2025 offers opportunities for AEC firms to thrive through responsiveness, strategic metrics, strong banking ties, and workplace honesty.
2025 is already underway, and as a grizzled old veteran of the AEC business, I have a few thoughts that I wanted to share with our readers:
- There are many reasons to be optimistic. There is a tremendous pent-up demand for everything AEC firms do. The facts are that demand exceeds supply, and the skilled labor shortage isn’t going to change. That bodes well for our ability to have profitable businesses.
- As terrible as these events are in terms of life and economic losses, natural disasters like the California fires, floods, hurricanes, earthquakes, and more increase the demand for what AEC firms do. High demand means higher prices and more consistent backlogs.
- Interest rates probably won’t change much. I would expect another 0.5 percent to 0.75 percent drop in 2025, but that’s it. I don’t think we will ever see 3 percent rates again, either. But if you look at the last 50 years – 6 percent mortgages are pretty good and probably should be the norm.
- Companies have got to stop pushing utilization as their primary goal. Every one of your managers and employees instead needs to understand revenue factor as the primary performance metric. “Revenue factor” is net service revenue divided by total raw labor. It is also utilization times effective labor multiplier. Same number. And it’s the most important number to track. Pushing utilization by itself will result in budget overruns so people look like they are productive. More firm owners have got to understand that you could have a 50 percent utilization with a 4.0 labor multiplier and be more profitable than a firm with 65 percent utilization and a 3.0 multiplier.
- Accounting needs to speed up. There just isn’t any good reason for it to take weeks and weeks or sometimes even longer to close out a month and know whether or not you made money. The books need to be closed and the P&L distributed within days of month closed. Why lose time that you could be using to take action because of your internal processes being so cumbersome? Makes no sense to me.
- We have to be honest with our people who want to work from home. Yes it is nice, and less time is wasted commuting, but the reality is “out of sight, out of mind” is real. Those telecommuters are not going to have the same kinds of career opportunities that those who are there in the office will have. Stop kidding yourselves and your people about this fact. Be honest.
- Responsiveness is everything. It’s one thing you can do to distinguish yourself and your firm. Return calls and respond to emails quicker than anyone else. Does it mean you stay hooked up? Yep, it does. Can that compromise other aspects of your life? Yep, it can. Do you want to be successful? If so, pay heed to what I am saying.
- Pay attention to your banking relationships. Do you know your primary lender personally? If not, you should. Are you following all the covenants in your line of credit agreements? Better know them or you risk having your line called. Are you keeping your bankers in the loop about your financial performance, good and bad? If not, you should. Bankers hate surprises.
I am excited about 2025 and thrilled to be a small part of this fantastic industry. One that does more for our society perhaps than any other. Here’s to a great year ahead!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.
