Architects: increase your firm’s profitability with these five tips
Increasing the profitability of your architecture firm will allow you to take on projects that inspire you. Here are five tips to help you do it.
Most of us became architects to create aesthetic, innovative, and functional designs for our clients.
But here is a fact: you need to be able to make a profit if you want to stay in business.
And in fact, it’s not just about ensuring your firm can pay the bills and survive.
Having ample cash flow and profits gives you the freedom to take on the jobs that truly inspire you – the option to work on the projects you’ve dreamed about rather than having to accept anything that pays the bills.
Yet the business side of running an architecture practice and how to make it profitable isn’t something we’re taught when we’re in architecture school.
And that’s a shame because profitability is a challenge many architecture offices struggle with.
As architects, we sell our time in return for revenue.
So basically, the number of hours you and your other colleagues can work on billable client projects determines your revenue.
Architecture firms do not build up inventory. So, if people take a vacation, get ill, or leave the firm, revenue generation stops.
And if there are fewer projects, for example, due to an economic downturn, you still want to keep and pay for your qualified staff, eating away cash reserves and reducing profitability.
I wrote this article to help you think about what you can do to make your architecture business more profitable. So you don’t have to accept just any project for any client because you need the money. And so you don’t need to let go of qualified staff during economic downturns.
You deserve the freedom to use your time and talents to work on good projects for clients that value your work – and that are happy to pay for the value you realize.
Here are 5 tips that will help you achieve this.
#1 Charge for ALL the time you spend on client projects
The first, most crucial, step in improving profitability is making sure you aren’t inadvertently giving away your time for free.
Making sure you bill for every hour you spend on a project is incredibly important for profitability.
You do so much more than just designing in your business, don’t you?
You have client meetings and team meetings. You call contractors and give them input. Your request quotes. You iterate on designs based on customer feedback. And the list goes on …
You should be billing your clients for all this time – because it all adds value for the client.
Therefore, you need to have visibility on how much time you spend on any of these tasks for your current projects and work that info into how you quote for future projects.
So you need to start tracking time.
And by tracking this time you’ll also be able to see if you are consistently going overtime or coming under on any task and adjust as needed.
Every job you take on will involve administrative time, meeting and coordination time, as well as design time.
So if your time tracking logs show that a typical project workload is comprised of a one-hour client meeting, ten hours of design work, and two hours of managing the project throughout – make sure to quote and charge for all thirteen hours from now on.
Bottom line: make sure every hour your work gets billed. And don’t feel bad about it. It’s normal. If you’re working for the right clients, they’ll understand it.
I know. Sometimes we’re in the flow working on a design and we lose track of time. Or sometimes the customer has more feedback than expected and we need more iterations. And we want to make it great and just keep on going until it’s perfect and every aspect of the design is right.
Well, I hate to ruin the party, but you can’t keep on going over the budgeted hours in your quote or contract. You have a budget, and you need to stick with it. And if it happens often that you need to stop the design work before either you or the customer are happy, you need to add more ours to your future quotes.
Remember, you’re running a business. You’re not Van Gogh, creating art for free.
#2 Raise your prices
The next thing you need to address is how much you are charging for your time. And let me tell you something: it’s probably more than what you’re charging today.
It’s a common misconception that lower prices are more appealing to prospective clients. But I have discovered that in reality, the opposite is true.
Charging a higher rate gives you the context and motivation to go above and beyond for your clients. It will help you deliver work that you are truly proud of, that will make your clients happy, and that will in turn attract new clients.
Another advantage of charging higher prices is that the price you charge is used by prospects as a proxy for quality:
“Architect A is twice as expensive as Architect B? Then Architect A is probably very good at what he does, and clients must be lining up. Architect B is probably not that good. He is quite cheap, so his quality will probably be lower.”
So, by increasing your rate you position yourself as a quality architect and you will attract clients who are willing to spend more to get a premium service.
You’ll attract OTHER clients versus FEWER clients.
And believe me, working for the right clients that don’t see you as a necessary cost, but that value your work and are willing to pay for that value, is a key to enjoying your work as an architect and feeling respected and appreciated.
