In a compact new book, former Smith Carter Principal and C.O.O. Rick Linley describes a simple method for understanding the financials of any architecture firm?and what those financials mean for managing a practice. Here?s an excerpt from the book, explaining how to benchmark a firm?s performance using seven key figures.
It?s critical to understand how the Scoreboard numbers relate both internally to each other and externally to the broader industry. All the numbers used in the Strong Practice Scoreboard relate internally back to net fee. For external benchmarking to the industry, this book uses the 2021 Deltek Clarity A&E Industry Survey data set. The Deltek data is segmented in three basic ways. All firms, upper quartile firms only, and all firms excluding upper quartile firms. For a more detailed look by firm size and geography, you?ll need to delve more deeply into the Deltek data and also look at other surveys. 1. Full Time Equivalent
The number of FTEs is a measure of firm size, but isn?t a good indicator of firm strength. FTEs include all personnel?principals, leadership, project people, marketing, financial, and administrative folks?all employees of the firm. There is no benchmark for FTEs because there is no optimal number. The size of your firm as measured by FTEs should be a function of your goals, aspirations, and how effectively you?re deploying your people.
2. Net Fees
Net fees are also a measure of firm size, but practitioners are usually tight-lipped abo...