by Ray Brown & Bec Kempster

KPIs for Architectural firms: What metrics should you track in order to control your design business?

A Key Performance Indicator, or KPI, is a measurable value that demonstrates how effectively your design firm is achieving key business objectives. The key driver for utilising KPI reporting is to extract meaningful, relevant, timely and actionable insights that can be used to operate and improve your practice. KPIs provide trend information that is often absent from other forms of reporting.

Think of them as the numbers you’d like to know each week, or each month if you were basking in the sun on a remote, tropical island while your practice was being managed by others. The metrics that, even if you’re at arm’s length from the business, would provide you with reassurance that the business was in good heart.

There are two types of KPIs. The first is a lead indicator, which predicts what may happen in the future. For example, work secured in the month (but which may be delivered over two years), or the number of enquiries in a month which will be a barometer of future work.

A lag indicator points to what has happened in the past, such as revenue or profit in a month. It provides an indication of what happened after the event. Look to include a mix of both lag and lead indicators in your reporting.

When setting up your KPI report, we recommend you include data from the previous twelve months as this will immediately allow you to chart whether your practice performance is improving, or is poorer than the previous period.

Whilst KPIs can vary for different practices, there will be six to eight numbers that will give you a good indication of the health of your business.

Financial Metrics

Revenue is the first and probably the most obvious number your practice should be tracking. For most architectural practices, this will be the value you bill each month.

The second number is the margin in the business. Revenue less directly associated costs (such as staff salaries, printing fees and other project related expenses) will give you the margin. It can be a number, but is most often stated as a percentage of revenue.

The third financial metric you should be tracking in your firm is the level of expenses each month, stated as a number. Some owners may also like to pull out salaries as an additional metric, as for many practices this will be the largest monthly expense.

The next obvious metric is profit. Whilst you could turn to the Profit and Loss Statement for these figures, it won’t provide you with an indication of the how this number varies over time.

Most practice owners will be aware of their cash in the bank at the end of the month, however if you were asked what the cash in the bank was three or six months ago, there is far less likelihood of recalling this. Tracking this number in a KPI report can reveal seasonal trends, such as the months each quarter when tax payments might be made. This will allow you to forward plan to accommodate for these events.

Debtors and creditors are the final two numbers to add to your financial metrics. By deducting creditors from your debtors and adding the cash at the bank, you’ll have a balance sheet snapshot of the short-term liquidity of the business. That is, what you’d be left with (or possibly owe!) if you shut up shop today.

These KPIs begin to tell the real story when tracked together in one simple report or spreadsheet, over time. By marking any losses or negative numbers in red, you’ll easily be able to identify any downturns when reading across the report.

Sales & Marketing Metrics

In our experience, we find the pain point verbalised by most architects is a projection of when the work will ‘dry up’. For example, that there’s only enough work to the end of June. Having this information and forward commitment from clients is empowering. Put yourself in the position of a retailer. They don’t know who’s going to come into their store tomorrow, let alone next month. Knowing the workload of the coming months allows you to manage the pipeline of new business so that you’re hitting your financial KPIs and importantly, managing allocation of your team and resources.

To assist you in managing your pipeline of new business, we recommend the first metric you track is the number of enquiries received in the month. Because architects typically get so few new enquiries as opposed to other industries like law firms or advertising agencies, this is a reliable lead indicator of future work. You will quickly be able to determine an average number of enquiries per month and take action should the number drop below this average in any particular period. This metric is the best indicator of the success of your marketing activity, referrals and general awareness of your practice out in the market.

The next metrics will allow you to assess how effective your client engagement process is in converting enquiries or ‘leads’, to prospects. These are, the total value of proposals submitted in the month and the number of proposals. By tracking both these, over time you will be able to measure your average proposal value (total value of proposals divided by number of proposals) and track whether this is rising or falling.

You should also be tracking total value of live proposals as part of your suite of sales KPIs. That is, total proposals issued up until the date of reporting that are awaiting a response from the potential client. You should include two numbers here; both the number of proposals issued and the value of those proposals issued in the month. This metric is a good motivator for following up with potential clients to establish whether they are going to proceed with the project.

