i believe the AIA has a publication that lists recommended hourly billing rates for architects, proj managers, drafters, etc. My numbers are only in the ballpark range, but i think architects/design principals are listed at >$100/hr, proj architects $80, and drafters at $30. Some (most?) offices use this list as a guide to bill their clients, but even though the client is being billed $30/hr for a drafter's work, the drafter/intern architect is really only being paid $12-15/hr. Why is there this discrepancy? Shouldn't employees receive what they are being billed for? I understand it comes down to the office's profitability, but then shouldn't offices simply learn to run a more efficient office rather than exploit their employees?
this question is a perfect example how architecture school fall short in preparing a person for handling and understanding buisness practices.
taboho- do you really not understand how the rent is paid at your office, electrical bills, your health insurance, that new wireless mouse your using, every uniball you take home?
all spellling eerrrors that happen exemplify the lack of schoolling for yours truely....
or perhaps schooling does not adequately prepare architects to run a business. it is the responsibility of office principals to run an efficient and profitable business. if a client is paying $30 for a drafter, the drafter should rightfully receive $30 pay. i do not agree with exploiting employees in order to pay bills. this is a problem of management, not architectural schooling. manage your staff better. manage your production better. manage your finances better. do not penalize your staff for your ineptitudes. many firms do not even offer OT pay, and yet it is common knowledge that all drafters/intern architects work plenty of OT. this is illegal. all the while, the office principals are pocketing the excess profit. people in engineering, finances, law etc. all get paid what they are billed because of proper management. architects should not be any different. the problem with the architecture profession is a prevailing habit of low/no pay that depreciates the workers and the value of the work. perhaps architects need to learn to run a business more efficiently.
taboho...you're wrong.
a business is a business because it employs people...
part of that employment is the ability for the business
to make money on that hired person...
you're not getting exploited in any way shape or form....
an employer pays for your health insurance...building upkeep
or rent...electric, printing etc costs...it carries all the overhead
between when billing goes out and when it's actually collected..
whether or not you'd like to admit it you are a financial asset
to your firm...if the firm doesn't have enough work if you're
worth it to them they'll keep you on and pay your salary...if
not they'll let you go...
bottom line if you want to collect your full hourly wage you
need to become an independant consultant...and then you'll
pay your own health and dental, your own quarterly taxes,
for your own computers (possibly), software (possibly), as
well as for time spent interviewing, marketing and for any
vacation time and sick leave and any downtime in general.
i think there's a lot more money going into keeping you employed
then you realize...
taboho think again. it cost money to employ you. social security, taxes, benefits. Also, there is other staff that are employed that do not get billed out directly such as sectretaries, marketing staff, IT guys, finance people who are essential to the company but do not bring in money in the way draftspersons, interns p.m etc do by billing out time. The office pays rent, utilities (can you imagine your company's phone bill?), software, hardware, paper, pens, scales, coffee it goes on and on and on. And the employer must make a profit or you or I would not have a job because no one would hire us if they didn't make any money doing so.
You are right about the OT pay. My firm pays overtime and I would be pretty uspet if they didn't. If your frim makes you work overtime and doesn't pay you for it, they are making a lot of money off you. That is a good point.
Drafter getting billed out for $30 should make $30 is not a good point, you won't get far saying that!
okay? better? wipe those tears from your eyes and the snot from your nose. there, there. everything will be okay. everything's going to be just fine. the world's not against you.
first of all, the office can pay their employees what their billed rate is. it's called contract work and you're responsible for your health insurance, the paper you write on, the pen you use, the computer you draft on and the water you flush down the toilet. billed rates and the discrepency between your hourly wage go to cover these things like rent or mortgage. it also goes to cover marketing costs for future projects. as mentioned above, do you really not know how this works? and why should they not pocket the profit? they're putting forth the most risk, therefore they should reap the most benefit.
you are also grossly misinformed about billed/ wage rates for engineers, lawyers, finance, etc. it works the same way in those professions also. for instance: a young buck lawyer makes 100k a year. divide that by their billed hours a year of say 2300 hours (which by the way is a crap load of over time- in a typical 40 hour week, there is only 2080 hours of time a year: 52 weeks x 40 hours). they're only making $43.47 per hour. their billed rate is probably three times that.
i've never seen a billed rate in an office of less than $35 per hour, and that was for office support (making copies, couriering drawings, delivering sets, picking up supplies, etc.). first year interns in my experience are billed out between $45 and $50 per hour.
taboho - your billing rates you list above are too low. Our interns are billed at $70-80 an hour. Principals are more like $130 an hour. Our drafters may go for $40 an hour, not sure.
Another huge huge cost for architects not mentioned above - consultants! Actually, that may be our biggest cost of all.
similarly, offices are making a lot of profit that the bottom tier workers never see. for instance, how do you explain the lack of OT pay even though clients are billed for OT work? i understand and agree that employees are ultimately only financial assets to an office, and therefore it is management's responsibility to maintain profitable employees. offices must closely evaluate their staff in comparison to the office workload. some offices (though perceived as heartless) fire and hire employees based on employee productivity. offices should devote more time/resources to manage and train a productive workforce rather than allow unproductive employees to linger and affect the profitability/pay of the entire office.
also, why don't offices bill above the AIA suggested pay scale to cover overhead? if a drafter's recommended rate is $30/hr, why don't offices bill $40 instead to cover office expenses? Surely clients are less happy to be billed more, but that should be offset by greater productivity. Manage your office more efficiently so that production requires less time. compare two situations: a) 200hrs at $30 and b) 150 hrs at $40. both situations net $6000. yet in situation "a", the drafter (if fortuate) is probably getting paid only $20/hr while the remaining $10/hr is attributed to the office. meanwhile, in situation "b", the drafter nets $30 and there is still the same $10 for office expenditures. in both cases, the client pays the same amount but the office is more profitable.
one more management flaw is improper contract negotiation and pay collection. architecture offices are notorious for failure to collect pay and working beyond what their contract/pay dictates. this habit once again depreciates an architect's professional value, and offices penalize their employees' pay in order to remain affloat. again, better management is the key to running a proper, profitable business. do you think your lawyers, doctors, and even architectural consultants will keep working for you if you don't pay them? no!
