Your job is to go get more work. Your job is to lead the business forward. And your job is to make sure that your systems and processes are healthy as your business grows.
Welcome to the Business of Architecture. I'm your host, Ryan Willard, and in this episode, I have the great pleasure of speaking with Robert un associate of the AIA. The CEO and co founder of monograph, Robert was trained in architecture and recognize the need for better business tools and developed monograph to address the challenges facing architecture and engineering professionals. As a result, he's become a leading voice in the industry, promoting the importance of A and E business performance and helping firms improve their workflows and profitability. His mission is to always be in service to the design professionals responsible for our built environment. Let them focus on what they love and do best monograph is a software company revolutionising the future of architecture and engineering firm performance. firms use monograph to make quick and confident decisions about budgeting and resources to drive their practices forward. In this episode, we will be discussing monographs recent benchmarking report, what benchmarks are included and how to improve them, and where and why practices have to earn the right to engage in certain business activities in their business. So sit back, relax and enjoy Robert un. This podcast is produced by Business of Architecture, a leading business consultancy for architects and design professionals. This episode is sponsored by Smart practice business of architectures flagship program to help you structure your firm for freedom, fulfillment, and financial profit. If you want access for our free training on how to do this, please visit smart practice method.com. Or if you want to speak directly to one of our advisors about how we might be able to help you, please follow the link in the information. Hello, listeners, we hope you're enjoying our show. We love bringing you these insightful conversations, but we couldn't do it without the support of our amazing sponsors. If you're a business owner, or know someone who would be an excellent fit for our audience, we'd love to hear from you. Partnering with us means your brand will reach over 40,000 engaged listeners each month interested in becoming a sponsor, please send us an email at support at business of architecture.com. Robert, welcome to the Business of Architecture once again, how are you?
Thanks for having me. I'm doing really, really well. It's a Friday.
It's Friday, we've weekend coming up Easter weekend, and very excited to be talking to you. As always, as you know, I'm a big fan of monograph. And I'm constantly recommending it to our clients. It's my problem, probably the go to one that I suggest to clients to look at when they're getting themselves sorted out with financial management and and Value Management and just being able to get proper financial eyes on what's happening on the performance of the business. And I was really excited with the recent business benchmarks reports that you guys have produced first of all, like just congratulations and everything that you're doing at monograph, because the responsiveness of your team, the feedback I get from our clients who are using it, it's all just amazing. I think it's a beautiful looking bit of software. And it's been really well thought out specifically for architects. And one of the things some of the feedback I've gotten from our clients who use it is they often say, Well, you know, something's missing in the software, and they'll jump on the phone with one of your advisors helpers. And within the space of a few weeks, that functionality actually has emerged and is now up and running, which I think is amazing. And I know last time we spoke, you said yourself that you've even, you know, you jump on the call, you jump on a call with people with the users. And I think that says a lot about your attentiveness and depth of understanding of the marketplace that you're that you're dealing with. So let's let's start with the benchmark report. And what instigated doing this? Well,
well, first, I just want to say really, really, thank you. I think it's a huge testament to the team here. And for those who don't know, I, I strongly believe a strong business culture is really essential. And it's absolutely part of our DNA to always put our customers first. And we'll see that play out from you know, all the way at the top at me to everyone else in the organization and it means a lot to me, for you to hear that and for the for our customers to validate that until each other that's that's a huge testament. I'm extraordinarily proud of it. I'm extraordinarily proud of my team. It's amazing. One of the big reasons that we decided to do this poured was we crossed a really major milestone last year, we crossed 1000 customers work extraordinarily data driven business here, when we drive a data driven culture, and we understand that we can produce a benchmark report without a large enough sample size. The 1000 Customer mark that we crossed last year was the moment that I was like, Okay, we now have enough of a cohort and enough of a sample size to start really understanding what the profiles of our customers look like from the bottom quartile to the top quartile. And what does good look like? And what does great look like, not bias, but based on performance, and based on data. Great.
Now, there's a few interesting differences that I think is worth pulling out between the benchmark that the benchmarking report that you guys have produced and say something like the AIA or the RBA produces or even something that we've produced ourselves here business architecture, where we've we've kind of surveyed a number of, of clients and and listeners to the podcast before and I know how much work goes into compiling these sorts of reports. And then it's, it's no small undertaking. So what would you say was the big difference between a lot of these other surveys that have been done and the ones that monograph has produced?
