Formulas: Seven P-L Statement Key Financial Performance Indicators

Utilization Rate

Formula: Direct Labor Hours ÷ Total Labor Hours × 100
Example: 32 ÷ 40 = 80% Target: Entire firm 60-65%
Professional/technical staff + principals: 75-85%

Overhead Rate

Formula: Total Indirect Expenses ÷ Total Direct Labor

Example: $308,241 ÷ $200,914 = 1.53

Target: 1.30 to 1.50 of Total Direct Labor

Break Even

Formula: Overhead Rate + 1.00

Example: 1.53 + 1.00 = 2.53

Target: 2.30 to 2.50 of Total Direct Labor

Net Multiplier

Formula: Net Operating Revenue ÷ Total Direct Labor

Example: $622,207 ÷ $200,914 = 3.1

Target: Greater than break-even rate — industry benchmark 3.0+

Profit to Earning Ratio

Formula: Net Profit (before distributions and tax) ÷ Net Operating Revenue

Example: $108,817 ÷ $622,207 = 17.49%

Target: Equal to or greater than the anticipated net profit in the Annual Profit Plan — 20%+

Net Rev per Employee

Formula: Annual Net Operating Revenue ÷ Total number of employees

Example: $622,207 ÷ 6 = $103,701 per employee

Target: In excess of $100,000 per employee

Aged Accounts Recievable

Formula: Average Annual A/R ÷ (Net Operating Revenue ÷ 365)

Example: $245,090 ÷ ($622,207 ÷ 365 = 1,705) = 144 calendar days

Target: 60-90 calendar days — anything over 90 means the firm is lending money to the client at zero cost

Net Operating Revenue

NOR is what the firm actually has to work with (excluding money that just passes through to consultants and expenses) to pay for salaries, operating expenses, taxes, and profit.

Net Service Revenue

The contracted amount before the architect pays for consultants/expenses.

Project budget/contractural fee

Accounts Payable

The amount that the firm OWES vendors

Accounts Receivable

The amount that a firm IS OWED from customers
i.e. is the money customers owe your business for products or services bought on credit.