1. Utilization Rate

Definition: The percentage of billable hours worked compared to total hours available.

Formula:
Utilization Rate = (Billable Hours / Total Available Hours) × 100

Why It Matters: This metric is your firm’s productivity gut check. Even if you’re not billing your time, knowing how maxed out your team is can help you align your marketing campaigns and efforts with reality. High utilization for a prolonged period? Focus on employer branding and talent acquisition and long-term pursuit strategies. Low utilization? Time to double down on lead gen, cross- and up-selling to existing clients, and business development in general. Word to the wise, hold firm on your no-go’s during low utilization periods and ask tough questions of operations to find the root cause. Do we have inefficient processes, too much unbilled scope creep, the right people focused on the right tasks? This is likely when you will witness people chasing every opportunity like a delusional terrier chasing its own tail.

Keep in mind that target utilization rates will vary by firm and often by role. In a seller-doer firm, principals with significant business development responsibilities will have a much lower target utilization rate and fewer billable hours than a designer (think 80-90%). Firms that prioritize lifelong learning, devote a certain amount of time to volunteering, or have a lot of PTO will have fewer billable hours. Lump sum fee contracts, projectstage and complexity, time-tracking accuracy, and contract terms can impact the reporting and recording of utilization rates.

Industry Benchmark: A healthy rate is 60-65%. Again, every firm is different. It’s important to know and understand what your firm’s target is by role and or studio/group, as well as its historical performance.

Source: PSMJ Resources’ Annual A/E Financial Performance Benchmark Survey

‍

2. Billability

Definition: The percentage of hours worked on billable client projects.

Formula:
Billability = (Billable Hours / Total Worked Hours) × 100

Why It Matters: Think of this as utilization’s more focused cousin. If your firm’s billability is tanking, revenue takes a hit. Asa marketer, understanding billability helps you shape campaigns that bring in the kind of work your teams can handle. These are just a few things that can impact billability: projects unexpectedly go on hold, contract terms, staffing decisions, project management efficiency, time spent on marketing and business development. Monitoring this regularly and looking at historical performance by role, department/studio, and employee can help determine where to focus marketing and business development dollars and time. If nothing else, if you find yourself wondering why your traditionally reasonable colleagues are suddenly chasing opportunities they’re unqualified for with a puppy’s enthusiasm for its own tail, check the billability! It’s probably low, and people are getting worried. Definitely, check the backlog too. We will get to that shortly.

‍

3. Net Profit

Definition: What’s left of revenue after all expenses (including your salary) are paid.

Formula:
Net Profit = Total Revenue - Total Expenses

Why It Matters: This is your firm’s financial health scorecard. For marketers, it’s simple: target higher-margin projects and clients, streamline campaigns, minimize overhead and show that your efforts help move this needle.

Industry Benchmark: Aim for a net profit margin of 10-15%.

Source: Deltek Clarity A&E Industry Study.

‍

In a professional services firm, direct and indirect costs are classified based on whether they can be directly tied to a specific projector client.

Direct costs are expenses that can be directly attributed toa specific project or client. Here are some examples:

1. Employee Salaries and Wages: For billable staff working on a project (e.g. architects, engineers, or consultants).
2. Subcontractor  Fees: Payments to third-party specialists hired for a specific project.
3. Materials and Supplies: Project-specific items such as software licenses, models, or renderings.
4. Travel Expenses: Travel directly related to the project, like site visits or client meetings.
5. Equipment Usage: Rental or depreciation of equipment used exclusively for a project.
6. Printing and Reproduction: Blueprints, plans, and other deliverables required for a specific project.

‍

Indirect costs are expenses that support the firm’s operations but cannot be directly tied to a single project:

1. Administrative Salaries: HR, finance, IT, and marketing staff.
2. Office Rent and Utilities: The general cost of maintaining office spaces.
3. Software Subscriptions: Firm-wide tools like accounting software, CRM systems, or design tools not exclusive to one project.
4. General Training: Professional development for employees that benefits the entire firm.
5. Marketing and Business Development: Costs associated with proposals, branding, or lead generation.
6. IT Infrastructure: Servers, internet, and other tech-related costs for the whole firm.
7. Insurance: Professional liability, general liability, or health insurance for employees.

‍

Understanding these distinctions is essential for proper cost allocation, project profitability analysis, and managing overhead. Now, onto the next set of metrics.

‍

4. Gross Margin

Definition: The percentage of revenue left after direct costs (labor, materials, etc.) are covered.

Formula:
Gross Margin = [(Revenue - Direct Costs) / Revenue] × 100

Why It Matters: Gross margin shows how efficiently your firm delivers. If your firm is bleeding margin, it might be time to reposition services or target higher-paying clients—and your marketing plays a starring role.

Industry Benchmark: 40-60%, depending on the specialization. (Source: Zweig Group’s Financial Performance Survey)

‍

5. Backlog

Definition: The total dollar value of work under contract but not yet completed.

Formula:
Backlog = Total Contract Value - Revenue Earned to Date

Why It Matters: This metric is your crystal ball for future cash flow. Marketing feeds the backlog by creating a steady pipeline ofquality leads and proposals that convert into projects. Firms with projects that go on for years will have a different target than firms that have projects that start and finish within three months. I have worked at firms where 12-18months of backlog was the norm and the target, and other firms where 3-6 months was the best that could be hoped for. It’s important to understand your firm’s target to adjust your marketing efforts and resources accordingly.

Industry Benchmark: 6-12 months of projected revenue.

Source: American Council of Engineering Companies (ACEC) Quarterly Economic Update.

‍

6. Multiplier

Definition: Revenue generated for every dollar spent on direct labor.