making matters worse, it is no secret that employees make greater pay doing side jobs than a regular full time job. isn't that clear indication that architecture offices can be more profitable enterprises?
the AIA billed rate scale is merely a suggestion. offices bill what the market will bear. you simply can't make up billed rates that are significantly higher than your competitor. you're also living in a dream world if you think in your scenerio that plan B will be more efficient that plan A.
the office is actually less profitable in your plan B. in your plan A the office makes $10 per hour x 200 hours = $2000. for plan B the office makes $10 per hour x 150 hours = $1500. tell me again how the office is more profitable?
you're right about expanded scope on projects. offices need to pay more attention to contracts to cover themselves for scope creap. some do it well, others not so well.
as for bill collecting, it's not cheap, nor easy to collect from delinquent clients. do you think that they will simply pay up is asked? usually it takes vast resources and time to collect from the delinquent accounts. and collection agencies charge a fee, they don't do it for free (this is overhead that is now taken out of any profit the firm might have had).
it's more profitable because you spend less time to do the same amount of work. in 200 hrs vs 150 hrs, you "save" 50 hrs which can be devoted to other projects and sources of income.
fine. that 50 other "saved" hours equals only $10 per hour for the office which equals $500. $1500 + $500 = $2000 for 200 hours of labor. how again is this more profitable?
you're right in that plan B has 50 hours left to work on another project, but the profitability per hour is the same. 200 hours at $10 per hour will always equal $2000. it just means plan B can crank through more projects than plan A.
1) it is still more profitable because the drafter is making $30 instead of $20/hr and the office still covers its overhead without paying any more money in the process.
2) an office's total expenditures is relatively "fixed" because utilities are a product of the office simply being open 40hrs/wk. if an office is more efficient (ie 150 vs 200 hrs production), the office can handle more projects and generate a greater simultaneous income. instead of billing one project at a time, the office can bill multiple projects.
I don't think i need to explain any more why greater efficiency equates to higher profits. it is common sense.
"Why is there this discrepancy? Shouldn't employees receive what they are being billed for?"
"why don't offices bill above the AIA suggested pay scale to cover overhead? if a drafter's recommended rate is $30/hr, why don't offices bill $40 instead to cover office expenses?"
You answered your own question: All architecture firms (any firm offering professional services for that matter) bill for more than the empolyee makes, because they have to cover Overhead, Real Employee Costs (pay+insurance+benefits, etc.), and Profit (the other posters have already explained this). The net result is typically a billable rate at 2-4 times what the employee is paid.
Asking why you don't get paid what you get billed at, is like asking a retailer why they don't sell their product for the price they pay for it.
accounting for overhead is obvious. my point is to find ways to properly compensate workers. like i said, the AIA lists intern architects at a certain suggested rate ($30 for the purpose of discussion), and I simply want to posit whether it is possible for employees to receive that rate while maintaining office profitability. as my entry above suggests, this can be done through a number of ways (greater efficiency/productivity, management of contract etc.).
to counter your analogy, i'm not asking why a retailer doesn't sell a product at their purchase price. instead, look at how car dealerships bill above MSRP (manufacturer's "suggested" retail price) to be profitable. i think a case can be made to argue that architects can bill above AIA suggested rates and still remain competitive and profitable.
okay. you want to be paid at $30 an hour. the firm will need to bill you at 1.75 to 3.50 times that rate to cover overhead and make a profit. the billed rate to the client then is between $52.50 and $105 an hour. a difference of $10 above hourly compensation will not be enough to cover necessary overhead (insurance, benefits, vacation) let alone rent and utilities. plotters, hardware, software, paper, etc all cost money. marketing costs for future work is a huge expense. and most of those projects gone after are not realized.
and there's always someone down the road who's willing to do it for cheaper AND faster.
but the existing condition is that drafters are being billed $30 and getting paid $12-15. That's only a $15-18 difference, not the $75-22.5 difference you state.
plus i am EXACTLY advocating for faster, more efficient workers. higher productivity is the tool to offset spendings/profits.
In my experience, in order for a small office to **break even** you need to be billing your clients for **at least** twice what you are paying your employees. This varies per location and firm size but is a good rough number to use if you are ever thinking of striking out on your own (much less overhead if you can work from home).
As mentioned this covers rent, office upkeep, hardware & software expenses (ACAD is $4k per seat with a yearly +$700 subscription fee), health insurance, professional liability insurance, insurance on the office, utilities, payroll taxes (this is a BIG number), your vacation time (yes that is an expense), marketing, advertising, your accountant, the lawyer you need to have on retainer, broadband Internet (businesses get screwed on this big time paying 3-4 times what you pay for home cable or DSL hookups) it even cost money to have your phone number on the phone book... ooohhh it hurts my head just thinking about all the nickel and dime charges that add up to big numbers across the year…
taboho, go to Amazon and grab a book on starting and running a business or if you or someone in your family has/is an accountant talk to them about what it involved - you will be surprised at what it takes to make it out there.
… also, did you think you were profitable for the firm the day you started there? Probably not. Your firm owner’s probably lost money on you for the first 3-6 months of your job. This is yet another big overhead expense to carry.
ahhh !
i started off understanding things. but im now confused. everythings just jumbled in my head.
how about this taboho. how about you jot down my name and number. when i become an architect, i'll contact you. and you give me an internship with a reasonable salary. be a do-gooder and set an example! haha =)
Taboho - I think I understand what you are saying, but you are missing the point. It is IMPOSSIBLE to pay the employee the same amount that they are billed out at. As others have already stated, The billable rate is a multiplier of the employees salary, and the billable rate is rarely below 1.5 times the employees salary, and can approach 4.0 times the employees salary.
If you have a project that requires 100 man hours of time and you bill your client $30.00/hour for that time for a total of $3000.00 and you pay your employee $30/hour, where do you get the money to pay for everything else?