I think when you do a historical survey, and you ask someone for their opinion of how their business is going, there's always gonna be, let's say, opportunities for error. Because like, let's all be honest, we all want our business to be really, really great. So we might inflate the numbers, even though we might not be be extraordinarily honest, not on purpose. But when you base historically a measure of the entire industry on just a question to that firm owner, you would have to then question that there is a margin of error and legitimacy to that response. Yep. Our first principle approach is they will we lease we are building an incredible company, incredible product that serves us very, this very problem, we should surface legitimate answers to what is those net revenue per employee? And what is the net performance of the business? unbias based on anonymized data from our customer base. It's a fundamentally different approach, which one I'm really, really excited about, because it ensures that the accuracy is much more spot on and removes a lot of the margin of error that's historically done with a survey.
I think this this is actually quite profound, right, is that you've got everybody reporting, ultimately using the same kind of platform with a very similar way of considering and looking at their finances, which suddenly makes changes the game completely. And we know that, you know, one of our experiences, when we were getting data back from people was we had to put, we had to Cat start categorizing data, or we had to start creating a spreadsheet if you like, or, or data capture survey, that had predefined answers in it, to try and deal with the wild inaccuracies, or where people were finding themselves. So the the fact that you're able to kind of have people produce reports, using software that you know, inside out, I think is a totally, you know, different way of looking at it and is really on the pulse and very, very interesting. So,
it's a huge game changer. I think as our sample size grows, we're I'm really, really excited, at least when we look at the whole industry, we'll be able to drill down into regions, we'll be able to drill down into typologies of work, that we'll be we'll be able to categorize and subcategories based on size of firm. All we're doing now is waiting for those sample sizes to catch up to a meaningful quantity, where we're the benchmarking report is actually useful. Yeah, but that that part, I'm really, really excited. And then for each customer, over time, we'll be able to essentially say your improvement with monograph, like you started here, you're now here, you're an introductory to x. These are amazing tools that like architects have never had before. Quantify based on performance and not based on sentiment.
Brilliant. So can you tell us a little bit about how the data was actually collected? So I'm assuming it wasn't something that was people they produce a report themselves using the software and then submit it or is it something that you're able to pull back end if you like.
So we were able to pull back in? Because we're all for business, all that data sits there run through extraordinarily fast offered two sides of anonymizing all the data. Right? So like, there was really no extra work from our customer base.
Right? Okay. So you can actually just go in there, look at it anonymize the data and make sure it's all safe. And, and looked after. And then actually extrapolating are all
rules as well. So that we obviously serve a really wide part of the market. We go from anywhere, solo practitioners, all the way to firms sizes that have about 100 employees. But we really narrowed in to from sizes somewhere between single digits five to about 1520. And really honed in where that's the largest sample size that we can collect. We also remove any, any companies and customers that were not in the United States to make sure that the data that we're looking at was extraordinarily US centric, because that was our largest sample size.
Got ya got? Yeah. Do you find that there's a kind of very more populous demographic that you serve in terms of architecture practices? Like what's that? Said, again?
Five years between five to five to 25. Right. Okay.
So that kind of mid mid size architecture practice to small?
Yeah. Great.
Now, one of the first kind of rallying cries of the report is this call for radical transparency. And, and again, this is something I'm very keen and passionate about, like the idea of, you know, there was the old guard of architectural governance of a practice, which was normally everything was kept behind lock and key. And, you know, never would you talk about money with the team members, team members don't know what, what the budgets are, what the fees are, how much money is being spent here and there. And still, that kind of culture persists. And I think it's very difficult for certainly younger project managers to be able to do their job effectively, if they don't have, at the very least, access to time budgets for a project which have been generated from, you know, a thoughtful exercise of actually comparing data putting together a proposal and, you know, taking out profit margin first and actually kind of creating a project budget. So what from your perspective? What is what is radical transparency? What does it mean?