These numbers will allow you to assess the spread of future potential work. You don’t want to find your firm in a position where you’re reliant on only one or two overly big proposals.
The best lead indicator for design firms is work secured in a month. Work typically takes most firms eighteen months to two years to deliver, so if your practice is consistently winning a satisfactory level of work each month, you will be close to guaranteeing that you’ll still have a profitable practice operating in two years’ time. Not many other industries have this level of security in their business.

The final metric we suggest you track in relation to sales is the total value of unbilled work in progress. For this KPI, take all the work that you have on your books in the month and calculate the portion of the total project value that’s left to be billed. At Archibiz, we refer to this as a ‘sleep at night number’ as it can help alleviate any uneasiness about the work ‘drying up’.

This is a fear we regularly hear about from architects. Being in business is not just about delivering the work, it’s about bringing the work in. Investing focus, time and process into building a robust sales pipeline in your firm, will help shift your mindset from a place of unfounded fear to confidence and comfort.

That robust pipeline will result from implementing a basic marketing strategy that is executed consistently. This marketing strategy should include a content rich website that is updated regularly and social media activity. For those design firms that have this in place, you should be reporting on at least the following marketing metrics:

1. Unique visits to your website
2. Social media interactions such as comments, likes and shares
3. Number of marketing activities occurring on other people’s channels, such as articles, blog or social media posts

Frequency for tracking KPIs

We recommend tracking these KPIs on a monthly basis, as a rule of thumb, as quarterly won’t forewarn you in adequate time to act on a negative trend. On the other hand, you may find yourself bogged down in the numbers if you try to track them on a weekly basis. That being said, cash flow is a metric that is worth reviewing on a weekly basis.

Cash in the bank at the end of the month can hide liquidity concerns taking place within the month. Take the example of the practice that pays wages on the first of the month, or even the 15th, but doesn’t receive payment on invoices until the end of the month. We recommend reviewing particular KPIs, such as cash flow, in line with the operating processes unique to your firm.

Even if you don’t utilise the KPI at this point in time, by keeping this list of metrics in your KPI report, you will be able to perform analysis on these at any point in the future with ease as you’ll have a historic record of the data.

Reporting on these KPIs presupposes that you have good bookkeeping processes and financial management in place in your design firm. It assumes that you have established systems and processes in place for delivering the product. Ask yourself, are you putting work out efficiently? Do you know when projects are running over budget? Have you got a six month plan in place for delivering the work that matches the right resource with the appropriate jobs?

Avoid surprises

The risk of not regularly reviewing a set of KPIs in your design firm is surprises. Being ‘busy’ isn’t a reliable indicator of long term sustainability, particularly if your operating processes aren’t optimal.

It is much more difficult to respond late in the piece to a negative trend that was established over a period of time. The earlier you receive a warning signal and can act, the easier it will be to take action to revert the situation.

Likewise, KPIs give you a reason to celebrate the good times, something we tend to forget. There’s more to celebrate than just landing a big win. For example, we used to be here and now we’re somewhere better. Or our average monthly work secured is now 20% better than in the previous year.

Above all, KPIs are about providing you with peace of mind. To understand that your practice is going in the right direction rather than relying on a gut feeling or worse still, putting your head in the sand and praying for the best.

Achieving control in your design firm

Though our lives are renowned for unpredictability, we as individuals crave a sense of control. The reality is that we don’t always have total control, particularly over external factors such as market forces or over other people, such as whether an employee chooses to remain working in our business.

Achieving true control is an unrealistic mindset that will only serve to keep us in a place of fear. A more realistic goal to strive for in your role as ‘Director’ or ‘Owner’ of a design firm (as opposed to your role as ‘the architect’), is awareness.

Being aware of trends through a set of KPIs will allow you to shine a light on the world of greyness you find yourself operating in as Director or Owner. It’s important to focus on understanding the levers in your business as opposed to achieving a feeling of control. —

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by Ross Clark

Success in architectural practice can be elusive. Regardless of practice size or years of experience, many practice owners, directors and leaders believe that if they devote most of their energy to creating great architecture, business and financial success will follow. Fifteen years on, they still find themselves struggling in survival mode, never quite winning the top clients or projects that the ‘favoured’ practices seem to attract with ease.

