning of a difficult period for the firm as the DFW area economy was just starting to get hammered. This principal was always quite proud of himself and bragged about the volume of work he sold.
The problem was the way he sold was he gave the work away for such low fees anyone could have sold it. I used to tell my boss that I could sell as many dollars for 85 cents as he wanted. Then, of course, the ongoing challenge was how we could do the work and not lose money.
It’s crazy. Why go through all the work and then not be able to make anything because your fees are so low?
Here are some thoughts on how to improve your fees:
- Use your marketing and BD budget and skills to drive demand beyond your ability to meet it. Then you can let go of the clients who won’t pay you decently because you have better-paying clients who want your services. This may seem obvious but most firms don’t understand the linkage between marketing and BD spending and the long-term results you can get from it.
- Restrict who can commit the firm to do any project at a particular fee. This is a huge problem in this business, especially for smaller firms but even in mid-size and larger firms, too. Anyone is allowed to quote fees and commit the firm. Very dangerous. You want those who understand the importance of a proper fee looking at every single fee proposal and contract before they get signed.
- Raise fees every year on January 1. Warn clients that in mid-November your billing rates will go up. Lots of goods and services go up in price some every year so people expect it. And this 45-day warning could result in a bunch of new work from those clients who want to lock in this year’s rates before they go up. And then later, when they do go up, you get paid better! Your costs for labor go up every year so fees should reflect that.
- Reduce scope and make more of what you “normally” do an extra service. I have seen more of this from the largest architecture firms in the last few years than I ever did in the past as they figure out how to compete with other design firms and how to give their clients what their clients really want and need but still get paid decently for what they do.
- Research the market. There are a number of fee surveys available that could be helpful to your understanding of what is normal for a project or client of the type you are serving. Use these resources and others to figure out if you are competitive. Sometimes long-standing clients you have a particularly good relationship with will share the other firms’ fee proposals with you. This is very valuable intelligence. It can provide a great learning experience.
- Ask for a better fee. Again – from the “department of the obvious” – this may be common sense but many principals in this business just won’t do it. “Ask and ye shall receive” (sometimes)!
Believe me – we have worked with firms in this business – some of them which were decent-size companies (not small niche players) – that had average labor multipliers above 4.5. It can be done and you can do it!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at firstname.lastname@example.org.
Zweig Group’s 2020 Fee & Billing Survey Report of AEC Firms is the standard guideline for AEC industry firms looking to benchmark fees, billing rates, and billing practices, and evaluate productivity and utilization.