Employee and Project Time Tracking for Architecture Firms

How do I calculate charge out rates for my staff?

To start with you need to calculate what each member of staff’s chargeout rate is going to be – the rate at which they are charged out to clients. There are various elements to the calculation:

1. Calculate direct and indirect costs:

Begin by calculating the direct and indirect costs associated with each staff member. Direct costs include salary, benefits, pension, and Employer’s NI. Indirect costs include overhead expenses such as office space, utilities, software licenses, insurance, professional development, and administrative support. Determine the total annual cost for each staff member by totalling up these expenses.

2. Estimate the percentage of chargeable time that will be spent by the employee:

Determine the anticipated number of chargeable hours for each staff member and calculate this as percentage of their working hours. Consider factors such as the number of projects they are working on, administrative tasks, professional development, business development time (including sales) and annual leave. The chargeable time percentage typically ranges between 60% to 80% in the architecture industry.

3. Calculate the chargeable hours:

Multiply the estimated chargeable time percentage by the total annual working hours (e.g., 1,920 hours per year, assuming a 40-hour working week). This will give you an estimate of the chargeable hours per staff member per year.

4. Determine the desired profit margin:

Determine the desired profit margin for your firm. This margin should cover the firm’s operating expenses, growth, and desired profitability. Typically, profit margins in architectural firms range from 10% to 30%.   If you’ve not worked out your Break Even point before, this can be a useful exercise to run through at the same time to ensure that you are generating enough turnover to cover your required monthly drawings.

Find out more about Break Even point in our article here.

5. Divide costs by chargeable hours:

Divide the total annual cost for each staff member (direct and indirect costs) by their estimated chargeable hours. This will give you the base charge-out rate necessary to cover costs.

6. Adjust for desired profit margin:

Add the desired profit margin to the base chargeout rate to ensure profitability. Divide the desired profit margin by the chargeable hours to determine the additional charge-out rate needed.

7. Consider market rates:

Research market rates and compare them to your calculated chargeout rates. Assess how your rates align with industry standards and consider adjusting them if necessary to remain competitive. RIBA publish their findings about chargeout rates on an annual basis and it can be a useful exercise to benchmark against comparative practices.

They also have a handy fee calculator you can use if you’re a member.

8. Evaluate staff experience and expertise:

Consider the experience and expertise of each staff member when setting charge-out rates. Senior staff members with more experience and specialist skills should command higher rates compared to junior staff members.

Once you have charge out rates for your employees, it’s important that these are reviewed on at least an annual basis and adjusted regularly bearing in mind the rapidly changing market conditions and the individual’s performance.

Why would my team spend too much chargeable time on a project?

There can be several reasons why a team may spend too much chargeable time on a project. If that project was being billed to a client on a fixed fee basis, spending too long on the project is going to have a significant impact on the profitability of your practice.

Here are some common factors that can contribute to excessive chargeable time:

1. Scope creep: If the project’s scope keeps expanding without proper control, it can lead to increased work and time spent. Additional client requests, changes in requirements, or ambiguous project scope can result in tasks and activities that were not initially planned or estimated.
2. Inadequate planning: Inadequate project planning, including insufficiently defined tasks, timelines, and deliverables, can lead to inefficiencies and rework. Without a clear roadmap and well-defined project plan, team members may spend additional time trying to navigate through uncertainties or resolving issues that could have been addressed during the planning phase.
3. Lack of communication: Poor communication within the team or with the client can lead to misunderstandings, delays, and time-consuming iterations. Unclear instructions, misaligned expectations, or ineffective collaboration can result in repeated revisions, additional meetings, and extended project timelines.
4. Underestimation of effort: Insufficiently estimating the effort required for specific tasks or phases of the project can lead to unrealistic timelines and workload allocation. If the initial estimation does not consider the complexity, dependencies, or potential challenges of the project, it can result in team members spending more time than anticipated.
5. Skill gaps or inadequate resources: If team members lack the necessary skills or expertise to complete certain project tasks efficiently, it can lead to increased chargeable time. Additionally, if resources such as software, equipment, or support services are inadequate or unavailable, it can hinder productivity and result in prolonged project duration.
6. Inefficient processes: Poorly defined or inefficient workflows, inefficient engagement with tools and technologies, or cumbersome administrative processes can contribute to excessive chargeable time. If tasks require manual effort that could be automated, or if there are bottlenecks in the project workflow, it can impede progress and increase time spent.