So, what is a successful architecture practice doing differently? More importantly, what are you doing, or not doing, that’s holding you back? What’s creating barriers between you and real practice success? The chances are that a quick review of your practice will reveal some, if not many, of these cardinal sins of architecture practice:

#1 – You’re playing-to-play, not playing-to-win

Becoming an architect takes a lot of hard work. Getting to the point of founding your own successful architecture practice is an enormous achievement. You’re in the game!

However, like any creative, just being able to do what your competitors can do will only get you so far. Sure, if you do your best, you’ll probably manage to meet your costs, and you may win some happy clients along the way. But if you aim to be the best, to lead rather than follow, and to do everything possible to win, rather than just survive, you’ll go a long way to creating not just brilliant architecture, but continuous financial success as well.

Fix: Engage a suitably experienced business advisor or coach to help you create a clear business strategy. Ensure your plan is firmly based on a winning mindset, by focusing on hard work and not just talent, building resilience and perseverance, taking many small steps, and by being action-oriented rather than reflecting on what might have been.

#2 – You don’t know your ‘why’

Playing-to-win means you need a plan to win: A strategy to take your practice where few other practices go. This plan needs to have a specific objective. Otherwise, it’s pointless.

In any business, having clarity of purpose is essential to success. This purpose can’t just be to create great designs or even to build unique residences. Like Google (“To organize the world’s information and make it universally accessible and useful”), Tesla (“To accelerate the world’s transition to sustainable energy”) or TED (“Spread ideas”), who are all winners in their respective fields, you need to articulate a purpose that can continually drive you and your team to exceed your clients’ expectations. This purpose is your ‘why’.

Fix: Take some time out with your team and (if possible) a specialist consultant, to refine and clarify your ‘why’.

#3 – You’re not proactive about lead generation

Offering amazing outcomes won’t matter much if you don’t have any clients! The same can be said if you don’t tell them what your offer is and how it is relevant and unique.

Architects are in the sales business just as any other business owner. Yet many architects adopt the philosophy: Do good work, and the clients will walk in the door. However, the most profitable practices devote time, energy and money to nurturing leads, figuring out where the best prospects come from, and really getting to know and understand those people and organisations they target as potential clients.

Fix: Develop and implement a lead generation and nurturing program, using suitable software to automate as much of it as possible. The most popular packages include Monday.com. HubSpot, Pipedrive, Salesforce Pardot and LinkedIn.

#4 – You sell what you do, not the problem you solve

Probably the most common mistake architects make in sales and marketing – whether on their website, promotional material or in submissions – is to focus on what they do.

Well, guess what? Every other successful architecture practice out there can design. And document. And administer contracts. And apply for building approvals. What sets you apart, and what will have clients wanting to work with you, and even paying higher fees, is the ability to connect with them. Explain how you’re perfectly placed to solve their particular set of problems. Most potential clients only want to know that you’re on their page and that you can empathise with their unique circumstances.

Fix: Reconfigure your marketing to focus on the problems your practice solves. And use storytelling techniques to engage compellingly with prospective clients and shift the focus from product to people, just like Nike, Airbnb and Lego.

#5 – You think it’s all about design

One of the most common motivations for creative professionals starting their own practice is to regain design autonomy. Many architects wish to recapture the design freedom they had at university.

Yes, design is important. It can be critical to your brand and reputation. But you and your team will be lucky to spend 10% of your time in the creative phase of design. The rest of your time will be spent planning its execution and doing non-designerly things like making your business actually run. Devoting unrealistic amounts of time to design might make you feel great, but it won’t lead to success.

Fix: Track the time you and your team spend on all tasks and, based on the evidence you collect, ensure you maintain a sensible balance of income-producing time and non-income producing time.

#6 – You don’t see architectural practice as a team sport

Many architectural practices are sole practitioners. Many are known by the name of their founder. But no architect ever delivered a great building without input from others.

Whether you’re a sole practitioner or the principal of a large multi-office practice, you’re reliant on a range of players working together to deliver your product successfully. Some of these players may sit inside your practice, while others may be collaborators, consultants or outsourced contributors. Regardless of who they are, their ability to align and function as a high-performing team will be a crucial determinant of your practice’s success.

