A/E firms’ profits drop amid slowing economy

After record highs last year, profits among architecture and engineering firms have decreased, a new study shows. Data in ZweigWhite’s newly released 2008 Financial Performance Survey of Architecture, Engineering, Planning & Environmental Consulting Firms indicate firms’ median pre-tax, pre-bonus profit margin on net service revenue fell from 14.0 percent last year to 11.1 percent this year, ending a three-year increase. Similarly, EBITDA (earnings before interest, taxes, depreciation, and amortization expenses) as a percentage of net service revenue dropped from 15.9 percent last year to 13.5 percent this year.

"This confirms what we’ve been hearing from our clients and industry trade associations," said Ian Rusk, ASA, financial consultant to the industry and head of ZweigWhite’s Advisory Services division. "More firms are starting to be impacted by the economic slowdown, not just those focused on residential development. Most of the metrics in this edition of the survey bear this out. Margins have begun to fall, as have staff utilization levels. If there’s a silver lining, it’s that there seems to be a bit of relief in terms of the labor supply, with staff turnover rates falling."

According to the survey, firms’ utilization rate (the percentage of total raw staff labor charged to projects) fell to a nine-year low—a median of 59.8 percent. The survey report also includes statistics on turnover rates, five years of personnel costs, details on finance and accounting staff, growth rates, and economic outlook.

The 2008 Financial Performance Survey of Architecture, Engineering, Planning & Environmental Consulting Firms is available from the publisher for $445, plus $8 shipping and handling. Order online here.