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Zweig Group’s 2016 Financial Performance Survey of A/E/P & Environmental Consulting Firms gives firm leaders a clear view into industry trends and financial metrics that can help them effectively manage resources. The best way to manage these resources is to have a strong understanding of the firms’ financial position and accounting activities.

Since 2010, firms’ pre-tax, pre-bonus profit as a percentage of gross revenue has risen each year. This year, firms’ pre-tax, pre-bonus profit rose from 9.1 percent to 9.9 percent of gross revenue. As a percent of net service revenue (NSR), pre-tax, pre-bonus profit rose from 10.7 percent to 12.8 percent.

The efficiency of firms’ labor also continues to improve. NSR per full-time employee (FTE) reached a 10-year high and has continued the convincing upward trend. In 2015, NSR/FTE was $133,605; this year that number reached $137,113. With improvements in technology and staffing software, firms continue to find ways to make more money with the staff they have.

Overhead rates decreased this year with a median of 166 percent. As expected, high-profit firms led the way with reduced overhead rates around 140 percent during the last three years. Another way to look at overhead is a metric called the breakeven multiplier. It indicates how much money the firm has to generate per dollar of direct labor to cover their overhead costs. We found that fast-growth firms have a lower multiplier (2.55), indicating they are more efficient at generating revenue than other growth categories (see Figure 1).

Lower interest rates across the U.S. have provided opportunities for investment, and firms seem to be taking advantage of the low-cost capital. Interest-bearing debt to EBITDA rates have increased since 2013 and continued to rise this year with a median rate of 0.4. This is a notable increase because EBITDA margin on NSR also grew again this year with a median margin of 14.3 percent.

Backlogs remained relatively consistent with a median of 6.5 months. Very high-profit and fast-growth firms have more work in their back pocket than the other profit and growth categories, showing that they are continuing to push their marketing efforts and are winning jobs. Both very high-profit and fast-growth firms had a median backlog of 8.7 months.

An interesting statistic is the cost of group insurance plans. Counter to the national trends of increasing overall health care costs, we found that firms’ median group health care costs as a percentage of total costs are slightly decreasing year over year. Many firms are moving to lower-cost, high-deductible plans and many are utilizing health reimbursement arrangements and health savings accounts to reduce their out-of-pocket exposure to rising costs.

Bonuses as a percentage of total costs rose significantly. From 2012 through 2015, these costs ranged from 3.0 percent to 4.8 percent. The 2016 survey found that firms nearly doubled that with 8.0 percent of total costs going to bonuses. Pre-tax, pre-bonus profits per employee skyrocketed to $19,671.

The 2016 Financial Performance Survey shows how firms performed on nearly 100 indicators. Each measure is described in detail to provide a better understanding of the implications of being excessively high or low on any one measure. Firms can use this to target internal initiatives, investment opportunities, and improvement efforts to match their best-performing peers, or simply to determine if their metrics are moving in the right direction.

Will Swearingen is director of Books and Surveys. He can be contacted at research@zweiggroup.com.

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