Revenues are rising, especially for specialists, as the 2017 RIBA Benchmarking Survey shows
The 2017 RIBA Benchmarking Survey reveals a positive picture of the profession. RIBA chartered practices are employing more staff, generating more revenue and have increased profits compared with 2016. Staffing has increased by 5 per cent, while revenue has risen by 7 per cent – perhaps a nod towards increasing efficiency.
The distribution of revenue continues to be skewed heavily towards the largest practices: 41 per cent of all chartered practices’ revenue is generated by those practices with 100 or more staff. Another 32 per cent comes from practices with between 20 and 100 staff. So the 11 per cent of chartered practices with 20 or more staff are responsible for generating 73 per cent of the profession’s total revenue.
Although large practices dominate the profession’s revenue, when examined per practice or per head, some of the best rises in practice revenue this year have been recorded by small and medium-sized practices.
Average revenue among practices with 20 to 50 staff, and 50 to 100, has increased by about 6 per cent, while that for practices with 100 or more staff has fallen by 6 per cent. Two-person practices are seeing average revenues that are about 5 per cent higher over the year, while the average practice revenue is 10 per cent higher for a one-person practice and for a practice with between three and five staff.
Those rises in staff numbers and total revenues are larger than the rise we’ve recorded in total profits, implying that practice costs have increased over the year. There is certainly some upward pressure on staffing costs, although while the survey records that the average practice has spent 7 per cent more on salaries than last year, average salaries paid have changed very little.
Indeed, for most professional staff, they are identical to last year’s figures, while average pay for associates and partners has actually fallen. The apparent contradiction between rising spend on pay but no change in salaries can partly be explained by the 5 per cent rise in staff numbers, but could also be explained by rises in less visible staff costs such as pension contributions.
One of the biggest increases in expenditure this year has been on information technology: chartered practices spent 12 per cent more on IT in 2017 than they did in the previous year. Part of the reason for this could be work associated with building information modelling (BIM). In response to a new question this year, chartered practices report that they have used BIM on 15 per cent of the projects they worked on during the year. This proportion is higher for larger practices: BIM was used on 10 per cent of projects worked on by practices made up of three to five staff, but on 49 per cent of projects in practices of more than 100 in size.
Also higher this year is the value of international work: revenue from work outside the UK is 2 per cent higher. And, as we head towards Brexit, an unexpected finding is that work from the EU has risen by more than a quarter.
As in previous years, private housing work dominates chartered practices’ workloads. In 2017, 42 per cent of the profession’s revenue came from one-off houses, extensions and alterations. Add in ‘other’ private housing and it accounts for 57 per cent of total revenue, up from 54 per cent last year.
But could practices be making more money by working in other sectors? We’ve looked at how average fee revenue per head varies, depending on the proportion of practice revenue coming from a single sector. We’ve chosen fee revenue per head, because that measure seems to be fairly even across all practice sizes – rather than, say, average revenue per partner/director or per architect, which is higher for larger practices than smaller ones.
In practices where more than 70 per cent of revenue comes from private one-off houses, extensions and alterations, the average (mean) revenue per head is £47,000. But in those practices where one-off houses, extensions and alterations account for no more than 30 per cent of total revenue, the average revenue per head is £72,243 – one and a half times higher.
There’s a smaller differential when we look at the broader ‘other private housing’. Where 70 per cent or more of a practice’s revenue comes from ‘other private housing’, the average revenue per head is about £56,000, compared with around £59,000 in practices where ‘other private housing’ accounts for no more than 30 per cent of revenue.
It’s true that private housing is a far more important source of revenue to practices with fewer than five staff. But that’s why we are reporting on average revenue per head, which is a much more even indicator across all practice sizes.
And, given that average revenue per head is also lower among those practices with a high proportion of ‘other’ private housing – including work for developers or larger-scale commercial developments – the analysis suggests that private housing work overall appears to offer a lower revenue than other sectors.
Looking further into how practice revenues per head perform with other work types, a common pattern starts to emerge. Those practices which have more than 70 per cent of their revenue in one sector generate higher average fee revenues per head than the practices which receive less than 30 per cent of their work from this sector.
The simple message is that practices that specialise to the extent that they generate at least 70 per cent of their revenue from a single market sector are likely to earn a higher revenue per head than practices with a wider variety of work. The exception is private housing, including one-off houses, extensions and alterations. Of course, there will be many reasons why practices would still wish to undertake small-scale housing work, but the economic case for targeting and possibly specialising in at least one other sector is a strong one.
Aziz Mirza is director of The Fees Bureau, which analyses and reports on the annual Benchmarking Survey for the RIBA.
RIBA chartered practices can access the full report, and the online Benchmarker, by logging on to the RIBA Business Benchmarking website: ribabenchmark.com
6% practices of 20 >100
6% practices of 100+
Benchmark your practice
The RIBA Benchmarking survey gives practices the data to inform business planning. Chartered practices can explore the relationship between fee revenues and sectors in detail using the interactive RIBA Benchmarker. Log on and select ‘compare results’. This allows users to experiment with filters to examine the effect on average practice revenues of having different amounts of work from different sectors. The RIBA Benchmarker is designed to show how changes to work, client or service types might affect a practice’s revenue, profits and other business indicators. It shows your own practice’s figures alongside the average.