How to Increase Engineering Firm Profit

If the job is big enough, many firms may search for engineers frantically to build up their staff to handle this new “growth”. The reality is that this may not be actual sustainable growth, but a temporary surge in required manpower due to deliverables for separate workloads occurring at the same time.

The average actual revenue growth for a typical firm is 4.2% in a given year (as shown in the 2020 Deltek Clarity Architecture & Engineering Industry report). With a relatively modest growth such as that, adding engineers should be be controlled and deliberate. Especially since it is estimated that the cost of hiring a new engineer ranges anywhere from 6 to 9 months of the position's salary.

The Current State of Affairs

If you are hiring a senior-level engineer for a $120k salary/year, the complete cost to recruit, hire and train is estimated to be anywhere between $60k-$90k – not an insignificant amount. At this cost, this engineer surely needs to be the right fit. If not, a lot more time and money will be spent to correct the issue. Unfortunately, whether they are a great employee or not will affect a firm’s profit.

The industry average employee turnover for a firm is 12%. This means that if you have a staff of 100 engineers, an average of 12 of those engineers will likely leave for another opportunity at some point during the year. Unless those departures happen to align with a desire to grow in the wrong direction, this is an issue. Those 12 engineers need to be replaced, and from the last paragraph, that turns out to be a considerable expense that increases the firm overhead rate and ultimately the ability to compete with firms that may be managing resources more efficiently.

The Bureau of Labor Statistics estimates that the average tenure at a firm for employees aged 25-34 is 2.7 years. Before COVID, this average tenure was estimated to decrease by 0.5 years every 5 years. This means that by 2026, the average tenure will be 2.2 years before the engineer moves on to another firm/opportunity. One could argue that the massive shift in workplace culture due to COVID will likely lower this average tenure for an employee at a firm even more.

Regardless of the final number, the challenge that firm management faces is paying for the $60k-$90k cost of hiring one engineer and the time to hire one which averages from 45-60 days. The median firm operating profit from the 2020 Deltek Clarity report is roughly 19%. Based on average revenue/employee metrics, this will take a minimum of 3-4 years to break even on the investment in this new engineer. Unfortunately, 2.2 years < 3-4 years. No further math is required to understand what that means.

What is a Solution?

So what is the tool that you now have at your disposal to solve some of these resourcing issues and give your firm a competitive edge in engineering services? Shingle.

Shingle enables your firm to remotely-access credible, verified US professional engineers (PEs) or FEs when you need them. Keep a sustainable, utilized full-time engineering staff and add engineers only when you need them for your manpower peaks. Add full-time staff for your trendline growth, not for “perfect storm” workload surges. The storm always passes and many times with inadequate project backlog. Overutilizing your existing staff to handle the peaks will eventually backfire - ultimately resulting in burnout and much higher employee turnover.

And we know this is not cheap.

We’ve developed a firm profit analysis calculator so that firm leaders and their project managers can see how having the ability to access flexible engineering resources positively affects their bottom line.

The calculator defaults are set up to increase the staff of a small engineering firm to handle a workload peaking at 10 full-time equivalents. After a few months, the required resources wind down. As a starting point, we recommend noting the current operating profit percentages and $ amounts and then adjusting the employed engineers of every month to the average required FTE for the year. Unless your firm is truly an outlier, you’re likely growing revenue at an average of 4-5%/year long-term. Adding even one engineer permanently for this revenue increase every 2 years for every 10 engineers on staff would probably be enough. However, we can guarantee that at certain times during that 2 years, you could certainly use a few more engineers. Note the change in operating profit % and bottom line operating profit as the staff is modified to handle the peaks with on-demand shingle consultants by adjusting available employees to the average required FTE shown by the calculator.

Adjust the required FTE sliders for each month to simulate a volatile workload, change the available engineers to match the average FTE, and experiment with the other inputs. You’ll likely find some great value with the use of flexible highly qualified engineering resources that shingle can provide to your firm.

Additional Advantages of Shingle

The great part about using a tool such as shingle is more than just immediate resourcing needs. It also will allow firms to try out highly qualified engineers that they may be considering for full-time employees in a real project environment before hiring. Avoid a costly hiring mistake by taking those candidates for a "test drive" with a short duration task. Then make the final offer after seeing how they perform.

Managers should also not forget that this flexibility will translate to firm flexibility and profit increase by:

1. Enabling the bidding of additional work without enough current or future available staff.
2. Producing the lowest price possible in a competitive bidding environment because let’s face it, low bid usually wins.

Find out more about joining our upcoming Beta period if you feel shingle would be a useful tool for your firm or project needs. There is no risk, cost or obligation to sign up and be considered for the Beta launch as a participating firm or PM. Consultant signups have already started, so don't miss your chance to access the exceptional engineering talent we see coming in from all over the US.