It tries to describe a really simple, you can't work on something you can't see. It's really that simple. And I think it's, we're in we're in a transformative time, where we want to be a very different industry. And we want to be a much more high performing industry, we have to put some of the old ways behind. And we have to acknowledge that a person can't work on something that they cannot see. So it's extraordinarily hard for a young project manager to be accountable for project budget, when they don't know what the project budget is. Like. It's, it's it's extraordinarily difficult. It's like, okay, I have to stay on time. and on budget. I know what the timeline is. So I can work towards that. I can't stay on budget, if you don't tell me the budget, huh? Yeah, I just, it's extraordinarily simple logic here. And then through our platform, and through our other content, we try to make sure we can constantly encourage that the right way to manage your business is to continue to be more and more open and transparent. If you're behind schedule, it's a rallying call to the whole firm, that no one wants to lose, no one wants to lose on a project. Get support. If you're a principal and your owner, lean on your team, your team is your largest asset, and they're there to help you and no one wants you to fail. But no one can work on a problem when you can't see the problem. Do
you actively empower your customer client base, to have the whole team engaging with the platform with monograph rather than it just being something that sits in the in the realm of the of an office manager? Or maybe the partners are only get to see it? Is it something that you're actively like, you know, project managers, everybody needs to be using the software daily to be able to see what's what's happening?
Absolutely. That I believe also, that's the downfall of historical older software, or you would write software and one person and office manager or principal might manage the software for everyone else. It's actually counterintuitive like you want participation from the entire organization. And you want the entire organization to understand their efforts and their inputs, impacts the output of the work. The simplest way we do it every day monograph is we help Customers track time each individual tracks time of an organization. And as they enter time, everything moves. So it really becomes like a gas gauge for for project. So as a designer, you know that every hour has an impact, because every time you enter an hour dials, and our money get on or project progress moves, is extraordinarily empowering. Yeah, it also changes behaviors, because then you go from a mindset of tracking time, once a week, to tracking time every day.
Love it. And this is where it gets really interesting is it's kind of people are able to self regulate, hold themselves accountable. There's a gamification around it, you know, enlightened CEOs can start attributing, you know, rewards and, you know, gamifying it internally. You know, with performance metrics, I think it's incredibly powerful. I'm very glad to hear that. This is something that everyone in the team starts to use. It's not. It's not just for the office, accountant or manager, I think that's very, very enlightened. It's super
important. Imagine a young designer today, who might, you know, this will make me extremely proud who might go through half a decade to a decade of using monograph in various capacities throughout their career, they would have learned financial literacy, while being a monograph. And they will be now way more equipped 10 years down the road to lead a firm. Yep. That will make I will be extraordinarily fulfilled, as an entrepreneur, as the founder of monographs have played a small part in in the growth of like a lot of young designers. Fantastic.
So let's have a look at some of the metrics that you were calculating for people. And, and first of all, we've got things like net revenue per full time, employee net cost per full time employee utilization rates, probably that's probably one that every firm knew. And I would hope they were keeping an eye on that pre pre monograph, the idea of time to payment realization rates. Why did you pick these numbers? Or these ratios? For some of them? What what did you feel was the the kind of usefulness of the utility of these metrics,
these are one of the most important metrics for any business to utilize. And there, there are industry agnostic. So really, what that means is like these, these are not, let's say vocabularies, that are uniquely for an architectural industry. These are metrics that are extraordinarily important for any service base business, to understand really high performing service business. These are standard financial literacy that everyone should learn, we've focused here because this is also where I have a strong opinion where the industry can do a lot better in learning, in terms of what financial literacy is, and what are the financial vocabularies that they need to understand manage their business. These are all essentially top line KPIs that business owners should learn and should watch, at various cadence understand the performance of their team.
Great. Now, so if we look at something like the net revenue per full time, employee, could you tell us a little bit about what that means? And what is it? What is it telling? What is it measuring?
It is essentially measuring the total amount of fees from your services, minus any discounts or refunds or any type of allowance, and then divided by your entire team count. This is really, really important, because what it gives you is essentially a Northstar of saying of all the work that I bill, and provide, this is my earning potential per employee. Now, if we do simple math, that number needs to be greater than the average salary of your of your employees. This is why these metrics are really, really important because it make that to make the finance part of the equation of running business a lot simpler, way more simpler is like, Look, your net revenue is your total revenue. If you know what your average employee salary costs is, if that number is greater, that's the first good sign. The second good sign will be well how much greater because a lot of that will then cover your overhead because this is all this is net net revenue. And this will also cover profit margins. But like at basic concept, it has to be larger than your average salary. If it's not, we we should sit down and we should we should work on that. We've got a problem. Yes.
