Project Management: Billing and Fees

  • 13 March, 2020

It is often said that billing and fees for architectural services are nothing short of an art form. It is a balance between the work to be performed, fair compensation, and the satisfaction of the client. Whatever the outcome, the fees set by the architecture firm should be measured against recordkeeping but also must acknowledge that an architecture firm is also a business and needs to be viable as such.

That viability includes maintaining a profit with every job. No matter the fee structure-hourly, percentage of construction cost, and so on-there should be an added profit calculated into the fee. If you look at a fee schedule, there is a billable rate that is much higher than what actually appears on a paycheck. For example, a project manager may earn an annual salary of $83,200, which equates to an hourly wage of $40/hour. However, the fee schedule for the firm may charge the client $120/hour for their services. Why? Should they feel cheated that they are not getting full compensation for work?

Businesses should charge more for the hourly services of their employees-in fact, an architecture firm on average charges about three times as much. Doing so ensures that the business can pay its bills and then some. Concepts like the break-even rate and overhead rate, as well as an additional percentage for profit, all play into setting the fees for a firm.

Before these fees can be calculated, the expenses of the firm must be determined. These are the indirect expenses-expenses that cannot be billed directly to a job/client-and include utilities, software, rent, insurance, etc. These numbers determine many things for a firm. Are there too many expenses? Are the indirect expenses benefitting the firm? These are matters of everyday business. On top of that, overhead rate is a factor to give the break-even rate. However, that does not account for profit. A typical business-and an architecture firm should be no different-aims for a 20% profit. This is also added to the hourly rate to ensure that the firm is making a profit off of every hour of wage.

Project Management: Billing and Fees

Profit is not a bad thing, and I have known many architects who sell themselves short thinking that they are being greedy trying to make a 20% profit or any profit! But it's business. Profit is needed to keep a firm alive, and that is actually for the benefit of the client. If a firm cannot stay viable, that may actually affect the client because if a firm folds and closes due to mismanaged finances, it could have very bad effects for the client, the job, and everyone involved (which I have also seen). It is with this mindset that projects should have a healthy financial base to maintain the growth of the firm and to ensure the success of a project.

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