Empower your practice how to build your business profitabilityWhat makes for a profitable practice? This was the question at the heart of the AJs free webinar on 18 MarchThere are just two levers you can pull to increase business profitability, according to Simon Berry of business software specialist Fresh Projects: charge more, or spend less. The ins and outs of how to do this effectively were explored by Berry, along with a number of architects grappling with todays increasingly challenging market conditions, at a webinar run by The Architects Journal in association with Fresh Projects.With redundancies in the air and the RIBA reporting negative future workload trends for the third month in a row, its certainly a good time to tackle profitability, remarked chair Hattie Hartman.Participants were frank about their experiences. Al Scott of IF_DO shared the practices realisation, after it grew swiftly in 2018, that while it needed a 20 per cent minimum profit for directors to get paid and for the business to work properly, it was only just covering its increased costs. Aware that it needed to understand its business in a more data-driven way, it carried out a complete overhaul of its fees and realised that it was haemorrhaging money at Stages 4&5, the latter in particular. Our appointments were setting us up to fail, he said.AdvertisementIF_DOs response was to redesign its fees to better work for the practice, with closer monitoring of performance and fees based on data. This included, he said, exercising fee agreements to the max, capturing additional fees for additional work, and in particular charging on a weekly basis for Stages 5 & 6.Much of Scotts experiences resonated with Nick Hayhurst of 16-strong Hayhurst and Co, who said it was important to encourage clients to see architecture as a strategic investment rather than an expense.He talked about the challenges of not losing profit in the gaps between the work stages, especially since these services are usually carried out by senior staff. He advocated clearly defining these gap stages and time charging for the work, such as Stage 3+ (between planning application and starting detailed design) and Stage 4+ (between issuing tender information and starting on site). For Stage 5, he advised having a prolongation clause and setting out how such work should be charged, ie pro-rata per week or month. Otherwise, you are giving away your professional expertise for free.Another important area to address to improve profitability was avoiding gaps in practice workflow, Hayhurst said. Project programmes should be updated and reviewed each month, and his practice found it useful to do small projects alongside larger ones to help fill workflow gaps.Judith Stichtenoth, director of 45-strong practice dRMM, talked about the importance of establishing a decent fee agreement with the client from the outset, and of being taken seriously as business people as well as designers.AdvertisementIt was important to never buy a project there has to be a profit, she said. The practice also tries to establish a clause for fee agreements to be reviewed in line with inflation. Like Scott and Hayward, she identified Stage 5 as problematic for profitability. The only way to deal with it is to exactly know your scope, and dont shy away of issuing variations, she said, for example when there are changes to the programme.Stichtenoth advocated clarity and negotiation and open dialogue with the client during the project. If a client wants to reduce fees, propose the omission of certain deliverables accordingly, and issue clarification of scope. When it comes to getting paid on time, she advised clear payment protocols such as 30-day terms rather than two months, a pre-agreed monthly drawdown schedule, and clarity over invoice dates, addressees, purchase order numbers and payment terms. Practices should be prepared to talk to the client and keep telling them how important it is to get paid on time. On the rare occasion that dRMM has had to threaten to stand down when fees havent been paid, the practice does this after taking advice from lawyers, and finds that it does get swift results.For Berry, whose company provides project management tools for built environment professionals, architects need to get the fee right at the start, and that means being clear about their billing rates and the project scope.Not enough architects are brave enough to charge for changes, he said, adding that this can become a profit centre for the business. This was particularly important at the construction stages of a project, when it is better to go for time-based charging. As for the other profitability lever of spending less, Berry identified not just reducing overheads but optimising utilisation as the key move, so that cheaper resources are used to carry out non project work.Project tracking was essential. Berry said that while a spreadsheet was fine for practices with just a few people, it was worth investing in project management software when practices were above five or six people. Scott said this had been game-changing for fee efficiency and had paid for itself 100 times over. Hayward also praised the impact of such software on profitability.You have to have a system and you have to be militant about operating it, he said.Properly capturing levels of overtime was also important to get a true picture of project profitability, and help judge fee levels.Panellists were asked how to deal with an undercutting situation. It was important to stand your ground, said Scott, and ask for the scope of what others are providing in order to establish if there is a fair comparison. Berry suggested providing different fee options for different levels of service, and in doing so putting value to those extra services.Business profitability was not rocket science, said Berry in conclusion: Charge more than what youre paying to deliver the job, and have a system in place where you can track costs.The panelSimon Berry founder Fresh ProjectsNick Hayhurst principal, Hayhurst and Co.Al Scott director, IF_DOJudith Stichtenoth director dRMMHattie Hartman (chair) sustainability editor, The Architects JournalFresh Projects webinar 2025-03-26AJ news deskcomment and share