Another thing to consider is the true COST of an employee. You may be getting paid $20/hour, but once you add taxes, social secuirity, employment insurance, liability insurance, and any benefits you might recieve, the actual COST to the employer can approach $25-30/hour.
Let's assume your $30/hour:
Employee Sallary ($30/hour) = $62,400
Social Security (6.2%) = $3,869
Medicare (1.45%) = $905
401k (10%) = $6,240
Health Insurance ($300/month) = $3,600
Unemployment insurance (1%) = 624
General Liability insurance ($50/month) = $600
$78,238/2080 = $37.6/Hour
Once the COST of the employee is established, then you have to start factoring in all of your overhead, which is why billable rates can approach 3.0 or 4.0 once you factor in overhead and profit.
If 100% of your time was billed to the client at $40/hour that would leave your employer about $413/month to pay for overhead. I think the other posters have clearly expressed how much that overhead can cost, and I assure you, it's ALOT more than $400 a month!
It doesn't matter how efficient an employee is, the only thing you can do to get the wages closer to the billable rates is to cut overhead.
You should really be asking why architects don't universally bill more for their services. Start thinking $75-$100/hour and you can get $25-$30.
i am a strong advocate of jacking up the intern's billable because compared to the full timers interns have less hours and bust out more work per hour (some interns)
some of the added requests of the client (perks+frills) are exactly what the intern/young architect excels at.. why not charge the client up the butt for it?!
I can't speak for the situation at large offices, but as the owner of a small firm (three partners, no employees), I can attest to the massive overhead and very small profit margin we are making. We bill at lower rates than our competitors because we are young and starting out. We simply cannot ask people to pay $100 an hour for our services - they will NOT hire us, no matter how good they think we are or how many recommendations or how much they like our work. I love the fact that interns just out of school are always saying architects just need to charge more. As it is people don't even think they need an architect most of the time (this is all single family residential, very different from corporate...). Many of our clients are close to us in age and may or may not make anywhere near $100/hr. They won't be willing to pay us more than they make, partly because everyone thinks they can do the design themselves and the drawings don't take that long :-) We can educate them all we want but at the end of the day sometimes it just isn't worth it for the client to pay for an architect.
I have also worked at larger firms which supposedly billed out at much higher rates. But I saw in many cases that the rates were lowered for favored clients, or all the hours worked were not billed. Most firms also bill as a percentage of the construction cost - so the hourly rate becomes a moot point in many cases. And, if for example the project is never built and the money which was supposed to be made on the CA phase doesn't materialize, it may be a loss for the company - same can happen if the project stops after schematic, or DD, and we all know this happens a lot.
I have been doing the bookkeeping, marketing, etc. for our company, and have come to the conclusion that the only way for us to make any reasonable amount of money (I'm talking maybe $60K a year for each of us as reasonable at this point) is to have employees that we pay less than we bill them out at. We are doing that for ourselves currently, but even working from a home office with low overhead, I would say our overhead is probably close to 20% of gross receipts. (we also do construction so things are a bit more complicated, but bear with me). Thus, as a small company with low overhead, we would need to bill out at probably 25% more than we pay in wages at a minimum - and keep in mind that the portion of your taxes paid by the employer, varies from state to state but is high here in CA, can add up to a LOT. Social security, medicare, workers comp, unemployment...
Yes, large companies can make much greater profits per employee than smaller ones, mostly because the fees for large budget projects are so much greater in proportion to the amount of work done. Also, if the company does more or less the same work over and over again, they will make more profit because it requires less work. And the job market attests to these simple principles - the larger and more conservative the company, the better the pay and benefits (in general, exceptions exist of course). The smaller the firm and the more design work done, the lower the profit margin and therefore the pay. Also, it is my opinion that Architects are making less and less money as time goes on because of all the code, engineering etc. requirements that involve a much more complex set of drawings and negotiation with the client than used to be required. I have seen permit sets from the city of Los Angeles from 20 years ago that were 1-2 sheets, with barely any information on them. We probably have to submit at least 10 times as much these days. In fact we are close to considering not working in the city of Los Angeles any more if we can help it because it takes so much more time than working in smaller cities (another issue...)
Firms can do a lot to be more efficient, and principals can accept to make less money, but at the end of the day there are certain things that can't be avoided and it's too simple to just say that the companies are exploiting their lower paid employees.
One thing to keep in mind. Is that the amount the arch firm bills the client may not be a direct accounting of how many hours are put into the project. If fewer hours are spent, than estimated to complete the project. They make money. If more hours are necessary, then the money to pay employes comes out of profit.
Exactly - and we are finding with the amount we are paying ouselves now (LOW hourly rate), we are about breaking even after our overhead. We could be more efficient but honestly I don't think we are that bad. Meaning, part of the way to make money is to do the same project over and over again, using a library of details and not affording the client too many choices. There really is a reason, at least partly a financial one, why we do not see much design innovation in this country. The fee percentages we bill will not allow for a lot of time spent on design and meeting with the clients in addition to all of the co-ordination woirk that is required.
The AIA does not have a publication of "recommended" billing rates. They attempted such a thing in the early 1980s and were accused of price-fixing.
The AIA does publish figures in "The Architect's Handbook of Professional Practice" regarding average billings, profits of firms, etc, and they publish salary surveys and a variety of other surveys. One thing to keep in mind about these figures are that they are self-reported by a sample of AIA members who are invited to participate.
The amount of the average architecture firm's billings that is profit is 9%.
In addition to all that has been said already regarding overhead, remember that the average architecture firm employee does not work 100% billable hours per week. In general most firms strive to have "production" staff billing in the range of 80% to 95% billable hours - but anybody doing large amounts of marketing, computer administration, graphic design, firm standards and management (CAD management, detail libraries, invoicing, bill collecting, filing....) may not approach this level of billability.
Large surveys of architecture firms show that principals in some firms bill close to 100% of their hours, whereas in others they are almost entirely occupied with marketing and general firm management and bill almost no hours.
Any firm that has: one or more Office Managers, IT peoplel, an Accountant (or Comptroller), Human Resources people, Marketing staff, a Graphic Designer, Receptionist, or any other people who for the most part do not work directly on projects must build these people's salaries, taxes, and benefits into the billable rates.