Given the rarity of high-performing teams, creating one can be a compelling point of difference. A high-performing team can overcome all sorts of challenges and consistently generate real innovation, creativity and sustainable business growth. A team’s effectiveness will often boil down to one simple thing: Trust. Without it, there can be no permission to fail, no encouragement to challenge the status quo, and no motivation to do better.

Fix: Getting the practice’s leadership to move away from an egocentric, do-as-I-say approach can be challenging. Generally, this can only happen when leader(s) fully commit to a genuine, team-based philosophy. It is virtually impossible for an ego-based leader to drive change – in these instances, an independent business adviser or coach will need to be engaged.

#7 – You never say ‘no’

As well as building trust within a team, you also need to build trust and belief in yourself. Have you ever said ‘yes’ to a project you really didn’t want? Have you persisted with a client who is not on the same page as you? Have you agreed to a low fee – or no fee at all – just to get the job?

Most architects have done all these things, especially in the early years of their practice.  But despite rationalisations – “maybe this project will lead to something more exciting” or “I’m sure the client will change” or “let’s think of this low-fee job as an investment” – learning to trust your intuition and say ‘no’ is an essential milestone on your pathway to success.

Fix: Develop a clear strategic business plan. Clarify and define your overarching purpose. Build a team culture based on trust, where everyone operates with the same set of core values. A clear understanding of where you are going and how you plan to get there makes all the decision-making far more straightforward and empowers you to say ‘no’ to anything that is not aligned with your direction.

#8 – You consider yourself an expert rather than a facilitator

As a professional, part of your allure and value lies in your expertise – knowledge and awareness that the client doesn’t have. There was once a time when clients submitted to the view of the expert. But those days are virtually gone.

Business in the 21st century requires an equitable dialogue between customer and professional. A discussion that is based less on how much the professional knows and more on how effectively they can discover the unique aspects of the client’s needs and circumstances, will enable a genuinely creative outcome.

Fix: Prioritise continuous learning for everyone in your practice. Develop a clear strategy to embed proactive innovation and research into all aspects of your practice’s culture and operations.

#9 – You don’t plan for success

You wouldn’t recommend to a client that they build without a suitable plan. So, it’s confounding that so many architects feel comfortable trying to grow their business without a plan. It is ideal to create several different plans, extending from the big picture, strategic aspects of the business (strategic plan, business plan, growth strategy) down to the finer operational details (financial, resources, facilities, marketing).

To move from ‘survival’ to ‘sustainability’, it is best to focus on the financial plan and resources plan. Or, in simple terms, the finance budget and time budget. It is essential to set realistic targets based on your knowledge of past performance at both practice and project levels to deliver ongoing success.

Fix: How do you feel about the client who wants to override your specialist advice and design their own building? How often do you carry out your own structural or mechanical service designs? Business and strategic planning is a specialist skill, so hire a suitably experienced specialist to help you.

You don’t track or measure your performance

Without a plan, it’s almost impossible to measure performance effectively. This is because you have nothing to measure it against.

I suspect most practices would say they do measure performance. But while basic comparative statistics like the number of new projects, staff, or bank balance are informative, none of these bears any causal relationship to profitability. You could have twice as many projects, or staff, or a higher bank balance, but your business could still be less profitable.

Profit is not the only meaningful measure. Other values include client satisfaction, media coverage of your projects, and staff turnover. The better you perform across all aspects of your business, the closer you will get to success.

Fix: Establish critical measures relevant to your practice, set appropriate targets, and make sure you have systems in place to capture the performance data you need. Relevant measures might cover financial data (profitability, revenue, cash), staff (time, cost, length of tenure, satisfaction), customers (sources, conversion rates, satisfaction), media and awards coverage, and projects (type, size, value, services offered). Regularly compare actual performance with targets and be sure to take appropriate management action when targets aren’t met.

Breaking down these barriers to success

Practices that have overcome most of all of these barriers are far more likely to achieve success at levels well beyond basic business sustainability. But it is critical for highly a successful architecture practice to implement the required management actions deliberately and explicitly.

