Practice Management Member Conversations

Typically, most firms use multiplier rates of 2.5 to 3.0 according to PSMJ Surveys.
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Larry Paul AIA
L.A. Paul & Associates
San Francisco CA
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For 2010 and for the whole A/E industry, PSMJ reported Net Direct Multipliers of 2.77 (25%-ile) 3.07 (median), and 3.33 (75%-ile).
Also, Breakeven Rates (1 + OH Rate, before bonuses) were 2.43 (25%-ile) 2.73 (median), and 3.02 (75%-ile).

Similarly, for 2010, ZweigWhite reported Net Multipliers of 2.85 (25%-ile) 3.07 (median), and 3.32 (75%-ile),
and Breakeven Multipliers were 2.53 (25%-ile) 2.79 (median), and 3.12 (75%-ile).

But we all are getting away from Steve's real issue -- dealing with "large institutional clients [and government agencies] who want to cap the multiplier."

Michael Webber
CFO/Principal
A/E Finance
www.aefinance.net
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You may encounter some large institutional clients (usually in the public sector, and usually in relation to "Public Works" projects) which will require an audited overhead rate based on your state's Department of Transportation guidelines.  That overhead rate defines marketing as a non-overhead expense and clamps down on many things that are usually included in overhead.  (For instance, if principals own the office building and rent it back to the firm, rents above a (low) "reasonable" level are subtracted from your overhead total.)

In one sense, these big clients don't really care if your firm survives after the one-year warranty on the project.  Marketing? who needs that, you have our job to do.  Plus, there are others standing in line who would like to take over today. 

But, as you're negotiating with them, look at all of the fine print.  Can you markup your consultants, or do their fees have to pass straight through?  What about printing/reproduction costs?*  Travel time and expense?  In some cases their accounting department will be very strict with the professional part of the billing, yet freely pay for any reimbursable that has a receipt.

In many cases, increasing oversight and auditing of these agencies makes them ask for more from us.

*for one large retail client, fees kept going down, down, down at their demand.  But, they still paid $5 per sheet for final plots, and with a specs-on-the-drawings approach, the drawing sets were pretty hefty.  We made more profit on the printing than we did on the design/drafting work.

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Joel Niemi AIA
Dykeman, Inc.
Everett WA
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Original Message:
Sent: 02-23-2011 17:45
From: Michael Webber
Subject: Multipliers

For 2010 and for the whole A/E industry, PSMJ reported Net Direct Multipliers of 2.77 (25%-ile) 3.07 (median), and 3.33 (75%-ile).
Also, Breakeven Rates (1 + OH Rate, before bonuses) were 2.43 (25%-ile) 2.73 (median), and 3.02 (75%-ile).

Similarly, for 2010, ZweigWhite reported Net Multipliers of 2.85 (25%-ile) 3.07 (median), and 3.32 (75%-ile),
and Breakeven Multipliers were 2.53 (25%-ile) 2.79 (median), and 3.12 (75%-ile).

But we all are getting away from Steve's real issue -- dealing with "large institutional clients [and government agencies] who want to cap the multiplier."

Michael Webber
CFO/Principal
A/E Finance
www.aefinance.net
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While I think there's merit in understanding the industry's range for targeting the net multiplier, it is what it is for each firm respectively, as it comes from ther firm's P-L statement.  Since the Total Direct Labor is the denominator in the calculation of the net multiplier; if it is too low, there's improvement needed in how timesheets are done; if it's too high, 'ditto'.
The issue of the public sector clients wanting to cap the multiplier for design professionals requires a clear understanding of the trade-offs being offered to do so.  Without any trade-off, there's no reason to buy into this 'fee-busting' policy.  Move on and get some decent respectful, educated clients.  If you can't, move on and find a firm to hire you where they have these types of clients and then contribute your time talent and energy to keeping those clients satisfied.
There's way too much 'gnashing of teeth' over these issues. 
Zig Ziglar is fond of saying "continuing to do the same thing over and over again, expecting a different result is the definition of 'insanity'".
Respectfully,

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Steve L. Wintner, AIA Emeritus
Founder-Principal
Management Consulting Services
The Woodlands, TX 77380-1414
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Original Message:
Sent: 02-23-2011 17:45
From: Michael Webber
Subject: Multipliers

For 2010 and for the whole A/E industry, PSMJ reported Net Direct Multipliers of 2.77 (25%-ile) 3.07 (median), and 3.33 (75%-ile).
Also, Breakeven Rates (1 + OH Rate, before bonuses) were 2.43 (25%-ile) 2.73 (median), and 3.02 (75%-ile).

Similarly, for 2010, ZweigWhite reported Net Multipliers of 2.85 (25%-ile) 3.07 (median), and 3.32 (75%-ile),
and Breakeven Multipliers were 2.53 (25%-ile) 2.79 (median), and 3.12 (75%-ile).

But we all are getting away from Steve's real issue -- dealing with "large institutional clients [and government agencies] who want to cap the multiplier."

Michael Webber
CFO/Principal
A/E Finance
www.aefinance.net
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