Formula:
Multiplier = Revenue / Direct Labor Cost

Why It Matters: This is most often used in consulting firms and can reflect pricing and efficiency performance. Are your teams working on projects efficiently and was the proposal priced correctly to justify their paychecks? Smart marketers use this metric to target campaigns toward higher-multiplier clients and services.

Industry Benchmark: A multiplier of 3.0 or higher is the gold standard.

Source: Deltek Clarity A&E Industry Study.

‍

7. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

A no-nonsense measure of profitability before non-operational costs muddy the waters.

Formula:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

Why It Matters: EBITDA strips away the fluff and gives you the firm’s operational performance in black and white. Want to connect your marketing efforts to the firm’s valuation? This is your metric.

Industry Benchmark: 10-20% EBITDA margin is the sweet spot.

Source: Zweig Group’s Financial Performance Survey.

‍

8. DSO (Days Sales Outstanding)

Definition: The average number of days it takes for a firm to collect payment after issuing an invoice.

Formula:
DSO = (Accounts Receivable / Total Revenue) × Number of Days

Why It Matters: A high DSO means cash is tied up in receivables, which can choke cash flow. Marketing can help by driving faster project starts and ensuring billing terms align with client expectations.

Industry Benchmark: Less than 60 days is considered healthy when billing the owner directly. An acceptable amount of days will vary by firm depending on whether they are contracted directly with the owner or whether they are a subcontractor. For example, architects often need to bill their client and be paid before they can pay their design partners on the team. Engineering firms that do not contract directly with the client for most of their work will likely have a longer DSO.

Source: Deltek Clarity A&E Industry Study.

‍

9. Revenue Per Employee

Definition: The total revenue generated divided by the number of employees.

Formula:
Revenue Per Employee = Total Revenue / Number of Employees

Why It Matters: This metric highlights operational efficiency and can pinpoint whether staffing aligns with workload. Marketers targeting high-value projects can help improve this number.

Industry Benchmark: $150,000-$200,000 per employee annually.

Source: Zweig Group’s Financial Performance Survey.

‍

10. Win Rate (or Hit Rate)

Definition: The percentage of proposals or bids that result in won projects.

Formula:
Win Rate = (Number of Proposals Won / Total Number of Proposals Submitted) ×100

Why It Matters: Knowing your win rate can help you optimize your marketing and proposal efforts. High-quality leads and better targeting can improve this metric. This formula can be tricky for subconsultants because you may have three or four proposals for one opportunity. Some firms choose a reporting process that counts every proposal, and others take the approach that there is only one opportunity and so their reporting is set up accordingly. Keep in mind, if you're way below your desired hit rate, it's time to look at what's going on with your go/no-go process, your marketing and bd resources, any changes with clients, your pricing, and your perceived value in the market. If you're way above your target rate, you may be playin it too safe and limiting possibilities in your go/no-go process. These are important discussions to have with management.

Industry Benchmark: 40-50%.

Source: PSMJ Resources’ Proposal Performance Metrics.

‍

11. Project Profitability

Definition: The profit generated by individual projects, factoring in all direct and indirect costs charged to the project.

Formula:
Project Profitability = (Project Revenue - Project Costs) / Project Revenue ×100

Why It Matters: While gross margin and net profit provide a broad view, project profitability zooms in on how specific types ofwork or clients contribute to the bottom line.

Industry Benchmark: 15-20%.

Source: Deltek Clarity A&E Industry Study.

‍

12. Overhead Rate

Definition: The percentage of revenue spent on indirect costs like marketing, HR, and admin.

Formula:
Overhead Rate = (Indirect Costs / Total Revenue) × 100

Why It Matters: Understanding how marketing expenses impact overall overhead helps make the case for budget adjustments based on return on investment.

Industry Benchmark: 150-175%.

Source: Zweig Group’s Financial Performance Survey.

‍

13. Marketing and Business Development Costs

Definition: The percentage of revenue allocated to marketing and business development efforts.

Formula:
Marketing and BD Costs = (Marketing and BD Expenses / Total Revenue) × 100

Why It Matters: This metric reflects how much your firm invests in growth. As a marketer, aligning your activities wit hrevenue-driving outcomes can solidify your value.

Industry Benchmark: 4-8% of total revenue.

Source: Society for Marketing Professional Services(SMPS) Benchmarks.

The Cash Flow Lowdown

Let’s talk dough—because you can’t pay the bills with "potential." Even profitable firms can hit a wall if cash flow isn’t managed.

‍

Metrics That Reflect Cash Flow:

• Backlog:  Keeps the future cash rolling in.
• DSO: Shows how quickly cash is collected.
• Gross Margin: Directly impacts operational cash.
• EBITDA: Shows how much cash your firm is generating from day-to-day operations.

‍

Final Word

If you’re an AEC marketer who feels like your work is less important or impactful than the technical experts, the operations teams, and even business development professionals, it’s time to take out that trash (and it is utter trash), wash your hands, and pull up for some coffee talk. I’ve been doing this for 20 some years (without a prison sentence on record—so far). I know that there are people who have told you your work isn’t as important, shown you that your time and deadlines don’t matter as they try to insert their last-minute genius into a proposal twenty minutes before it needs to be in the client’s hands, but your work does matter. You’re an essential cook in this kitchen. These metrics can be a recipe for respect. Learn them. Love them. Use them to prove how your work drives the firm’s success. Go easy on the last-minute geniuses, they're busy and mostly mean well. Now, book a coffee with the CFO and start digging in. And if you just need a sympathetic ear and some brainstorming (or revenge plotting), call me!

Stay tuned for a future blog post on the marketing and business development metrics that matter most!

A version of this blog post can be found on the SMPS SFBAC website.