Not convinced? Afraid to raise your rate?
What’s the worst thing that could happen? Fewer projects?
Yes, maybe, but that will be compensated by a higher rate on your other projects. So, you’ll work on fewer projects at a higher rate.
The best way to get clients to pay more for your services is by focussing on the VALUE of your work.
Attorneys have no problems with selling their services at $300 per hour when there’s a $100.000 claim at stake.
A tax expert working on getting a tax saving of $50.000 for his client has no problem charging $400 per hour.
These examples prove that clients are willing to pay high rates if the value is multiple times more than what they spend.
Architects too should focus on the value they generate.
Here are some examples, just for inspiration:
- Designing a parking garage capable of accommodating 10% more vehicles in the same footprint will produce revenue that flows right to the client’s bottom line.
- Placing glazing in a wall section increases a building’s rentable area and thereby increases cash flow.
- Designing a building with lower energy consumption. Analyze and visualize how your design choices will reduce the total future cost of ownership.
- Cutting the permitting and design process by 3 to 6 months enables to generate renting revenue sooner.
- Selecting durable and low maintenance materials.
Read more about pricing tips and tricks for architects in this article.
#3 Find a niche
If you’re like most architects, you’re offering a broad range of services to try and appeal to the widest array of prospective clients that you can.
After all, you don’t want prospects to not contact you because you’re not offering what they are looking for, right?
Trying to appeal to everybody means you’ll end up attracting nobody.
It will dissuade more prospects from choosing your services.
For example, if someone wants to build an eco-home and they have the choice between a jack-of-all-trades and a specialist in eco-building, who do you think they’re going to trust to build their eco-home?
Just like raising your fees positions you as a quality business, choosing a niche to work in positions you as an expert in that field.
If a prospective client is looking to create a specific type of building or use a specific style, they will look for a company that specializes in that area. So by working in a niche, you’ll be able to attract clients with projects that suit your skills and interests. And as an expert in that area, you’ll be able to charge more for your specialism – and that means more profit.
Thus, marketing to a specific niche does not limit you. Rather, it makes your marketing messages more relevant and attractive to your ideal prospect. It connects your work with the people who need it most.
Choosing a specialism is also a great way to help you get better at what you do. If you spend more time working in a specific area, you’ll build your knowledge in that area quicker, and if you make sure to specialize in a niche you enjoy, you’ll also attract the projects that you’ll find most rewarding.
Just for inspiration, here are some examples of specialized building types:
- green construction
- modern construction
- wood skeleton construction
- historic homes
- home design transformation
- urban design
And here are some examples of possible specialized target markets:
- high-end private real estate
- industry projects
- government projects
So while we often feel like we have to do everything to be successful, it turns out making certain sacrifices and making our offering more specific can actually help us be perceived as an expert, attract clients and projects we like more, and at the same time work at a higher ‘expert’ rate.
You can read here to learn more about how specializing can help architects.
#4 Offer additional services
Profitability isn’t just about charging more for your services; you can also win more projects and raise your income by offering additional services.
A well-known option in the industry is to combine architectural and engineering services in order to provide a one-stop-shop to clients.
But it can be anything from interior design, landscape architecture, existing condition surveys, kitchen design, illustration rendering, or estimating.
They may even be services you already provide but could be charging extra for. By charging an extra fee for this work you’ll create extra profit for your firm.
Work out which additional services are appropriate for your company, work out how much they cost you and create a price list to offer them to clients and create more profit for your business and add them in a section called ‘Additional Services’ in your architectural services agreement.
Not every client will go for every service, but when provided a list to pick and choose from, many clients will opt to spend a bit extra for these services – even if they hadn’t considered them on their own.
Another advantage of this approach is that if a client doesn’t select an option, it’s very clear that they won’t be getting that specific service. So, there are fewer chances for ‘I thought you would do that as well’ discussions.
Architects are highly educated and knowledgeable professionals. So instead of focussing only on creating and delivering design plans, architects could consider supplementing this with other services to win more projects, increase and diversify their earnings and be more rewarded for the expertise they hold.
