During the last 30 years, Zweig Group’s Principals, Partners and Owners of Architectural, Engineering, Planning and Environmental Consulting Firms Survey has picked the brains of some of the industry’s top talent and gleaned interesting insights from how they run their businesses to how they view the industry today. As always, some interesting statistics were derived from the responses of the 75 principals and partners who contributed to the recently released 2016 survey. Ninety-five percent of respondents were owners in their firm and more than half of them owned at least 25 percent of their firm. That is a considerable amount of ownership considering the mean and median net service revenue of the firms represented were $9 million and $4.1 million, respectively.
In the 2014 Principals, Partners and Owners Survey, only 4 percent of respondents thought there was any possibility that they could be laid off in the coming year. This year, that number was up to 12 percent. Though this has been a profitable few years for A/E/P firms, the outlook for the next few years is somewhat uncertain. Blame it on the election year or general economic trends, but owners of A/E/P firms are well aware of the implications of underperformance. Though only 12 percent took a pay cut last year, the median pay cut for a principal was 25 percent of their base salary.
Most principals (76 percent) were generally pleased with their careers and had met or exceeded their career goals. In fact, even more (82 percent) would recommend the career path to a friend or family member. Nineteen percent of respondents said they had to purchase a minimum number of shares in their firm to become a principal. The median “minimum amount” of shares purchased was 2 percent. Twenty-two percent said they received at least some shares through incentive programs and 49 percent said they had to borrow money to purchase stock or an ownership percentage in their firm. A quarter of respondents borrowed money from their firm at an average rate of 3 percent over five years.
What does the typical day of an owner look like? Principals in firms with a declining growth rate over three-years were only spending 7 percent of their days on marketing and business development (see Figure 1). These same owners felt like they should be spending closer to 40 percent of their days on marketing and business development. In comparison, owners in fast-growth firms are spending more than 20 percent of their day on marketing and business development initiatives.
The stress and long hours taken on by firm owners does not go unrewarded, though. The average base salary of a firm owner was near $140,000, with 22 percent of that base being awarded as an additional bonus, and another 28 percent as a shareholder distribution. This brings the total compensation for an A/E/P firm owner up to around $200,000.
Chargeability — direct labor costs divided by total labor — is a metric that is often used to determine how effective a firm is at using its labor resources. For an owner, often the most effective use of their time is not working on projects where their time is directly billable; most owners surveyed were less than 20 percent chargeable. Firm management, marketing, and leadership activities were the highest-priority, non-chargeable functions that respondents cited as daily activities. Though hourly billing rates decreased this year from 2015, the average billing rate for a principal was still $178 per hour. Environmental consulting firms had the highest median hourly billing rate at $218, while single-discipline engineering firms had the lowest median rate at $143 per hour.
Being an owner in an A/E/P firm certainly has its perks, but it is also a job that comes with lots of challenges. Nevertheless, when it comes to job satisfaction, most owners cite that it is both financially and emotionally rewarding.
The 2016 Principals, Partners and Owners of Architectural, Engineering, Planning and Environmental Consulting Firms Survey is available for purchase (print or digital version) at zweiggroup.com/store.
Will Swearingen is director of Books and Surveys. He can be contacted at email@example.com.
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