What Does It Mean?
Revenues, of course, are what we earn for our services. We can also call them Fees, which I like because it is clear and simple. Fees can include other sorts of income, such as interest, or income from other things, such as printing, or fabrication of lighting or furniture. Those things may represent other business units and if so, should be looked at separately.
So, project fees are what it’s really about for most of us in the design professions. When we invoice for our work, we are claiming the value of the services we have provided.
It is important to think about our fees in two ways—Gross and Net.
Gross Revenues or Gross Fees include everything in our project billings—our firm’s fees, our consultants’ fees, and any billable project expenses. These fees may all flow through our firm, but they do not all belong to us.
Net Revenues or Net Fees are that portion of our billings under our complete control. Yes, we have salaries and expenses to pay out of these Net Fees, but how we manage these is up to us.
The Simple Math
In the design profession, profit is most often calculated on the basis of Net Fees. Net Fees are generally a more reliable and less volatile indicator of the size of a firm’s business than Gross Fees. The ratio of Net Fees to Gross Fees can vary widely from firm to firm, and even from project to project.
The Big Idea
Net Fees are a clear indication of how much work our firm must do on a given project. Gross Fees, on the other hand, tell us how much work the entire project/consultant team must do.
Our firm’s total Net Fees earned over a specific time period, monthly or annually, tell us how much work the firm must accomplish (or did accomplish, if for a past period).
Further, the firm can use this Net Fee number to calculate the number of staff needed to accomplish that work. See Net Fees per Staff.
- Net Fees are a direct reflection of the success of the firm’s new business efforts.
- Establish a Net Fee goal for the firm’s fiscal year, and then establish interim targets for accomplishing the overall goal.
- Compare your current forecast of Net Fees for the entire year with last year’s forecast at the same point in the year.