A&E financial metrics that fuel business success and profitability

Posted by Megan Miller on July 8, 2019

business in the boardroom

With a focus on managing cash flow, growth, annual budgets and a never-ending list of other financial initiatives, how can you be sure your A&E firm is tracking the key performance indicators (KPIs) needed to fuel company profitability while staying one step ahead of the competition?

As the A&E industry continues to grow and build positive momentum, it’s critical to monitor metrics and set your firm up for success. Track. Measure. Compare. Repeat. The Deltek Clarity Architecture & Engineering Industry Study delivers an in-depth analysis of industry KPIs and benchmarks to see how your firm measures up against the competition. Download this one-page scorecard to see how your firm is keeping pace with key financial indicators, such as utilization rate, net labor multiplier, and operating profit on net revenue.

We recently took a deep dive into the financial metrics impacting architecture & engineering firms across the U.S. and Canada in a complimentary webcast, Deltek Clarity A&E Industry Deep Dive: Financial Management.

Across the industry, three challenges stand out:

  1. Finding and Retaining Qualified Staff – The industry continues to face challenges attracting and retaining talented employees and it’s starting to have a larger impact on every area of the business, including financial management. More than 50% of firms cited this as one of their top three challenges, putting it in the top spot this year. As the market continues to remain stable and firms see a rise in attrition, employees are in high demand impacting both profitability and growth.
  2. Increasing Profitability – At the heart of successful growth is profitability. As Human Resource challenges increase and margins decrease, firms are finding it harder and harder to increase profitability in a competitive environment. This challenge takes the second place spot, down 19 percent from last year as additional factors creep in.
  3. Managing Growth – As firms continue to diversify clients and projects and merger and acquisition activity remains prevalent, financial leaders have identified managing growth as one of the top three challenges again this year.

Top Financial Challenges graph


Deltek Clarity A&E Industry Deep Dive: Financial Management

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Finding and Retaining Talented Employees

Every professional services firm knows that employees are a key asset of their business. With more competition for top employees and firms struggling to offer competitive compensation, more than half of A&E firms (51%) reported that finding and retaining talent is one of their top three financial challenges.

Firms saw slight increases this year in operating profit on net revenue and net labor multiplier, showing financial stability, but with net revenue per employee being the highest it’s been in 10 years at $144,000 per employee, firms may need to dig in to some potential underlying issues.

This could possibly indicate overburdened staff or other challenges that need to be addressed. As firms struggle to fill the open positions, they could be setting themselves up for staff burn out or even more employee turnover. Is your firm keeping balance?

This year’s Clarity Report shows that spending on talent acquisition is down, even though it is the biggest challenge for A&E firms. Are your top challenges synching up with your financial initiatives? Tackle staffing challenges by learning about best practices and industry standards for acquiring, developing and retaining employees in this webinar, Deltek Clarity A&E Industry Deep Dive: Human Capital Management.

Increasing Profitability

At the end of the day, it all comes down to the numbers. And, what company doesn’t want to be more profitable? A&E firms are constantly monitoring overhead and utilization rates. Here are the most recent trends we uncovered in this year’s Clarity Report.

Overhead rates are up five percent to 160%. There were increases for every type of firm, but the highest increase is within small firms, up 14%. High performing and large firms saw five percentage point increases. This increase could indicate an investment in employees (benefits, salary and professional development) or could reflect outside factors, like the recent tax law changes or changes in health care costs. It is important to understand what factors are impacting your overhead numbers. Are your firm’s rates going up or down and do you know why?

Utilization rates are strong with the average at 59.8%. This is right around the 60% average we expect in the industry, but with staffing shortages, it does raise concern about how much burden current employees are carrying to deliver projects. Overhead rate going up with utilization rates also increasing indicates that firms are investing more in their employees. How is your firm tracking against others in the industry? Find out by downloading this year’s Clarity Report.

Managing Growth

Thirty-eight percent of A&E firms say that managing growth is one of their top three challenges. Firms are struggling with competing priorities, staff shortages, and untrained staff managers. Some employees are stretched too thin – trying to fill multiple roles. More than 50% of project managers don’t have visibility into the details they need to deliver the projects.

There is a general awareness in the industry of merger and acquisition (M&A) activity, succession planning, and related strategies. As more baby boomer start to retire, many A&E firms are struggling with how to prepare for the transition to the next group of firm leaders.

More than half of the firms reported that they completed a firm valuation this year, up 2.2%. This was a relatively uniform increase for each type of firm, with the exception of more medium and fewer large firms completing firm valuations this year. Forty-seven percent of Clarity respondents plan to complete a firm valuation in the next 12 months, with this increase driven by small and medium firms.

Firms with Completed Firm Valuation Chart

Becoming a High-Performing Firm

As your firm grows are you setting the pace as a high-performing firm? Not sure how to tell if your firm is a high performer? The Deltek Clarity Report identifies high performing firms as those that have at least a 15% operating profit on net revenue and a 3.0 or greater net labor multiplier. Check out this one-page guide showing key A&E metrics for average performers vs. high performers. With this knowledge, you can see at a glance where you rank, which areas your firm is excelling and whether your goals are in line to propel your company forward.

Deltek Clarity provides the trending topics and data points that help A&E firms build a solid foundation that supports business growth and overall profitability. We hope this information helps you position your firm on a successful trajectory.

Ready to learn more? Take an in-depth look at key challenges, bright spots and future trends in the Clarity Webinar Series.


About the Author

Megan Miller is a product marketing manager with Deltek and works with architecture & engineering firms around the world to help them improve their business processes through technology and thought leadership with resources like Deltek Clarity and Deltek’s leading project-based software solutions. Connect with Megan on LinkedIn.