#5 Create a passive income stream
As mentioned in the introduction of this article, for most architects there is a direct trade between time and money: the more you and your colleagues can work on billable projects for clients, the higher the revenue.
This type of revenue is not scalable. [And let’s be honest, it often comes with long hours, strict deadlines, demanding clients, lots of responsibilities, and working during evenings and weekends.]
Passive revenue, on the other hand, is infinitely scalable — as your time is not directly involved or related to the revenue you generate.
Think about a book or course that you work on once, and then sell 1000 times.
And I know it’s not easy for architects to accomplish this.
But why not explore the idea for one minute?
Architects have a lot of skills, knowledge, and expertise. They know and can do things that many people don’t and would like to learn from.
You could work on a 10-hour training that teaches architects how to get started with Revit.
Or you could consider a partnership with other firms to develop resources for other architects to use. With the right network in place, you’ll be in a strong position to develop training courses, webinars, guides, and other resources that you can sell to beginner architects or anyone who wants to learn on how to improve their architecture business. Gābl Media is a great example.
Or share all your best ideas, tips, and tricks in blog articles or YouTube videos and earn revenue with ads. Take a look at the 30X40 Design Workshop Youtube Channel for inspiration.
Or even design, manufacture and sell a product. Architects often are creative people. They are capable of making drawings of their ideas, and they are used to thinking about how something should work for the end-user. You might be interested in photography, and so could sell your architectural photos as décor for people’s homes. You might even be handy with a particular craft, and make furniture or décor to sell, too
Or invest in rental property. As an architect, you have an advantage over everyone else when it comes to investing in real estate. You have the knowledge and experience to better estimate the value of a property, and thus find a good deal on the market. It’s likely you know some good contractors, and you don’t need to hire an architect. In other words: if you have some savings, you can turn your money into a passive stream of rental revenue. Use this to your advantage. Check this story of two young architects who transformed their architecture service business into a rental business that is giving them a lot of freedom, saving them from stress, deadlines, and the pressure of clients.
The options are endless.
Although it does take a big upfront investment in time and effort to set up, selling products – like books, courses, software, blog, or videos – can generate a revenue stream that runs on autopilot, even during economic downturns.
So let’s keep on dreaming exploring some more:
Imagine you could build up to $2,000 of passive revenue each month, for a total of $24,000 a year.
With this safety net of automated revenue, you would no longer need to accept every project, because — that’s right — you’ll already have part of your revenue stream covered.
You could be pickier, accepting only fun and profitable projects. This, in turn, will give you more time to grow your passive income stream.
And remember: the more you charge and the more selective you are, the more appealing you will be to high-budget clients.
Read this article to learn more about passive revenue for architects.
Architects are talented people with a unique set of skills, knowledge, and expertise.
Yet many architects struggle to run a profitable business, which limits their freedom, flexibility, and job satisfaction.
It shouldn’t be like that for you.
You deserve to work on great projects for clients that value your work.
You deserve to earn a good profit in return for all the energy you invest and all the value you generate for your clients.
But to achieve this you’ll have to apply some tactics that might seem counterintuitive at first sight.
You need to make sure to charge ALL hours you work for clients, including travel time, meeting time, admin time, time on the phone, and so on.
You should never (ever) work for free, and you need to stick with your budget.
If you notice clients expect certain services to be included for free, add them to an ‘additional services’ list on your quotes, so it’s clear that they either need to pay for it or they won’t get it.
You should probably increase your rate as well. Remember: the price you charge is used as a proxy for quality by prospects. By increasing your rate, you position yourself as a quality architect and you will attract clients who are willing to spend more to get a premium service.
The best way to go about this is by focussing on the value you generate for your clients and positioning yourself as an expert. By choosing a specialism or a niche and making your offering more specific, you will attract better prospects and projects.
In the end, you’ll attract OTHER clients and projects, not FEWER.
Already thinking about what you will do with all the energy and money that will come with working for better clients at higher rates?
Why not go for the ultimate dream of everyone in the service industry: build a scalable passive revenue stream and become less dependent on trading hours for money.
A revenue stream that runs on autopilot, that doesn’t require your constant intervening and that doesn’t come with client deadlines ;)
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