Behavioural and operational guidance is needed for everyone in the practice, to contribute to achieving great outcomes. Ensure that your practice’s leadership compiles, shares, and actively reinforces these guidelines with everyone in the business.

So, survival, sustainability or success? Which of these goals is the ceiling for your practice?

How far you can go will depend on how hard, and how smart, you’re prepared to work. A successful architecture practice will tell you that success is definitely achievable, and absolutely rewarding.

Ross Clark is the founder of Melbourne-based business coaching and advisory service, WhyWhatHow. He started his career as an architect and has more than thirty years’ experience in mentoring and coaching architects and creative professionals so they can start, innovate, and grow highly successful architecture practices.

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Bringing in new work while handling the daily ins and outs of running a company requires a combination of talent, skill, team effort, a great business plan and smart organization. Particularly in the moments that call for scaling up, it becomes apparent that architecture is an industry in which technical knowledge, management, and business understanding are as important as good design.

The Hinge Research Institute recently released their new their 2018 High Growth Study which took an in-depth look at AEC firms in order to determine why some grow faster than others. More than 1,000 companies participated in the study and architecture, engineering and construction services firms made up more than 21 percent of the sample.

The study showed that the habits and priorities that drive higher than average growth numbers can be broken down into three categories. High growth firms are:

• Focused on understanding the marketplace and are nearly four times more likely to perform regular research on their target markets.
• More likely to specialize and recognize skills that set them apart from the competition.
• Quicker to adopt digital marketing tactics and content marketing. They also attend more conferences and events.

#1 – Develop Policies and Procedures

In today’s competitive market, effective strategic management is paramount for sustaining a business. Committing to a new strategy can be daunting and seem at risk of somehow cutting off possibilities and options. To avoid this, firms are advised to develop a structure that will increase the odds of success. To start, create a list of shared, general goals which are then broken down to specific, measurable objectives with precise targets. These decision-making processes should relate to organizational structure, staff recruitment, sales message, pricing, management, leadership and marketing approach. By setting office standards, you make the onboarding process for new hires faster and more efficient. This will save time, cost and avoid the frustration of training simple processes and answering repeated questions.

#2– Research Markets for Growth Opportunities

In an interview with Architect Magazine, new HOK CEO Bill Hellmuth explained the firm’s recent foray into sport and hospitality: “We re-established our sport practice a little over a year ago when we merged with 360 Architecture, which had some original HOK-ers in it. So, we’re back in the sport practice. Where growth opportunities occur is not just in sport but the intersection of sport and master planning and what happens when you add a sport venue to an urban district… We also recently merged with a [global] hospitality firm [BBG-BBGM] and we’re now looking at the intersection between hospitality and healthcare.”

Don’t be afraid to enter a new sector. Architectural thinking and project experience can be valuable across various building markets and you may surprise yourself by offering more than you think.

#3 – Work on Your Brand and Market Positioning

In order to differentiate themselves from the competition, business owners need to understand what they do and where they want to go. What will naturally emerge from this understanding is an idea of marketing as a natural extension of their company’s work ethics, company culture and service quality. Sheela Maini Søgaard, CEO and Partner AT Bjarke Ingels Group, confirms this stance in her piece for Design Intelligence: “As long as we continue to create stories from the way we genuinely approach design, our marketing will be organically derived rather than contrived. Once you have originality and integrity in your communication it is simply a question of finding the right tools and outlets.”

#4 – Strike a Balance between Exploitation and Exploration

In a popular TED Talk business strategist Knut Haanaes identifies the main reasons why companies fail. According to Haanaes successful companies create a balance between exploration and exploitation, competently doing more of the same as well as doing what’s new. Focusing only on exploitation–providing the same proven services or product–may not be risky in the short-term, but it is a risky strategy in the long-term. Investing in research and development is crucial, as it will allow you to stay on top of business, technology and marketing trends.

#5 – Hire Smart

Once in position to take on larger projects, hiring new people can make a huge impact on the stability of the firm. If the firm plans to work on several larger projects simultaneously, it needs reliable employees who understand the company culture and project managers that can help come up with realistic goals and set achievable deadlines. It could be useful to create a list of essential competencies for new hires and a set of responsibilities for each position within the firm. The way you select new hires will have an impact on whether your firm’s culture thrives or crumbles. In fact, CB Insights found that among the top three reasons why startups fail is not having the right team.

