Zweig Group just released the 2016 Principals, Partners and Owners of Architectural, Engineering, Planning and Environmental Consulting Firms Survey. Over the past 30 years, this publication has picked the brains of some of the industry’s top talent and gleaned interesting insights from how they run their businesses to how they view the industry today. As always, some interesting statistics were derived from the responses of the seventy-five principals and partners who contributed to the survey. Ninety-five percent of respondents were owners in their firm and over half of them owned at least 25% of their firm. That is a considerable amount of ownership when you think about the net service revenue (NSR) of the firms represented, whose mean and median NSR were $9,004,000 and $4,100,000, respectively.
These are professionals who have devoted their life to the industry and who have most certainly taken their licks along the way. In the 2014 Principals, Partners and Owners Survey, only 4% of respondents thought there was any possibility that they could be laid off in the coming year. This year, that number was up to 12%. Though this has been a profitable few years for A/E/P firms, the outlook for the next few years is somewhat uncertain. Blame it on the election year or general economic trends, but owners of A/E/P firms are well aware of the implications of underperformance. Though only 12% took a pay cut last year, the median pay cut for a principal was 25% of their base salary. Now that is a significant reduction in income!
We also found that most principals (76%) were generally pleased with their careers and had met or exceeded their career goals. In fact, even more (82%) would recommend the career path to a friend or family member. But becoming an owner in a firm is not an easy thing to do! Most owners must have 10 years of industry experience, be with their firm for five years and have both a bachelor’s degree and professional licensure. And that is just the beginning. Nineteen percent of respondents said they had to purchase a minimum amount of shares to become a principal. The median ‘minimum amount’ of shares to be purchased was 2% (which could be a considerable sum of money!). Twenty-two percent said they received at least some shares through incentive programs and 49% said they had to borrow money to purchase stock or an ownership percentage in their firm. A quarter of respondents borrowed money from their firm at an average rate of 3% over five years.
What does the typical day of an owner look like? Are they spending more time managing the firm, marketing and developing business, or providing technical design support? An interesting discrepancy we found was that principals in firms with a declining growth rate over three-years were only spending 7% of their days on marketing and business development. These same owners felt like they should be spending closer to 40% of their days on marketing and business development. This is a large gap and represents the importance of proper marketing and business development initiatives at the ownership level. In comparison, owners in fast growth firms are spending over 20% of their day on marketing and business development initiatives.
The stress and long hours taken on by firm owners does not go unrewarded, though. The average base salary of a firm owner was near $140,000 with 22% of that base being awarded as an additional bonus, and another 28% being distributed as a shareholder distribution. This brings the total compensation for an A/E/P firm owner up to around $200,000. Not too bad for a year’s work!
Zweig Groups 2016 Financial Performance Survey found that the median utilization rate, or chargeability rate, for A/E/P firms was 60%. This is calculated by taking the firms direct labor costs and dividing them by total labor. Chargeability is a metric that is often used to determine how effective a firm is at using its labor resources. For an owner, frequently the most effective use of their time is spent working on projects that are not directly billable. We found that most owners were less than 20% chargeable. Firm management, marketing and leadership activities were the highest priority, non-chargeable functions that respondents cited as daily activities. Though hourly billing rates decreased this year from 2015, the average billing rate for a principal was still $178 per hour. Environmental consulting firms had the highest median billing rate at $218, while single discipline engineering had the lowest median rate at $143 per hour.
Being an owner in an A/E/P firm certainly has its perks, but it is also a job that comes with lots of additional challenges. To an extent, you are in charge of your employees’ well-being, their families’ well-being, and you are exposed to the volatility of the market. When business is good owners are making great money, but they are also having to really put in the extra effort to make sure their firm is performing. When times are not so good, as an owner, you are still responsible for the firm and its employees. These are only some of the challenges that principals, partners and owners face. But when it comes to job satisfaction most owners cite that it is both financially and emotionally rewarding. If you are thinking about becoming an owner in a firm or starting your own, this is publication is a must read!
Click here to learn more about the 2016 Principals, Partners, & Owners Survey: https://zweiggroup.myshopify.com/collections/frontpage/products/2016-principals-partners-owners-survey?variant=21558748929