This headline is not a mistake. *DesignIntelligence* is currently conducting research on the growth rates at several hundred firms in the United States and Canada.
This headline is not a mistake. DesignIntelligence is currently conducting research on the growth rates at several hundred firms in the United States and Canada. We are also collecting stories on fee negotiation trends, and this is categorized by building type and client type. While it is too early to forecast the growth rate expected for gross revenues, net service revenues, and net profits from 2005 to 2006, we do observe that the period from 2004 to 2005 (allowing for calendar year as well as fiscal year definitions) was a strong period for both gross fees and net profitability increases in a significant number of the nation’s leading firms. This finding goes against conventional wisdom that postulates that fees are under more extreme pressure than ever before.
With so many architects, engineers, and designers complaining about downward fee pressure, how can it be that many leading firms are experiencing record benchmark results? With money consuming so much energy, why do so many designers entrust their intuitive instincts to presume that there is less money than is necessary to achieve both quality and profitability? Is the emotional demand for money greater than reality?
It is believed by many that architects, engineers, and designers hate to deal with money. And there is a percentage of human mass in the design professions who are tardy or asleep at the wheel when facing economic issues. Nevertheless, there are increasing factual statistics of monetary competency in professional practices today, and there is overt evidence that progress is being made.
We’ll report our research on the economics of professional practice in future issues of DesignIntelligence. In the meantime, I recommend that you keep the perspective that if you are not now making a profit on a pre-tax, pre-bonus basis of 12 percent or more in your firm, you should not generalize that this is an across-the-board phenomenon. Increasingly, firms are realizing that profit is a healthy result of holistic success in professional practice and that it produces investment capital that nurtures the future. Just as it is true that a firm will have no satisfying future without profit, it is also affirmed that profit rewards professionals for exceptional work and rewards firm owners for taking risks.
The design professions need to be both business and profession. There are entrepreneurial aspects to both. Business and profession. These terms are not binary opposites. In the last century when the various associations set their standard fees for professionals, there were parameters around what was possible in the business plan of the professional practice. It may have been a good short-term tactic, but it violated anti-trust laws and held back entrepreneurial and creative growth and evolution. Today, professional firms are liberated to charge fees based on value delivered–not time–and the supply/demand issue is again favoring professional practices and will continue to do so as long as innovation permeates the attitudes and actions of professionals.
Don’t let old industry benchmarks and mindsets create a gravitational pull on your practice. Instead, raise the bar on professional performance that produces economic value in the ascendant zone of the marketplace.
-James P. Cramer