Yeah. It's interesting because I know Just here, you were pulling out a kind of around about the $200,000 per full time employee as being, you know, a benchmark for high performing business, which is echoes exactly what here at Business of Architecture. And we have a, we have an initiative called the 200. Club, which is our clients that come on to our training programs. You know, we encourage everybody to set a milestone of being able to hit $200,000 per full time equivalent employee, as we know that when we see businesses achieve that, then a lot of other stuff becomes easier to, to actually kind of execute on and there's a bit more comfort in the business. And it's the hallmark of, you know, there's some there's things the business is starting to do very well. And I'm interested to hear your take on the some of the benchmarks that we've seen in the past from, say, the, the AIA or the RBA. My criticism of them has often been Well, number one, what you're saying is that they're self reported, so there's an accuracy question about them. The next is they're often reflecting an underperforming industry in the first place. So if I use the UK as an example, and the RBA will take a survey of all of its members, and it will demonstrate that the average take home salary of a sole practitioner is about 25,000 pounds. Okay, which is as small as it sounds, right? Even even by California and standards in London. That's that's not a lot of money. And it's a very difficult mount of money to live off in, in the central in the capital city. So that for me is not a good. That is not that's not a benchmark. And it's not a it's not it might be the average of the industry. But it's nothing aspirational, correct.
I don't think I don't think anyone would aspire to earn 25,000 pounds a year. And I think this is also like one of the biggest historical problems with older surveys is one like if you're ever serving across a really large sector that's underperforming, you might be looking at the average might not be the best way to like understand what's going on? Yes, yes, you might want to look at the medium, or the mean, to really understand what the quartile performance is start to look like. Because what you might get, and this is why sample sizes are important, is you might get a really large pool of accounts that are making 25,000 pounds a year that are struggling, but they're driving the average towards that direction. And then you gain a few outliers. Now they're actually running towards really successful business. They're making, let's say, 200 pounds. I don't know, I'm making a guest here. But because there's just more logos at the 25 view drive the average down. Yeah, when you really want to start doing is looking at mediums, and you want to start looking at quartiles? Because it's not a really great way to understand a benchmark of the industry.
Got it? Got it. And so is is that how what you were doing here with the how you analyzing statistics? Yes. Yes. Like, right. And
this is also why narrowing in your criteria is and having rules like look at we're not can't look at the entire industry. Same thing could apply, we look at the entire industry with no filters, and you get a couple of counselors, a couple of labs, a couple of k's, now, you're going to assume that the net revenue per employee might be closer to 300 400. Because some of these larger firms they're built, their billing rates are so high, and the types of projects they work on are so large, that ratio starts to be very, very different. So I think like really understanding like, well, what's the segment that this the survey and the benchmarks looking at, to everyone in that segment look the same? And is it an apple to apple comparison? These are really, really important questions for every architect to look at when they're reading these other reports. Because there's a lot of bias when they're not, did you
find that the numbers change significantly in different parts of the in different states,
we don't have enough strong sample size to really have the indicator to make that judgment call yet. That this is this is why I'm really really excited. The first benchmark was we have 1000 Plus client pool, we're actually approaching 1300. Now. So as that grows, we're going to be able to drill down to certain markets and really understand it. But I don't think it's a really helpful exercise to do a benchmarking exercise unless you get a strong enough sample size shown. Because if it's let's say we're in New York, and let's say you only have two firms. Well, that was point Yeah, that's That's not gonna make for a great benchmark. Like we want to ascertain saturation of a certain market to really understand and then run a benchmarking against it. Do you have
an idea of how your team or how your clients are distributed across the states?
We do we have a geography map so that we know we know where we're doing extraordinarily well. We know where there's, there's trends, that we're doing extraordinarily well. And we're areas where we're not doing well. The general takeaway is like we do really, really well in major cities. Yeah. So like, in any one of those major cities, and there's, there's a lot of reasons there, there's, there's a higher concentration of architects, the word of mouth between one architect and other architects is a lot higher. So we do really, really well in in big cities. Great.
Great. And let's have a look at the utilization rate, because this is one that I, I would hope that every architecture firm at least has some sort of grasp on or that they're measuring it. Could you help us understand what it what is utilization rate? And why is it important for
for a firm utilization rate is really important, right? Because it really starts to understand the effectiveness of each employee. And you have to assume that employees never going to be 100%, you realize it's just physically not possible. You do need to take Long's you do need to take breaks. And you do also it's a creative industry, you do need to spend time, mentally and physically in areas where like you have to explore options are not billable. This is important. This is important for everyone to understand. What we want to do is measure what is the right healthy utilization rate, that business should have an in high performance firms. What does that healthy ratio looks like? On average, if you're doing anywhere above 80%, you're really, really good firm.