This is what the client gets billed, however there are internal hourly rates used for project setup, I average out the hourly rates of those working on the project which usually works out in the $30-40/hr range depending on senior/junior staff involvement.
Some clients have maximum hourly rates they pay their consultants, typically they are far above the internal hourly rates so there is not real problem with profitability. The ideal situation is when there is a really talented junior person involved, and profit soars. Sometimes (rare) a VP is extremely hands on with a project and their hourly rate the fee goes out the window.
For some reason I get the impression tha most of you think most projects are billed hourly...when it's not the norm. Most of our projects are lump sum, billed in phases.
Spaceman, I don't agree with your statement:
"One thing that I've found is that projects billed on a percentage fee can be way more profitable that projects billed hourly."
All of my hourly projects tend to be the most profitable ones, because the client is being billed full rates for each hour worked. Hourly contracts are just that...hourly with a NTE ammount (not to exceed) Sure your profit is typically fixed, but there is no loss.
Like I said above, Lump sum contracts have more risk (gain/loss) it just comes down to management.
I think all there is to be said regarding billing rates/paid rates has been said. My suggestion to those disgruntled ones...start your own firm...it isn't easy!
All I'm saying is that some projects, especially commercial interior ones, can be more profitable on a percentage fee than when billed hourly. This is because some very costly elements of the projects require comparatively little architectural planning. For example mechanical equipment, electrical and data systems, etc.
I don't fix the percentage fee to a lump sum because the scope of work usually increases after I sign a contract. I omit the dollar values in the contract and put in a percentage of the cost of work for each phase.
I have a responce to this whole discussion steming from my own job as a Drafter / Technologist etc. I am agreeing that sure overhead is a big number that businesses have to deal with. OK.
Now when i get miffed is at work here, where the Older Architects, and Interior designers whom , yes the business needs to set up jobs, and contract admin, doesn't do half the job. I mean I am drafting up their drawings, sure if they want to get paid for their experience then so be it, but at least make sure they are doing some work as opposed to just being the "plan checkers". I just want fair pay as well, not looking to be rich, but when it's me answering countless questions in my own office and having the 2d and 3d knowledge that i posess, i feel that barely making rent with 6 years of industry experience is less than acceptable. Especially when the superiors above me have summer and winter homes, both their kids have 2 homes and had schooling all paid for etc...on and on and on.
Bottom line is this. One should be compensated for the work that they do in the office, and not to support my bosses kids and grandkids so they can be independantly wealthy.
is that a full six years in the business or are you counting internships...
the key sentence in your message was that you are 'drafting up their
drawings' if that's all you're doing then you indeed deserve to be
paid at a low salary...your'e a drafter...if they're redlining your drawings
then they're doing what they're supposed to...principals and senior
staff can't afford to put too much time into each job they're working on
1. because they cost too much and 2. because they're typically working
on more than one or two jobs...and are coordinating the people that
work for them...
it's true that one should be paid for what they're doing, but when all
you bring to the table is drafting then you're a dime a dozen...if you're
specifying, checking your own work, doing CA, coordinating etc, etc,
then you should be paid accordingly...
bottom line is this, if you don't think you're getting paid enough you
should leave for a place that will..and/or you should move to a place
that will give you more experience so that you're a commodity...
years of experience only matters if it's good experience accross the
board...if all you are is a cad-monkey than you need to reevaluate
and move or ask for more responsibility.
also comparing yourself to principals and senior staff is irrelevant...
they've go to where they are by putting in three to four times the
number of years that you have...or by getting more experience
early on...or by standing out...or by bringing the projects in the door...
on another side on this issue. i think what SHoP is doing is interesting
because it cuts out a huge money eater in the shop drawing phase by
going directly from the architect to the manufacturer...similar to
what gehry did...i think more architects need to consider innovative
time cutting measures especially those that improve the process and
help to create a better product.
One more thing. Do you ever notice that the Higher ups aren't paid at 1/4 their billable rate? it's more like 50+% or more up here anyways.
I would think that if the rate of a persons experience goes up then so would the pay in proportion with the amount made off the person's work. aka chargeout for me being a drafter is $58 an hour. i'm paid 16 bucks an hour. My boss? who comes in 3 days a week? chargeout is $125 an hour her pay? $52 an hour. I just wanna be able to afford rent etc lol.
Thanks for responding, I know that there is no direct formula or anything like that, I just know that by standards i am severly underpaid. I am a Architectural Draftsmen and yes a dime a dozen, but it is still wrong that as like a lot of professions now a days the amount one spends on schooling to get out and not be able to afford to live especially when one is doing the amount of work that comes out of each office is just very frustrating. I know it's my office i'm talking about, and things seem to work like it here, where the Cad monkeys run the show and the Designers and Architects just visibly show up at meetings. Not putting their work down, but i dont' think they should put mine down either becasue without the cad monkey there would be no drawings going out.
I also have been tainted and am very skeptical about Architects like Frank Gehry or the other principals.
In our office I know of one example that seems to be quite prominent. Our Owner type principal, with 40 people under him, got credited for doing a Sports Complex that he only attended 2 Meetings and the Thank you from the Clients, and he got completely Credited with the design, Saying it was challenging to him etc. When I know that the higher up Technologists and even architects that actually worked on teh project got no credit, because it was souly his design. Which it wasn't. It's hard to look at the light when the firm you work for is in the dark.
