Half of firms cut staff; Profit margins stabilize

Half of architecture, engineering, and environmental consulting firms cut staff in 2008, while profit margins on net service revenue remained virtually unchanged from 2007 to 2008, according to ZweigWhite’s newly released 2009 Financial Performance Survey.

"Historically, firms in our industry have been notoriously reluctant to let go of staff as work volume slows because it’s so hard to find and develop such staff when business is good. Instead, they would gamble that the downturn would be short-lived, and carry the excess staff and associated overhead too long," says Ian Rusk, ZweigWhite president and financial consultant.

But it seems firms have learned from the lessons of the recent past, and have reacted quickly to preserve margins and protect their balance sheets as work volume has slowed. Of the 51 percent of firms that conducted layoffs in 2008, the median staff reduction was 7.7 percent. As a result, staff utilization levels (the ratio of billable labor cost to total labor cost) decreased just slightly from 59.8 percent to 59.5 percent, and the median pre-tax, pre-bonus profit margin rose from 11.1 percent to 11.3 percent.

"There’s obviously a lot more to the story behind these numbers, but the short version is that the red ink many of us had been expecting to see across the industry seems to have been largely avoided. Now with some signs that the recovery has begun, those firms will be in a better position to take advantage of future growth opportunities."

The 2009 Financial Performance Survey of Architecture, Engineering, Planning & Environmental Consulting Firms contains over 30 different major financial performance statistics. The nationwide study also includes growth projections for the next three, five, and ten years as well as data on operating expenses, personnel costs, and finance and accounting staff. The report is available from the publisher at zweiggroup.com/store.