Measuring the fee billing power of your practice

There are a few key questions about productivity, efficiency, or fee billing power that can easily be answered with a single metric: 'fee billing per person month.'

It’s a super simple calculation.

Just divide the total billing in the year by the average number of people employed in the year and then divide that by twelve.

Of course, this calculation can vary. For example, how is staff defined? Are we including Partners and Directors? Or just technical staff?  

Despite these potential variations, it’s still a reasonable metric to measure and report on, even if we’re just comparing it over time.  

With project management software, we can make our metrics even more accurate. We can look at how many hours were worked and how much was billed during that time. This gives us two new metrics: billing per hour and billing per project hour.  

            Billing per hour (BPH): All time from timesheets in the period / billing in period

This will include holiday time and sickness time as this is all part of the cost of employment. The hours would be based on 260 days, which with an 8-hour day calculates to 2080 hours. This measures the billing efficiency of the whole business and looks at all activities.  

            Billing per project hours (BPPH): all project time from timesheets in the period.

This will only measure the billing achieved for hours spent on project. Just like the previous metric, there are some external factors to consider that may cause impact. But both BPH and BPPH can still provide useful information and help us report on and measure how well we’re billing our clients.

Example of BPPH use:

The BPPH metric can give us some valuable insights into the technical staff’s billing power and the impact extra staff members may have on a practice.  

If your BPPH for a three-month period is £60 per hour, what could be the increase in your monthly billing if you hired one extra project team member?

 Let’s assume the following:

There are 260 working days in a year, but including bank holidays, holidays, and sickness, we have an estimated 220 working days or 1,760 hours if we assume an 8-hour workday.

But staff only carry out project work on about 80% of those days. The rest counts for internal meetings and administration. So, actual working hours are roughly 1,408 hours.

Now, let’s do the math's. If the BPPH rate is £60 per hour with an annual 1408 project hours available, that means they could make an extra £84,480 per year or £7,040 per month. It won’t be exact, but it gives us a view on the potential.  

It’s great to keep track of these metrics over time and compare them between different periods. This way, we can see if our efficiency or fee billing power is improving.  

Just a heads up, if your BPH was £45 per hour last year and nothing has changed, it’s likely to be the same this year.

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Example of BPH and BPPH

Now, let’s do a quick practice calculation. If your BPH is £45, and your practice has a turnover of £5,000,000, you should need around 63 staff. Based on 1,760 working hours in a year, that works out to about 63 staff.

But wait, there’s more! If your BPPH is £60, and those technical staff have a utilization rate of 80%, or 1,408 hours, the technical staff would number around 59. With the total staff being 63, that gives 4 support staff.  

Overall, understanding how to measure your productivity, efficiency, and fee billing power accurately is essential for AEC firms as it can prevent both over and understaffing, and potentially save your practice from unnecessary wastage.  

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