Jan 4, 05 12:58 pm ·
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pay vs. billing discrepancy
another money issue...
i believe the AIA has a publication that lists recommended hourly billing rates for architects, proj managers, drafters, etc. My numbers are only in the ballpark range, but i think architects/design principals are listed at >$100/hr, proj architects $80, and drafters at $30. Some (most?) offices use this list as a guide to bill their clients, but even though the client is being billed $30/hr for a drafter's work, the drafter/intern architect is really only being paid $12-15/hr. Why is there this discrepancy? Shouldn't employees receive what they are being billed for? I understand it comes down to the office's profitability, but then shouldn't offices simply learn to run a more efficient office rather than exploit their employees?
overhead then profit.
this question is a perfect example how architecture school fall short in preparing a person for handling and understanding buisness practices.
taboho- do you really not understand how the rent is paid at your office, electrical bills, your health insurance, that new wireless mouse your using, every uniball you take home?
all spellling eerrrors that happen exemplify the lack of schoolling for yours truely....
or perhaps schooling does not adequately prepare architects to run a business. it is the responsibility of office principals to run an efficient and profitable business. if a client is paying $30 for a drafter, the drafter should rightfully receive $30 pay. i do not agree with exploiting employees in order to pay bills. this is a problem of management, not architectural schooling. manage your staff better. manage your production better. manage your finances better. do not penalize your staff for your ineptitudes. many firms do not even offer OT pay, and yet it is common knowledge that all drafters/intern architects work plenty of OT. this is illegal. all the while, the office principals are pocketing the excess profit. people in engineering, finances, law etc. all get paid what they are billed because of proper management. architects should not be any different. the problem with the architecture profession is a prevailing habit of low/no pay that depreciates the workers and the value of the work. perhaps architects need to learn to run a business more efficiently.
taboho...you're wrong.
a business is a business because it employs people...
part of that employment is the ability for the business
to make money on that hired person...
you're not getting exploited in any way shape or form....
an employer pays for your health insurance...building upkeep
or rent...electric, printing etc costs...it carries all the overhead
between when billing goes out and when it's actually collected..
whether or not you'd like to admit it you are a financial asset
to your firm...if the firm doesn't have enough work if you're
worth it to them they'll keep you on and pay your salary...if
not they'll let you go...
bottom line if you want to collect your full hourly wage you
need to become an independant consultant...and then you'll
pay your own health and dental, your own quarterly taxes,
for your own computers (possibly), software (possibly), as
well as for time spent interviewing, marketing and for any
vacation time and sick leave and any downtime in general.
i think there's a lot more money going into keeping you employed
then you realize...
taboho think again. it cost money to employ you. social security, taxes, benefits. Also, there is other staff that are employed that do not get billed out directly such as sectretaries, marketing staff, IT guys, finance people who are essential to the company but do not bring in money in the way draftspersons, interns p.m etc do by billing out time. The office pays rent, utilities (can you imagine your company's phone bill?), software, hardware, paper, pens, scales, coffee it goes on and on and on. And the employer must make a profit or you or I would not have a job because no one would hire us if they didn't make any money doing so.
You are right about the OT pay. My firm pays overtime and I would be pretty uspet if they didn't. If your frim makes you work overtime and doesn't pay you for it, they are making a lot of money off you. That is a good point.
Drafter getting billed out for $30 should make $30 is not a good point, you won't get far saying that!
lars must have just beat me. sorry for the repeat.
taboho, take a breath and relax. calm down.
okay? better? wipe those tears from your eyes and the snot from your nose. there, there. everything will be okay. everything's going to be just fine. the world's not against you.
first of all, the office can pay their employees what their billed rate is. it's called contract work and you're responsible for your health insurance, the paper you write on, the pen you use, the computer you draft on and the water you flush down the toilet. billed rates and the discrepency between your hourly wage go to cover these things like rent or mortgage. it also goes to cover marketing costs for future projects. as mentioned above, do you really not know how this works? and why should they not pocket the profit? they're putting forth the most risk, therefore they should reap the most benefit.
you are also grossly misinformed about billed/ wage rates for engineers, lawyers, finance, etc. it works the same way in those professions also. for instance: a young buck lawyer makes 100k a year. divide that by their billed hours a year of say 2300 hours (which by the way is a crap load of over time- in a typical 40 hour week, there is only 2080 hours of time a year: 52 weeks x 40 hours). they're only making $43.47 per hour. their billed rate is probably three times that.
i've never seen a billed rate in an office of less than $35 per hour, and that was for office support (making copies, couriering drawings, delivering sets, picking up supplies, etc.). first year interns in my experience are billed out between $45 and $50 per hour.
crap! lars and strawberry beat me to it!
FOILED AGAIN! DRAT!
oh-well.
taboho - your billing rates you list above are too low. Our interns are billed at $70-80 an hour. Principals are more like $130 an hour. Our drafters may go for $40 an hour, not sure.
Another huge huge cost for architects not mentioned above - consultants! Actually, that may be our biggest cost of all.
similarly, offices are making a lot of profit that the bottom tier workers never see. for instance, how do you explain the lack of OT pay even though clients are billed for OT work? i understand and agree that employees are ultimately only financial assets to an office, and therefore it is management's responsibility to maintain profitable employees. offices must closely evaluate their staff in comparison to the office workload. some offices (though perceived as heartless) fire and hire employees based on employee productivity. offices should devote more time/resources to manage and train a productive workforce rather than allow unproductive employees to linger and affect the profitability/pay of the entire office.
also, why don't offices bill above the AIA suggested pay scale to cover overhead? if a drafter's recommended rate is $30/hr, why don't offices bill $40 instead to cover office expenses? Surely clients are less happy to be billed more, but that should be offset by greater productivity. Manage your office more efficiently so that production requires less time. compare two situations: a) 200hrs at $30 and b) 150 hrs at $40. both situations net $6000. yet in situation "a", the drafter (if fortuate) is probably getting paid only $20/hr while the remaining $10/hr is attributed to the office. meanwhile, in situation "b", the drafter nets $30 and there is still the same $10 for office expenditures. in both cases, the client pays the same amount but the office is more profitable.
one more management flaw is improper contract negotiation and pay collection. architecture offices are notorious for failure to collect pay and working beyond what their contract/pay dictates. this habit once again depreciates an architect's professional value, and offices penalize their employees' pay in order to remain affloat. again, better management is the key to running a proper, profitable business. do you think your lawyers, doctors, and even architectural consultants will keep working for you if you don't pay them? no!
making matters worse, it is no secret that employees make greater pay doing side jobs than a regular full time job. isn't that clear indication that architecture offices can be more profitable enterprises?
