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Operating expenses

Operating expenses

By Tyler Thompson

Zweig Group recently issued its 2018 Operating Expenses Survey of AEC Firms. This publication covers operating and overhead expenses of architecture, engineering, and environmental consulting firms that have a large impact on profitability.

The term “operating expenses” has different meanings across different businesses, but at Zweig Group, we break it down with one question: What non-production expenses are necessary for firms in the AEC industry to operate at an optimal rate? Even firms with the best production staff can falter without the right attention to detail in their overhead expenses. So, which expenditures fall into this bucket?

Common departments that aren’t lumped into the production staff are marketing, information technology (IT), and human resources (HR). The three departments combine, on average, for 10 percent of spending as a percentage of net service revenue (NSR). When looking at yearly trends, HR spending has remained about the same over the last few years. However, marketing expenses as a percentage of NSR have been trending up while IT spending has declined. Where does your firm stand when it comes to spending in these three departments?

Employee benefits outside of their base salary are also analyzed among AEC firms. Bonuses as a percentage of NSR have fluctuated between 5 percent and 8 percent during the last five years. The number itself isn’t important, but the fact that it’s changing so much every year tells us that firms may not be proactive in setting their yearly bonus rates. Many more benefit costs such as group insurance, paid time off, and 401(k) plans are presented in this study and represent an opportunity for firms to compare their rates with the industry benchmark.

Liability insurance expenses are important to address when looking at firm projects and potential employee-related conflicts. Despite firms constantly hammering down the importance of onsite safety, things happen, and firms must be prepared. From high-risk to low-risk projects, project liability insurance per employee is important to monitor. Additionally, firms cover themselves from employment controversies with employment-practice liability insurance (EPLI). This study dives into the amount spent as a percent of NSR and as a static amount per full-time employee.

This publication gives firms a detailed look into the typical operating expenses of a firm in the AEC industry. Compiling data from five hard-hitting surveys from the 2018 season, this is sure to provide firms with all the data they need to keep the business running smoothly outside of their production staff.

The 2018 Survey of AEC Firms is available for purchase (print or digital) at https://zweiggroup.com.

Tyler Thompson, is Zweig Group research manager. He can be contacted at research@zweiggroup.com.