Architekwiki
  • Home
  • WIKI
  • Start Here
  • Resources
  • Other
    • Reading List
    • Ochre >
      • Ochre
      • Ochre KB
      • Ochre FAQs
      • Ochre Help
    • Details
    • The 3 Aspects
    • About
    • Subscription FAQs
    • Terms of Use
  • Subscribe
  • Home
  • WIKI
  • Start Here
  • Resources
  • Other
    • Reading List
    • Ochre >
      • Ochre
      • Ochre KB
      • Ochre FAQs
      • Ochre Help
    • Details
    • The 3 Aspects
    • About
    • Subscription FAQs
    • Terms of Use
  • Subscribe

Architekwiki

A Resource For Architects
Click here to get good stuff in your inbox

Architectural Economics

7/27/2020

 
Architectural Economics
It is simple math and there is no way around it.

The economics of an architect's office are fairly simple. Like every other business you need more money coming in than going out. Here's how you can tell if that is going to happen.

Add up the money you are paying per month to actually produce the work that you are getting paid for. This will be primarily salaries, but more particularly the portion of the salary paying for productive work as opposed to office tasks. This is your project expense.

Now add up all the money you are spending per month to run the office, everything, including project-related expenses. The amount you calculated above is included. This is your total expense. 

Divide the total expense by the project expense. You want the resulting number to be about 3. The lower the number the more easily you can be profitable. The higher the number the harder it will be to be profitable. 

What this is telling you is how much you have to charge for each hour you work on a project to cover all your expenses. The higher the number you got, the more you have to charge. At some point no one will pay what you need to charge. 

This is simple math and there is no way around it. 

Let's say you are a sole propriator who wants to make $100,000 a year after expenses. Let's also say you will be 70% billable; the other 30% will be devoted to marketing, and other business activities. If the number you calculated is 4, then you have to bill out at $285/hr. If you calculated a 2, then you have to bill out at $143 an hour. 

If market rates in your area are $175/hr, there is a real problem with having calculated a 4. On the other hand if you calculated a 2, you can charge less than your colleagues, and maybe get more work. Or you can charge the market rate and put some money away for a rainy day, replacing equipment, or bonuses. 

How do you reduce the number you calculated? Here are the things you can do:
  • Reduce your overall expenses by eliminating all the things and expenses that aren't necessary. 
  • Eliminate non-billable stuff you spend your time on.

Keep in mind that this discussion about profitability depends upon keeping the pipeline full of work and being effective in the execution of your work. Rework and poor procedures will undermine the economics of any organization.

The Article Architects Financial Model takes this description of finances  farther.
​
You might benefit from the Financial Model Workbook
Architectural Economics

Comments are closed.
    Resources

    Start Here

    YouTube Channel

    Join The Mailing List

    Picture

    Terms of Use
    Your use of Architekwiki is implicit agreement with the 
    ​
    Terms of Use.
    Thank You for your donation

    x
    Get Good Stuff in Your Inbox
    Picture
    Subscribe

    RSS Feed


    Archives

    January 2023
    November 2022
    October 2022
    July 2022
    June 2022
    April 2022
    October 2021
    September 2021
    August 2021
    June 2021
    May 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012

    Categories

    All
    Business Development
    Business Management
    Design
    Detail
    Miscellaneous
    Project Management
    Resources

Picture

Picture
VISIT ARCHITEKWIKI'S RESOURCES
​
START HERE
ABOUT
SIGN UP
TERMS OF USE
Architekwiki | Architect's Resource | Greater Cincinnati 
© 2012-2022   Architekwiki​