the AIA billed rate scale is merely a suggestion. offices bill what the market will bear. you simply can't make up billed rates that are significantly higher than your competitor. you're also living in a dream world if you think in your scenerio that plan B will be more efficient that plan A.
the office is actually less profitable in your plan B. in your plan A the office makes $10 per hour x 200 hours = $2000. for plan B the office makes $10 per hour x 150 hours = $1500. tell me again how the office is more profitable?
you're right about expanded scope on projects. offices need to pay more attention to contracts to cover themselves for scope creap. some do it well, others not so well.
as for bill collecting, it's not cheap, nor easy to collect from delinquent clients. do you think that they will simply pay up is asked? usually it takes vast resources and time to collect from the delinquent accounts. and collection agencies charge a fee, they don't do it for free (this is overhead that is now taken out of any profit the firm might have had).
it's more profitable because you spend less time to do the same amount of work. in 200 hrs vs 150 hrs, you "save" 50 hrs which can be devoted to other projects and sources of income.
fine. that 50 other "saved" hours equals only $10 per hour for the office which equals $500. $1500 + $500 = $2000 for 200 hours of labor. how again is this more profitable?
you're right in that plan B has 50 hours left to work on another project, but the profitability per hour is the same. 200 hours at $10 per hour will always equal $2000. it just means plan B can crank through more projects than plan A.
1) it is still more profitable because the drafter is making $30 instead of $20/hr and the office still covers its overhead without paying any more money in the process.
2) an office's total expenditures is relatively "fixed" because utilities are a product of the office simply being open 40hrs/wk. if an office is more efficient (ie 150 vs 200 hrs production), the office can handle more projects and generate a greater simultaneous income. instead of billing one project at a time, the office can bill multiple projects.
I don't think i need to explain any more why greater efficiency equates to higher profits. it is common sense.
taboho-
"Why is there this discrepancy? Shouldn't employees receive what they are being billed for?"
"why don't offices bill above the AIA suggested pay scale to cover overhead? if a drafter's recommended rate is $30/hr, why don't offices bill $40 instead to cover office expenses?"
You answered your own question: All architecture firms (any firm offering professional services for that matter) bill for more than the empolyee makes, because they have to cover Overhead, Real Employee Costs (pay+insurance+benefits, etc.), and Profit (the other posters have already explained this). The net result is typically a billable rate at 2-4 times what the employee is paid.
Asking why you don't get paid what you get billed at, is like asking a retailer why they don't sell their product for the price they pay for it.
jag - i think you misunderstood me.
accounting for overhead is obvious. my point is to find ways to properly compensate workers. like i said, the AIA lists intern architects at a certain suggested rate ($30 for the purpose of discussion), and I simply want to posit whether it is possible for employees to receive that rate while maintaining office profitability. as my entry above suggests, this can be done through a number of ways (greater efficiency/productivity, management of contract etc.).
to counter your analogy, i'm not asking why a retailer doesn't sell a product at their purchase price. instead, look at how car dealerships bill above MSRP (manufacturer's "suggested" retail price) to be profitable. i think a case can be made to argue that architects can bill above AIA suggested rates and still remain competitive and profitable.
okay. you want to be paid at $30 an hour. the firm will need to bill you at 1.75 to 3.50 times that rate to cover overhead and make a profit. the billed rate to the client then is between $52.50 and $105 an hour. a difference of $10 above hourly compensation will not be enough to cover necessary overhead (insurance, benefits, vacation) let alone rent and utilities. plotters, hardware, software, paper, etc all cost money. marketing costs for future work is a huge expense. and most of those projects gone after are not realized.
and there's always someone down the road who's willing to do it for cheaper AND faster.
but the existing condition is that drafters are being billed $30 and getting paid $12-15. That's only a $15-18 difference, not the $75-22.5 difference you state.
plus i am EXACTLY advocating for faster, more efficient workers. higher productivity is the tool to offset spendings/profits.
check this:
My salary is equal to about two months of our office's rent.
Makes me look pretty affordable.
In my experience, in order for a small office to **break even** you need to be billing your clients for **at least** twice what you are paying your employees. This varies per location and firm size but is a good rough number to use if you are ever thinking of striking out on your own (much less overhead if you can work from home).
As mentioned this covers rent, office upkeep, hardware & software expenses (ACAD is $4k per seat with a yearly +$700 subscription fee), health insurance, professional liability insurance, insurance on the office, utilities, payroll taxes (this is a BIG number), your vacation time (yes that is an expense), marketing, advertising, your accountant, the lawyer you need to have on retainer, broadband Internet (businesses get screwed on this big time paying 3-4 times what you pay for home cable or DSL hookups) it even cost money to have your phone number on the phone book... ooohhh it hurts my head just thinking about all the nickel and dime charges that add up to big numbers across the year…
taboho, go to Amazon and grab a book on starting and running a business or if you or someone in your family has/is an accountant talk to them about what it involved - you will be surprised at what it takes to make it out there.
… also, did you think you were profitable for the firm the day you started there? Probably not. Your firm owner’s probably lost money on you for the first 3-6 months of your job. This is yet another big overhead expense to carry.
ahhh !
i started off understanding things. but im now confused. everythings just jumbled in my head.
how about this taboho. how about you jot down my name and number. when i become an architect, i'll contact you. and you give me an internship with a reasonable salary. be a do-gooder and set an example! haha =)
Taboho - I think I understand what you are saying, but you are missing the point. It is IMPOSSIBLE to pay the employee the same amount that they are billed out at. As others have already stated, The billable rate is a multiplier of the employees salary, and the billable rate is rarely below 1.5 times the employees salary, and can approach 4.0 times the employees salary.
If you have a project that requires 100 man hours of time and you bill your client $30.00/hour for that time for a total of $3000.00 and you pay your employee $30/hour, where do you get the money to pay for everything else?
Another thing to consider is the true COST of an employee. You may be getting paid $20/hour, but once you add taxes, social secuirity, employment insurance, liability insurance, and any benefits you might recieve, the actual COST to the employer can approach $25-30/hour.