So that's a number for an office of like a blended average of the whole office. Correct.
You can also assume that like your utilization rate, for principle is extraordinarily lower, because there's not spending your time on billable projects. So this is an average across the whole firm.
Do you have benchmarks that you would suggest for individual roles inside of a practice. So a benchmark for say, an architect, one and then the benchmark for a CEO.
We have all that data, all that data internally now realize, we haven't they'll probably be our second version of, of the report where we start to really drill down and segment based on role and give and give everyone in Israel a little bit more clarity and what that utilization rate will look like. Because it is not the same. Yeah. But similar to the rest of the report, it really depends on sample size, and we want to make sure we have enough sample size, so we can be extraordinarily accurate as possible.
I think that becomes really interesting, because now we're starting to see, actually, you know, you start having utilization rates, one for the whole firm, that's already brilliant. Now starting to get more granular of kind of benchmarks or ranges for utilization rates for individual job roles, that becomes really useful becomes really useful for the individuals in the team have becomes really useful for the CEO designing their business. I think it's also and this is, again, this is might be a bit obvious. But it's really useful for the CEO to realize, for most architects practices, I'm going to assert here, they're probably doing way too much work in terms of billable work. And they're not. And they're not involved. They're like in the weeds, they're drawing or they're doing stuff where actually they're higher value activities, there's probably going to be non billable, work like marketing, prospecting, you know, designing systems, etc.
Correct. Because if they're not doing it, then no one else is, yes, it's one of the most important jobs of a principal of a founding partner, is your job is to go get more work. Your job is to lead the business forward. And your job is to make sure that your systems and processes are healthy. as your business grows. It's the responsibility of a leader. What's really cool by the utilization rate that we present is we we've made our criteria as extraordinarily tight. So we're not we're essentially we're already not bringing in a principal into the equation, theoretically. So some of the criteria that we use for the utilization rate was you had to be a firm size between three employees to 30 employees. Anything outside of those ranges, we did not count. After that, you have to have at least 2000 billable hours over the last 12 months. Right. And then on top of that, your utilization rate within monograph has to be somewhere between 50 percent and capped out at 100%. So we've actually made the parameters really, really small and really, really tight to make sure we present the best look, the best view out there without going into roles. But like when once you really account for all these parameters, were already essentially filtering out a principal, we're already filtering it out. A lot of the partners in the business and really focusing on employees have spent a lot of their time working on projects, because they're, they're past the 2000 billable hours per year, and then above the 50% utilization rate, and then we ran the report. Great, great.
Let's look at realization rates. What is that?
Realization rate is super, super important. It's it. It's an it's a much better indicator of financial health and utilization rate. A high realization rate suggests that a firm is extraordinarily successful in converting those billable hours into revenue. So the biggest difference here is utilization rate is just where your time is spent. Yep, realisation rate takes it one step further. And like, well, we want to make sure you're capturing those hours as you build for your work. So looking at these two really important high level metrics gives any business owner really clear line of sight of like, okay, I can understand that most of my team is working on billable work, that's utilization rate. Awesome. And then you realisation rate, well, how effective is that utilization rate now converting to revenue? That's a much harder question. And much, it's a process problem too, because typically, now buildings involve typically either done by the principal or some office manager or internal bookkeeper, and you want to make sure you're capturing enough of those hours in your revenue. Right?
Right. So it's really a kind of a, it's actually a very, very good indicator of the productivity, and its efficiency and the effectiveness of the of the operations.
So we're one at one number, like a utilization rate, you can assume that you'll never hit 100. On the realization rate, you want to come so close as possible. Theoretically, for every hour that you do you realize you do want to capture on a revenue basis, you do have aspirations to drive towards 100%, where a utilization rate you kind of want to aspirational goal of light driving towards around 80 to 85%.
Yep, so this is really giving eyes on to the damage that like unmanaged to scope creep can can create.