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It’s important to remember that there is no one-size-fits-all strategy for scaling up. Read up on the experiences of successful archipreneurs, talk to experts in scaling up, friends and colleagues who have done it before, and come up with a solution custom-tailored for your business.

The post 5 Tips to Make Your Architecture Firm Ready for Growth appeared first on Archipreneur.

Architects in general have a tendency to underestimate the importance of marketing in creating and running a successful business. Even those who claim to understand the role of marketing in acquiring clients and building relationships, they often fail to fully utilize its potentials. Principals of small architecture firms often get caught up in trying to keep their practices afloat and end up treating marketing as a luxury that they will be able to afford once they achieve stability, thus missing the true role of marketing as being a catalyst for growth. Architects need to apply marketing to their practices from the onset and treat it with the same amount of dedication as they do with their floor plans, sections and 3D models of their building designs.

Marketing is a complex discipline, but its fundamentals can be broken down to a few simple concepts. As long as you keep these in mind at all times, your marketing efforts will be more successful, and easy to analyze and adjust. You need to be able to answer these three relatively easy questions and communicate them effectively to your audience:

Who are You?

In order to define your place in the industry and your target demographic, you need to determine who you are and what you do. Vague phrases about quality services, multidisciplinarity and “cutting-edge design” on your About Us page will not provide any useful information on what your company actually does. What do you stand for? How is this vision reflected in your office culture, design, and the type of projects you take on?

What Need Do You Fulfill?

Answering this requires you to formulate a value proposition. A value proposition explains how your service or product can help to solve your client’s problem and must be formulated in a concise and clear way, showing concrete results where possible. Even if you offer great value, if you fail to communicate it, your business will not attract new clients.

How are You Different?

Being able to differentiate yourself from your competition is a huge advantage. This is not easy, but your efforts have to go beyond mere sound bites. It can be achieved either by simply offering services in a more organized, client-oriented and reliable way, or by creating a unique, game-changing product or service.

Once you can answer these three questions, your marketing efforts basically filter into four-step process:

1. Attracting potential clients
2. Converting visitors to leads
3. Closing the deal
4. Cultivating relationships

These steps may seem straightforward, but there are several schools of thought on how to apply them. With the recent widespread adoption of social media and online tools, marketing has expanded to exciting new ways that architects can engage with and build an audience, and then successfully convert them to leads.

Today’s users have much more control of their media, and this has leveled the “marketing playfield” by offering businesses the opportunity to organically reach audiences by using relatively affordable channels and winning them over with engaging content. This phenomenon has introduced the concept of  “inbound marketing,” which contrasts with the traditional “outbound marketing” in almost every significant way.

Before coming to a verdict as to which is better, let’s see what each entails:

Outbound Marketing

Outbound marketing includes traditional advertising practices, cold calling, email and newsletter blasts, sponsorship, and word-of-mouth referrals, to name a few. It is generally known as an interruptive marketing practice that has become less effective in the last few decades. Spam protection tools and blocking techniques, along with the development of new communication trends through social media, have empowered users and limited many of the elements of outbound marketing.

Inbound Marketing

Inbound marketing embraces new media tools, and promotes creating and sharing content that appeals to specific demographics. Publishing the right content at the right moment is at the core of inbound marketing. It focuses on building communities and relies on organic search traffic. It uses blogs, social media, calls-to-action and landing pages to convert visitors to leads.

Data is also an important element of inbound marketing as it uses surveys and social monitoring to find out where your target audiences are and what they want.

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Most architecture firms will not have to choose between inbound and outbound marketing. Despite hyperbole from proponents of both concepts, they actually work best in combination. You will probably need to keep sending out newsletters and press releases, publishing in magazines, and attending seminars and conferences. However, inbound marketing will allow you to track your return on investment (ROI) more easily, and thus build your reputation. Just remember, there is no single marketing solution that works for everyone.

To learn more about how some of the leading architecture firms use social media, networking, blogging and other marketing tools, check out Archipreneur’s book on new business models for architects, “The Archipreneur Concept”.

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