Let's assume your $30/hour:
Employee Sallary ($30/hour) = $62,400
Social Security (6.2%) = $3,869
Medicare (1.45%) = $905
401k (10%) = $6,240
Health Insurance ($300/month) = $3,600
Unemployment insurance (1%) = 624
General Liability insurance ($50/month) = $600
$78,238/2080 = $37.6/Hour
Once the COST of the employee is established, then you have to start factoring in all of your overhead, which is why billable rates can approach 3.0 or 4.0 once you factor in overhead and profit.
If 100% of your time was billed to the client at $40/hour that would leave your employer about $413/month to pay for overhead. I think the other posters have clearly expressed how much that overhead can cost, and I assure you, it's ALOT more than $400 a month!
It doesn't matter how efficient an employee is, the only thing you can do to get the wages closer to the billable rates is to cut overhead.
You should really be asking why architects don't universally bill more for their services. Start thinking $75-$100/hour and you can get $25-$30.
i am a strong advocate of jacking up the intern's billable because compared to the full timers interns have less hours and bust out more work per hour (some interns)
some of the added requests of the client (perks+frills) are exactly what the intern/young architect excels at.. why not charge the client up the butt for it?!
just realized i am billed out at over 4 times what i make. feeling used. time to go set things straight.
strawbeary's first response was completely overlooked
i'm billed out at three times my salary.
I can't speak for the situation at large offices, but as the owner of a small firm (three partners, no employees), I can attest to the massive overhead and very small profit margin we are making. We bill at lower rates than our competitors because we are young and starting out. We simply cannot ask people to pay $100 an hour for our services - they will NOT hire us, no matter how good they think we are or how many recommendations or how much they like our work. I love the fact that interns just out of school are always saying architects just need to charge more. As it is people don't even think they need an architect most of the time (this is all single family residential, very different from corporate...). Many of our clients are close to us in age and may or may not make anywhere near $100/hr. They won't be willing to pay us more than they make, partly because everyone thinks they can do the design themselves and the drawings don't take that long :-) We can educate them all we want but at the end of the day sometimes it just isn't worth it for the client to pay for an architect.
I have also worked at larger firms which supposedly billed out at much higher rates. But I saw in many cases that the rates were lowered for favored clients, or all the hours worked were not billed. Most firms also bill as a percentage of the construction cost - so the hourly rate becomes a moot point in many cases. And, if for example the project is never built and the money which was supposed to be made on the CA phase doesn't materialize, it may be a loss for the company - same can happen if the project stops after schematic, or DD, and we all know this happens a lot.
I have been doing the bookkeeping, marketing, etc. for our company, and have come to the conclusion that the only way for us to make any reasonable amount of money (I'm talking maybe $60K a year for each of us as reasonable at this point) is to have employees that we pay less than we bill them out at. We are doing that for ourselves currently, but even working from a home office with low overhead, I would say our overhead is probably close to 20% of gross receipts. (we also do construction so things are a bit more complicated, but bear with me). Thus, as a small company with low overhead, we would need to bill out at probably 25% more than we pay in wages at a minimum - and keep in mind that the portion of your taxes paid by the employer, varies from state to state but is high here in CA, can add up to a LOT. Social security, medicare, workers comp, unemployment...
Yes, large companies can make much greater profits per employee than smaller ones, mostly because the fees for large budget projects are so much greater in proportion to the amount of work done. Also, if the company does more or less the same work over and over again, they will make more profit because it requires less work. And the job market attests to these simple principles - the larger and more conservative the company, the better the pay and benefits (in general, exceptions exist of course). The smaller the firm and the more design work done, the lower the profit margin and therefore the pay. Also, it is my opinion that Architects are making less and less money as time goes on because of all the code, engineering etc. requirements that involve a much more complex set of drawings and negotiation with the client than used to be required. I have seen permit sets from the city of Los Angeles from 20 years ago that were 1-2 sheets, with barely any information on them. We probably have to submit at least 10 times as much these days. In fact we are close to considering not working in the city of Los Angeles any more if we can help it because it takes so much more time than working in smaller cities (another issue...)
Firms can do a lot to be more efficient, and principals can accept to make less money, but at the end of the day there are certain things that can't be avoided and it's too simple to just say that the companies are exploiting their lower paid employees.
One thing to keep in mind. Is that the amount the arch firm bills the client may not be a direct accounting of how many hours are put into the project. If fewer hours are spent, than estimated to complete the project. They make money. If more hours are necessary, then the money to pay employes comes out of profit.
Exactly - and we are finding with the amount we are paying ouselves now (LOW hourly rate), we are about breaking even after our overhead. We could be more efficient but honestly I don't think we are that bad. Meaning, part of the way to make money is to do the same project over and over again, using a library of details and not affording the client too many choices. There really is a reason, at least partly a financial one, why we do not see much design innovation in this country. The fee percentages we bill will not allow for a lot of time spent on design and meeting with the clients in addition to all of the co-ordination woirk that is required.
The AIA does not have a publication of "recommended" billing rates. They attempted such a thing in the early 1980s and were accused of price-fixing.
The AIA does publish figures in "The Architect's Handbook of Professional Practice" regarding average billings, profits of firms, etc, and they publish salary surveys and a variety of other surveys. One thing to keep in mind about these figures are that they are self-reported by a sample of AIA members who are invited to participate.
The amount of the average architecture firm's billings that is profit is 9%.
In addition to all that has been said already regarding overhead, remember that the average architecture firm employee does not work 100% billable hours per week. In general most firms strive to have "production" staff billing in the range of 80% to 95% billable hours - but anybody doing large amounts of marketing, computer administration, graphic design, firm standards and management (CAD management, detail libraries, invoicing, bill collecting, filing....) may not approach this level of billability.
Large surveys of architecture firms show that principals in some firms bill close to 100% of their hours, whereas in others they are almost entirely occupied with marketing and general firm management and bill almost no hours.
Any firm that has: one or more Office Managers, IT peoplel, an Accountant (or Comptroller), Human Resources people, Marketing staff, a Graphic Designer, Receptionist, or any other people who for the most part do not work directly on projects must build these people's salaries, taxes, and benefits into the billable rates.
billability - is that one of those architect made up words?
and people pick at me for saying sculpturing... =(
Is it not a word? I learned that one in Project Management class when we made a "billability matrix."