And this is a really common scenario. And a lot of architectural firms were like, Okay, I have a high utilization rate, everyone's working on billable work, awesome. The your your realization rate is under, let's say, 80%, or 90%. Yeah, oh, my God, that means you're actually doing a lot of work, even though it's billable time, and you're not billing it for a number of various reasons. Either one, the you've spent more time than you should have. And you, you're having a difficult time of articulating that to the client, or its scope creep and is completely different types of work, even though the work itself is categorized as billable, work. This is where I think a lot of friends of mine and customers borrowers like when you don't understand both of them together, you don't really have a clearer picture of the business, because there's a lot of examples where there's a high utilization rate, and very low realization rate. And that's still really, really bad, because none of that time is actually converting to revenue. And none of that revenue is coming back to the business.
Got it? Got it. Let's talk a little bit about going back to these these two numbers utilization and realization rate. One of the gray areas that I'll often hear from people is, well, we've got people who are learning. So we've got younger team members. And this is an interesting kind of thing about the architecture industry and professionals in general, right. So there's, there's an expectation on the business side, from in the profession, that people will learn the craft whilst working. And from a business perspective, this becomes complex, because we'll start to see architects who, you know, they'll put people onto projects, who are learning and they'll have people who go to meetings, for example, they're not really doing anything, but they're learning. So then the question becomes, well, where's the line of this being billable? Where is this now being something that we need to take as an overhead? How do you help clients kind of make that distinction. And is it something that well, in many cases, it's got to be looked at situation to situation by the project management project manager and a set of criteria needs to be put into place? And or do you make it easier and just say, you know, X percent of, of all, hours spent by this by this demographic of team member is going to be considered as training. It's the kind of accounting for the informal training that happens, or the informal learning that happens on projects.
I think this is an extraordinarily interesting topic and really hard to answer. Because I think it is firm to firm and it's governed by the culture of the firm that the implements that say, their own guidelines and how they, how they invest, and how much they invest in the upcoming general next generation of architects. Yeah. What's what's really important is, regardless of how you invest and how much you invest, as a business owner, you have you have a fiduciary responsibility to the success of that business. So let's ensure that first, yeah, like there is, there is no business for you to train people, if there is no business. So let's, let's just make sure that the business is healthy enough so that you can then make your own government decisions on like how to invest in how much you invest relative to the health of the business. It's one of those scenarios if you're not a healthy business, and you're not making enough of a margin to cover the investment, and you're overly investing in the younger staff. Well, that logically doesn't make sense. Yep. So I think how you do it, each owner should make their own decisions. But I do believe each ownership earned the right to do it. And the wait is not like you have to earn it means get the business to a healthy spot where you can determine how much you want to invest. I think you should invest a lot. But I think that's on a case by case scenario. And think you earn it along the way. It's not it's not given. Right. Yep,
absolutely. I I'm very glad that you said that. I see it a lot in businesses. And, you know, we have to ask the question, Are you a school? Or are you a business. And you know, many times we'll see, particularly with the smaller practices, and particularly when there's a practice that is not, doesn't have their financial third eye open, if you like, and they're kind of walking around blind, they'll make a reactive decision to hire cheaper, apparently cheaper seeming members of staff, which normally means more inexperienced, because that's what they can afford, if you like. And then of course, give it a year down the line. And actually, they're less productive now, because they've spent so much time training somebody to do the work. And rather than hiring someone more experienced, that might have been a bit more of a, an outlay financially to start with, but now they've got a team that can actually do the work that they're doing, and it freed them up the time to be able to go off and market and sell and, and bring in bigger work. And it's absolutely what you're saying is you've got to earn that right to be able to really invest into into people, you've got to, you've got to put the oxygen Mark mask on yourself first, before the color plan. Yes, exactly before it's kind of where we're trying to be these, you know, altruistic. And
I want to be very clear, right? Like I think there's there's no wrong or right time to essentially like bring on a junior staff and someone that you want to invest in, you can do it when you're really small firm, you can do it when you're really big firm. In either scenario, you just want to make sure that you've earned the right to do that. And you understand the trade offs. And there's trade offs every decision whether you could hire someone junior, and they're going to cost the business last, but you're going to have to spend more of your time. Or you can hire someone senior, yes, they will cause more, but you will, you won't have to spend as much of your time. And this is why it's hard for me to answer because like every business during different life cycles of that business is gonna look very different. And you're going to want to make slightly different trade offs. In either scenario, it comes down to what's the health of the business? Let's understand that first. And then let's have a debate and a conversation like what is the appropriate trade off and understand the consequences of each decision?
