Architecture firms offer design, pre-planning, and oversee the construction project from start to finish. They generate revenue from fee-based contracts related to residential and commercial construction projects.
According to an estimate from IBISWorld, the architecture industry revenue has jumped up by 4.1 per cent between 2015 and 2020 to $50.6 billion. In 2020 alone, the growth has been as much as 1.9 percent. The growth in revenue translates into expanded profit margins, that in 2020, makeup 10.2 percent of total revenue. Revenue growth in these five years has been attributed to growth in the construction market.
When starting out in the architect industry, it is important to know how much you can charge based on an understanding of the factors that can determine your architectural fees. These factors can include the years of experience of an architect firm, geographic location, scope of services, project complexity, social and economic contexts, and reputation.
Factors that influence an architect firm’s revenue
Based on the complexity of projects and scope:
Basic architect fees for a custom house design can range from 12 percent of a project where the construction cost is up to $100,000. When the construction cost is up to $500,000, the profit margin tends to go down to between 9.8 to 11 percent. Basic services include schematic design, design development, programming, and construction documents. Many reputed architects charge a higher percentage of construction costs, especially when services also include interior design or furnishings design.
Based on new commission structures:
Many big and small architectural firms have been capitalizing on the construction and development boom trend of the past few years. These firms are focused on new ways of boosting profit margins. Some firms are looking at equity stakes in projects they handle while others are designing unconventional commission structures. There are also architect firms that are experimenting with new revenue streams that include the design of custom furniture.
Architect firms using the new payment structures charge a higher fee of between 5 and 20 percent compared to the earlier flat payment structure. While top architecture firms earned a collective revenue of $2.8 billion in 2015, it grew to $3.6 billion by 2017 which reflects a 29 percent boost in revenue.
These firms offer a holistic set of services that include drawings and project planning and provide valuable information beyond designs. These can include data on user preferences apart from other consultation services.
Based on experience:
According to Payscale, the average compensation of an experienced architecture firm partner, with anywhere between ten to nineteen years of experience, is $ 108,498. This includes bonuses, tips and profit sharing. Partners with more than twenty years of experience earn $125,020 on an average. While $ 108,498 is the median figure, the highest income as per Payscale for a partner in an architect firm is $153,000, while the lowest is $83000.
A partner is an architect who is either the full owner or a partial owner of an architect firm. At times, the partner also has the designation of the president or CEO. The partner may either have started the architect firm personally or may have been promoted as partner by another partner in the firm. There can also be lower-level partners who work for a senior partner.
This position typically requires the architect to have many years of experience. As an architect partner, you may negotiate the profit share that you receive. As a high-level position, an architect firm’s partner manages several people including junior architects and employees in the administration department. Not only are partners entrusted with adhering with work quality but are responsible for delegation of work and project management.
The partner is involved in the design and planning stage of the project to ensure that buildings are designed and built as per the client’s specifications. A partner also pitches proposals to companies and individuals who are looking for a qualified architect for their construction project.
Based on location
As reported in Boston Business Journal, the average revenue earned by architect firms can also vary depending on the state. In the northeast states of Massachusetts and New York, architects earn an average figure of $100,000. Elkus Manfredi Architects, a major Boston-based architectural firm, had architectural billings of $57.5 million in 2017. As per available statistics, Texas, Arizona and California are the states where average earnings are between $93000 and $95000.
States such as New Hampshire, Massachusetts and California rank high in this list because these are also the states that have the highest household incomes as per the Census Bureau’s survey.
Mitigate your risks with professional liability insurance
When you are just starting out in the architecture industry, you need to know how to charge your clients to build up your profit margin and minimize your risks. An inherent risk for architects is the professional liability where a client can file a claim against you for alleged or actual negligence, delay, overshooting of budget. As the owner of an architecture firm, you should consider professional liability insurance which covers court fees, legal costs, and other damages caused to your clients if you’re found liable for.