I wouldn't know :)
Just thought it was a neat sounding word.
One thing that I've found is that projects billed on a percentage fee can be way more profitable that projects billed hourly.
Here are some typical billing rates (big corp. firm)
VP-225
PM-125
Senior Desinger/Engineer/Arch/planner-110
Project " " " " -90
Senior Staff " " " -75
Staff " " " -60
tech assist -45
This is what the client gets billed, however there are internal hourly rates used for project setup, I average out the hourly rates of those working on the project which usually works out in the $30-40/hr range depending on senior/junior staff involvement.
Some clients have maximum hourly rates they pay their consultants, typically they are far above the internal hourly rates so there is not real problem with profitability. The ideal situation is when there is a really talented junior person involved, and profit soars. Sometimes (rare) a VP is extremely hands on with a project and their hourly rate the fee goes out the window.
For some reason I get the impression tha most of you think most projects are billed hourly...when it's not the norm. Most of our projects are lump sum, billed in phases.
Spaceman, I don't agree with your statement:
"One thing that I've found is that projects billed on a percentage fee can be way more profitable that projects billed hourly."
All of my hourly projects tend to be the most profitable ones, because the client is being billed full rates for each hour worked. Hourly contracts are just that...hourly with a NTE ammount (not to exceed) Sure your profit is typically fixed, but there is no loss.
Like I said above, Lump sum contracts have more risk (gain/loss) it just comes down to management.
I think all there is to be said regarding billing rates/paid rates has been said. My suggestion to those disgruntled ones...start your own firm...it isn't easy!
All I'm saying is that some projects, especially commercial interior ones, can be more profitable on a percentage fee than when billed hourly. This is because some very costly elements of the projects require comparatively little architectural planning. For example mechanical equipment, electrical and data systems, etc.
I don't fix the percentage fee to a lump sum because the scope of work usually increases after I sign a contract. I omit the dollar values in the contract and put in a percentage of the cost of work for each phase.
I have a responce to this whole discussion steming from my own job as a Drafter / Technologist etc. I am agreeing that sure overhead is a big number that businesses have to deal with. OK.
Now when i get miffed is at work here, where the Older Architects, and Interior designers whom , yes the business needs to set up jobs, and contract admin, doesn't do half the job. I mean I am drafting up their drawings, sure if they want to get paid for their experience then so be it, but at least make sure they are doing some work as opposed to just being the "plan checkers". I just want fair pay as well, not looking to be rich, but when it's me answering countless questions in my own office and having the 2d and 3d knowledge that i posess, i feel that barely making rent with 6 years of industry experience is less than acceptable. Especially when the superiors above me have summer and winter homes, both their kids have 2 homes and had schooling all paid for etc...on and on and on.
Bottom line is this. One should be compensated for the work that they do in the office, and not to support my bosses kids and grandkids so they can be independantly wealthy.
Thanks
Jesse
architechie,
is that a full six years in the business or are you counting internships...
the key sentence in your message was that you are 'drafting up their
drawings' if that's all you're doing then you indeed deserve to be
paid at a low salary...your'e a drafter...if they're redlining your drawings
then they're doing what they're supposed to...principals and senior
staff can't afford to put too much time into each job they're working on
1. because they cost too much and 2. because they're typically working
on more than one or two jobs...and are coordinating the people that
work for them...
it's true that one should be paid for what they're doing, but when all
you bring to the table is drafting then you're a dime a dozen...if you're
specifying, checking your own work, doing CA, coordinating etc, etc,
then you should be paid accordingly...
bottom line is this, if you don't think you're getting paid enough you
should leave for a place that will..and/or you should move to a place
that will give you more experience so that you're a commodity...
years of experience only matters if it's good experience accross the
board...if all you are is a cad-monkey than you need to reevaluate
and move or ask for more responsibility.
also comparing yourself to principals and senior staff is irrelevant...
they've go to where they are by putting in three to four times the
number of years that you have...or by getting more experience
early on...or by standing out...or by bringing the projects in the door...
on another side on this issue. i think what SHoP is doing is interesting
because it cuts out a huge money eater in the shop drawing phase by
going directly from the architect to the manufacturer...similar to
what gehry did...i think more architects need to consider innovative
time cutting measures especially those that improve the process and
help to create a better product.
One more thing. Do you ever notice that the Higher ups aren't paid at 1/4 their billable rate? it's more like 50+% or more up here anyways.
I would think that if the rate of a persons experience goes up then so would the pay in proportion with the amount made off the person's work. aka chargeout for me being a drafter is $58 an hour. i'm paid 16 bucks an hour. My boss? who comes in 3 days a week? chargeout is $125 an hour her pay? $52 an hour. I just wanna be able to afford rent etc lol.
larslarson
Thanks for responding, I know that there is no direct formula or anything like that, I just know that by standards i am severly underpaid. I am a Architectural Draftsmen and yes a dime a dozen, but it is still wrong that as like a lot of professions now a days the amount one spends on schooling to get out and not be able to afford to live especially when one is doing the amount of work that comes out of each office is just very frustrating. I know it's my office i'm talking about, and things seem to work like it here, where the Cad monkeys run the show and the Designers and Architects just visibly show up at meetings. Not putting their work down, but i dont' think they should put mine down either becasue without the cad monkey there would be no drawings going out.
the 6 years is in an architectural professional office. sorry i didn't inclue in last post.
I agree on the shop drawings.
I also have been tainted and am very skeptical about Architects like Frank Gehry or the other principals.
In our office I know of one example that seems to be quite prominent. Our Owner type principal, with 40 people under him, got credited for doing a Sports Complex that he only attended 2 Meetings and the Thank you from the Clients, and he got completely Credited with the design, Saying it was challenging to him etc. When I know that the higher up Technologists and even architects that actually worked on teh project got no credit, because it was souly his design. Which it wasn't. It's hard to look at the light when the firm you work for is in the dark.
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