Time to payment. So again, this is a another interesting one and something that often upsets and shocks me when I see a the amount of outstanding AR that might be older than 30 days the practices are carrying around. I'm often shocked and upset when people tell me or they argue with me and say and claim. Well, it's like a savings account. And I'm like yeah, it was a saving is a kind of younger access to because it's in somebody else's bank account. And they're, they're owning it. But this is, you know, on a serious note, this is I've seen practices with carrying around, you know, 90% of all of their AR is older than 90 days. And I've seen things like that I've seen a practice here in in New York, they had about $2 million worth of outstanding payments. And it was it chronic, and their average revenue was about 1.2 5 million. No, no,
no, no. It's completely upside down.
That was that was the worst that we've that we've encountered. But it's a really, really serious thing. And this can this can tank a business? Yeah. So what's your perspective here on time to payment and, and the benchmarks that you're looking at
in this report? So the report from our customer base based on our criteria, as of segmentation report, somewhere around 34 days, which I'm really, really proud of Montegrappa. Does this is important, like it's let's look at our repeat utilization rates, how effective each employee is your realization rate is how much you're able to actually bill. Time to payment now becomes important because well, it's one question to bill it, it's another is another question to actually collect it. So you want to keep that window as tight as possible. And you don't want, you know, your AR blessing really more than like, ideally not more than 3545 days. At the end of the day, everyone understands it's a service based business model. What that means is like your time is charged. While that's going on, when you have a really long time of time to payment, everyone here can probably relate some of the struggles are, well, I have to pay rent, I still have to pay, I still have to pay everyone's 401k, I still have to pay everyone's salary. Like there's just general operating costs that as a business, it's not going to wait like that comes that comes either every two weeks or once a month, my general advice to a lot of firm owners is you want to try to align your times a payment window to the time of expense window. And that generally is on a cadence of a monthly and you want to make sure you cover if you don't cover then it's simple math, if you don't bring in enough, you have to borrow, you have to float it you have to take you have to pull money from other areas. Before that money comes time to payments really, really important. And it's not okay to wait a long period of time. You're also in a period of time in globally and here in the US market where we're still seeing hyperinflation quite drastically. So let's say that 2 million that example that you told me that $2 million balance, let $2 million balance now is not worth the same. Yes. It's just not not
inflation, is it? Yeah, yeah, that
you just can't think of the same 2 million, that's the same 2 million because like, everything went up, cost went up, cost of utilities went up, cost of labor went up, like your same $2 million is actually not the same. And I can almost guarantee there is no interest clause on that contract. So you are you're now covered, like from from that perspective, like your $2 million is actually substantially worth less. So your time to payment becomes really, really important. Because the longer you wait, the less of that money's worth. And the longer you wait, the more you're going to struggle to cover your operating costs. You want to get to a cadence where your time to payment is really close to a month, month and a half.
Great, I love this. I mean, we spoke last time about this idea of cash flow cadence and just the rhythm of of money and just how fundamental it is to just your sanity as a business owner. Really? Yeah,
no, it's it's extraordinarily difficult to run a business when like, yes, you have a lot of invoices out but like if you haven't collected it, but I'm still paying for all the operating costs, eventually, that will become extremely hard burden and the money you do collect is not worth the same.
So how do you suggest that, you know, companies, let's say they get set up with monograph, they now have got these optics available to them, and they can start to see and often you know, this is a bit like looking in the mirror sometimes when when a company sets themselves up and they start seeing what their performances and sometimes they can be despondent and upset and disempowered. What's the what's the next step in terms of like improvement to some of these metrics, like how do businesses start to plan to, to, you know, get themselves up to $200,000 per full time employee or to get themselves up to 80%? Utilization? What, what sorts of things should they be looking at? What strategy should they be looking at?
Well, like Like we said earlier, like if you didn't even have a mirror to work on the problem, this is also this is why like, when you go to a lot of gyms, there's a lot of mirrors. So like you can, like you're obviously there to work on personal health, and you want to look at yourself as you improve. So if you don't have the mirror, that's the first problem. This is monographs first step at addressing the issue is like, okay, track really simple, like, let's just get a really good idea of where your current business is at. Once we know that and we can acknowledge where you are and where you want to go, then we can work on it, then strategies and tactics become a lot simpler to talk about. Because like, Okay, your time to payment of hypothetical, let's say, was like, at 90 days, great, we want to get that down to like 3030 to 45 days, one cut in half. So let's look at why is it taking so long? And that that question could have varying degrees of answers, depending on the customer, it could just be their, their end client tells are not structured appropriately, the contracts aren't structured properly, or the billing processes are not structured properly, either one of those we can definitely improve on. And each one of those are probably going to be unique from firm to firm. What I see very often, though, is a lot of custom contracts are structured around deliverables around phase completion, as the easiest thing to start to address is to move away from billing against phase completion.
