More cash all round for practices but rising costs negate benefits

Words:
Adrian Malleson

Profits flatline in the RIBA Business Benchmarking 2019 survey despite bigger workloads for architects bringing in more revenue

With a weak economic environment, political uncertainty, and reticent investors, the results of this year’s RIBA Business Benchmarking survey demonstrate the ongoing resilience of UK architecture. Revenues are up on last year, workload is increasing and our international presence is growing. However, it’s not all positive. Costs are on the rise too, so the increase in revenue has not translated into a commensurate rise in profits.

The benchmarking report provides us with a data set like no other. Each year, all RIBA chartered practices are required to complete the survey. It’s a detailed survey, and respondents take the time to give detailed practice information. It covers several significant areas, including practice revenue, expenditure, profits and type of work. It also covers remuneration, how practices are run, and international working.

The RIBA Business Benchmarking survey lets us understand in detail the business of practising architecture. 

Revenue
For the seventh consecutive year, since 2012, the total revenue of RIBA chartered practices has risen. So too has average revenue per practice and average revenue per head. 

Over time, the rise in total revenue each year has been significant; on average 12% annually. In total there has been an 125% increase in RIBA chartered practice revenue, from 2012 to 2019. This year saw an even greater rise; total revenue earned by RIBA chartered practices is up from £3.2 billion in 2018 to £3.6 billion in 2019. This rate of growth significantly exceeds that of the general economy and the construction industry.

Practice revenue is concentrated in certain areas. London practices generated 62% of all revenue, up from 60% in 2018. This revenue share far exceeds any other area; the next largest contributor is the North West, which generated 9%. 

It is the large practices, those with a hundred or more employees, that are driving revenue growth; since 2015 they have brought 70% of the total growth in architectural revenue. Their total share of revenue has risen from 39% to 47%.
Not all practice sizes and not all areas are seeing their revenue grow.

 

Bar chart showing the total annual revenue generated by RIBA chartered architecture practices in the UK.
Bar chart showing the total annual revenue generated by RIBA chartered architecture practices in the UK.

Expenditure and profit

Expenditure is on the rise. In 2017 and 2018 practice expenditure rose by 7% each year, but in 2019 it rose by 16%. Increases in revenue have very largely been taken up by increases in expenditure. Profits per practice are broadly stable, or for some practice sizes, very slightly down. But as a percentage of turnover, profits are down even in the larger practices.

The most significant outlay for any practice is people; payroll costs make up around two thirds of average practice expenditure. This year, payroll costs have increased again. This isn’t bumper pay rises all round. Instead, more revenue has been earned through more work, and more work has needed more people to do it; headcount is now 8% higher than one year ago. Although revenue is up, profits are flat. 

Business planning

One way to ensure long term business profitability is to plan for the long term, with an eye on potential risks, as well as the opportunities. Most RIBA chartered practices have in place a business plan that lasts for two years or more, and over a fifth have a plan for five years or more. On the other hand, that still means that for almost half of practices planning for the next year or so only is the norm. The proportion of practices that have a business plan that extends beyond one year has barely changed since 2015.

Positively, the benchmarking data shows significant advances in support for all staff. There’s still much to be done, but since 2015 there have been significant increases in the proportion of practices providing equality, diversity and inclusion training for staff members. There has also been a substantial rise in practices implementing strategies to support flexible working and to support staff development and retention (such as post maternity returnee programmes); and those implementing recruitment strategies to address under-represented groups, or characteristics, within the practice.

 

  • Bar chart showing international work by revenue share of region according to RIBA Business Benchmarking survey 2019
    Bar chart showing international work by revenue share of region according to RIBA Business Benchmarking survey 2019
  • Bar chart showing the architectural work sectors share of revenue according to RIBA Business Benchmarking survey 2019
    Bar chart showing the architectural work sectors share of revenue according to RIBA Business Benchmarking survey 2019
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Work types

As the red graph above shows, RIBA chartered practices are working across the range of building types. Architects add value to any building. A diverse project portfolio often increases practice resilience, as sectors rise and fall (has university work peaked? will we see a renaissance in local authority housing?).

Work type does vary by practice size; smaller practices earn a greater proportion of their revenue from one-off housing and house extensions. Commercial becomes more important as a practice gets bigger. Medium-sized practices get as large a proportion from health, education and other public work as do the 100+ employee practices. 

International work

The Office of National Statistics tells us that in 2017 (the last year for which figures are available) UK architectural service generated a positive trade balance of over £500 million. The RIBA Business Benchmarking survey shows chartered practices at the forefront of international working. 

The revenue from international work increased by 22% in 2019. Chartered practices earned £625 million from projects outside the UK. Truly, the UK is a global hub for architecture. 

It is larger practices that are doing most of this international work; three out of every four pounds from work outside the UK is generated by practices with 100 or more staff. The EU is a significant market for international work, but it is one of four ‘big’ regions: EU, Asia, Middle East and North America. 

This has been a challenging year for ­architects, but, by and large, it is one that has been met. The coming year looks as if it will bring its own challenges, but we’re yet to see what those will be. Orderly resolution of the Brexit question is so important to restoring some market certainty and confidence.

This article has concentrated very much on the business of architecture; making enough money for a practice to be viable. As we start to act on the realities of a climate emergency, it’s unlikely that the benchmarks of a business will only be financial. Many practices already run their business with a clear view of a sustainability that extends well beyond finance. 

More on benchmarking.

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