So this is kind of milestone billing, which is very vulnerable to all these outside factors that you've got no control over.
But in that also almost immediately pegged you to a cadence of some version of three to six months to maybe a year really depends on how long that phase is like you, you now have lost control over cadence, so prefer to remove is like, if you're, if your contracts are structured that way, let's rethink how to set expectations on how you're going to build. So you can drive down your time to payment to around 30 to 45 days, if you're pegging to a phase completion, like that's your first obstacle, we got to get away from that.
Got it great. And I think we're coming up to time here. And this has been absolutely brilliant. And again, so excited about these reports and look forward to seeing the the next iteration of it and how you guys are just going deeper and deeper. with it. And you know, we're here business partners will continue to sing the praises of monograph. But I wanted to ask you another question slightly different from what we've been talking about, which is I've interviewed over the last 10 years or so quite a number, actually, of architects who have endeavored to create some form of project management software. For other architects, you're the only one who have I've spoken to twice, or more than once I spoke to a few is that this is our third or fourth interview, and it's our third time. What what, why, why do you think you guys have survived? Versus many others who have who have attempted the same thing? But they've they've fallen short? Wow, that's a that's
a loaded question. And I don't know who you spoken to, right. So like there's, there's nothing for me to respond to although, and without that information, I can only lean on where monograph is extraordinarily strong. So like I said, in the very beginning of the podcast, like we are 100% customer centric,
we have to be, yep, that
that can never waver. We're solving a really, really important problem that's highly complex. We're also solving a problem where the industry has varying degrees of how they bill, how they track, how they manage time, has never been, let's say, prescriptive enough across the entire industry. So these are things that we're working against, that we have to continue to acknowledge and work through. I think we do that extraordinarily well. And I think every time we let's say, I want the industry to be more transparent. For that to happen, monograph has to be transparent. And we have to also drive a culture of transparency. So that the team here whatever we do it, it essentially aspires and transpires outwards. So how I run the business also matches the aspirations of what I want the industry to become. So here at monograph, we have what we call an all hands meeting every Thursday. The entire company comes online. And you know what I do I talk about our numbers. I talk about where our revenue is, I talk about where our goals are, I talk about what we're doing along the way to modify and change so we can achieve those goals. And we're very open across all of our finances. And we're data driven. And I want that to continue to say like, the product we build encompasses a lot of the culture that exhibits here at monograph outward, because we want the industry to also behave that way. Love it.
Love it. Wonderful response. Robert, thank you very, very much for again for your time and your expertise and just shining a light on the industry. And I look forward to us speaking again. And perhaps next time we speak will be in person and I can't wait to pop over to San Francisco.
I can't wait Now. Now. I'm so curious. And who else have you spoken to? You have a thinking now.
I'll let you know. Awesome. Thank you so much. And that's a wrap. And one more thing. If you haven't already, please do head on over to iTunes or Spotify. And leave us a review. We'd love to read your name out here on the show. And we'd love to get your feedback. And we'd love to hear what it is that you'd like to see more of and what you love about the show already. This episode is sponsored by Smart practice, business of architectures flagship program to help you structure your firm for freedom, fulfillment, and financial profit. If you want access for our free training on how to do this, please visit smart practice method.com. Or if you want to speak directly to one of our advisors about how we might be able to help you. Please follow the link in the information. Hello, listeners. We hope you're enjoying our show. We love bringing you these insightful conversations, but we couldn't do it without the support of our amazing sponsors. If you're a business owner, or know someone who would be an excellent fit for our audience, we'd love to hear from you. Partnering with us means your brand will reach over 40,000 engaged listeners each month interested in becoming a sponsor. Please send us an email at support at business of architecture.com The views expressed on this show by my guests do not represent those of the host and I make no representation promise guarantee pledge warranty, contract, bond or commitment except to help you the unstoppable
