Understanding the Real Drivers of Financial Performance for Medium and Large Practices in the last year.
Introduction: More Work, Less Margin?
The past two years have been a whirlwind for UK architecture firms. Coming out of the pandemic, the industry saw a dramatic rebound, total revenue for RIBA-chartered practices rose by 17% in 2023 and another 13% in 2024. Many medium and large firms (20+ employees) expanded headcount, won bigger commissions, and broadened their portfolios into higher-value work like labs, retrofits, and international schemes.
So why do so many principals and directors feel like they’re busier than ever… but not making more money?
Because profitability is no longer a simple function of revenue. It’s shaped by a delicate interplay of project mix, fee structures, scope control, staff utilisation, overheads, and external factors like inflation. If these aren’t managed strategically, even thriving practices can find themselves financially exposed.
In this blog, we explore The Profitability Pyramid - a strategic model for understanding where architecture firms make money, where they lose it, and what separates the most financially resilient practices from those constantly fighting for margin.
The Pyramid’s Peak: Where Profits Are Made
While architecture is rarely a high-margin business, the best-performing firms in the UK consistently generate solid profit from a combination of smart positioning, tight operational discipline, and fee strategies that adapt to market conditions.
Here are the top five layers where profit is made:
🔺 1. Repeating Commercial Work
For larger practices, commercial architecture is often the financial backbone. Projects like office buildings, mixed-use developments, and retail schemes offer repeatable design frameworks, ongoing client relationships, and economies of scale. Firms that win long-term relationships with developers or corporate clients gain predictability, reduce bid costs, and work faster with each iteration.
When a firm delivers a business park in Phase 1, they’re likely to win Phase 2 and 3, making each subsequent job more efficient and profitable. These clients typically understand architectural value and are willing to pay for consistency and reliability.
🔺 2. Strong Fee Agreements and Scope Control
Profitability starts at the contract stage. Firms that succeed financially tend to:
- Accurately scope projects up front
- Price each phase with margin, not just breakeven
- Include clear terms for scope change and variation billing
This approach turns the typical "scope creep" scenario into a managed process. When clients request additional work, successful firms treat it like a contractor would, via change orders and extra fees. It’s not about nickel-and-diming, but ensuring that value delivered equals value captured.
Without this discipline, even a well-paying job can become unprofitable by the end of construction.
🔺 3. Efficient Delivery and Staff Utilisation
Staff salaries represent 50%-75% of total expenditure for UK practices. That means how you deploy your team, and how much of their time is billable, directly affects your bottom line.
Top firms maintain utilisation rates of 75 - 80%+, meaning most staff time is spent on revenue-generating work. They also build internal processes to:
- Match resources to project stage
- Avoid idle time or overstaffing
- Track time spent vs. fees billed in real time
This operational grip ensures that even if fees are fixed, the hours spent are efficient - protecting gross profit margins.
🔺 4. Specialisation in High-Value Sectors
Not all project types are created equal. Firms that target high-complexity, high-liability sectors, such as healthcare, science & tech, logistics, and public infrastructure, can command premium fees.
These projects often require specialist knowledge, technical design, and high compliance standards. As a result, there’s less competition and a higher perceived value. Additionally, sectors like retrofit and interior workplace design are growing fast, offering quicker turnover and reliable margins for firms who adapt to this demand.
In short: specialisation enables pricing power, and pricing power fuels profit.
🔺 5. Inflation-Proof Fee Models
In a market where construction costs have risen sharply, firms using percentage-based fees are better insulated. Their income rises alongside project budgets.
Contrast this with fixed lump-sum fees, if inflation drives up material or labour costs, the architect’s effort increases but their fee stays flat. Unless contracts include escalation clauses, this erodes profitability.
Firms that review and update their fee structures regularly (especially time-based rates) are far more resilient in high-cost environments.
The Middle Layers: Fee Structures & Margins
UK architecture firms typically operate on thin margins. According to recent RIBA data:
- Average net profit margin: 6–10%
- Target project-level margin: ~15%
- Reality for many firms: Closer to break-even on multiple jobs
Fee structures vary, but most commercial projects follow one of three models:
- Percentage of construction cost – aligns income with scope growth, but is often not backed by a bottom-up resource plan to ensure the fee will actually cover the cost of delivering the work.
- Fixed fee – offers predictability to client, but carries delivery risk to practice
- Time-based billing – covers actual effort, but only if rates are updated regularly
No model guarantees profit. What matters is whether the fee actually reflects the real cost of delivery, plus a margin. In times of rapid inflation, that’s becoming harder to achieve unless firms revisit how they price their services.
The Pyramid’s Base: Where Money Is Lost
If the top half of the pyramid is about where firms make money, the base layers reveal how it’s often lost. These are the hidden traps that drain margin, especially for medium and large practices.
🔻 1. Unpaid Bids and Competitions
In a profession where design is often the entry ticket, many firms sink vast time and resources into unpaid work just to win projects.
Competitive tenders, design competitions, risk work and public sector bidding can consume weeks of staff time. When the success rate is 1 in 5, or worse, this becomes a significant cost centre.
Architects are rarely paid for design proposals unless they win. That means every failed bid erodes the profit of successful ones.
🔻 2. Scope Creep
Even with clear contracts, many projects evolve. Clients change requirements. Stakeholders join late. Councils request revisions. The trouble begins when these changes aren’t matched with extra fees.
Many firms still hesitate to request variations, fearing client backlash or reputational harm. The result? Projects that start in the black end in the red, because unpaid extras eat into the original fee.
🔻 3. Delays and Inefficiencies
Delays are common in UK architecture: planning approvals, client indecision, contractor disputes. But fees don’t always scale with time. If a three-month stage takes six months, and your team stays assigned, your costs double.
Internal inefficiencies (rework, unclear handovers, poor briefing) only make it worse. Firms that don’t track time closely often realise too late that they’ve overrun the budget, leaving them stuck absorbing the loss.
🔻 4. Fee Undercutting
In a crowded market, many practices win work by cutting fees, sometimes just to stay busy or land a “name” client. But this sets off a race to the bottom.
Winning a project at a too-low fee means:
- No margin for change or delay
- Staff burnout to make hours work
- Zero incentive to innovate or invest
Eventually, these jobs drain the firm. Worse still, they depress market expectations for what architectural services are worth.
🔻 5. Overhead and Staff Mismanagement
Firms have big fixed costs: offices, software, insurance, marketing. If project income dips, those overheads don’t. Without workload balance, overheads eat profit.
The same goes for underutilised staff. If a team is waiting for delayed projects to kick off, or too many senior staff are doing admin, the cost-to-income ratio skews badly.
The most profitable firms resource strategically, adjust headcount proactively, and avoid deadweight costs.
So What Makes a Firm Financially Resilient?
Based on the last two years, we see four recurring themes among firms that maintain profitability, even in turbulent markets:
1. Strategic Positioning
Firms that know who they serve (e.g., science, workplace, public realm) and say “no” to poor-fit projects outperform generalists.
2. Operational Discipline
Tracking time, managing scope, controlling overheads, and resourcing accurately are non-negotiables for margin protection.
3. Fee Confidence
Profitable firms are not the cheapest, they’re the most value-aligned. They educate clients, communicate clearly, and negotiate without fear.
4. Agility
The ability to pivot sectors, shift staff, or take work abroad is a growing competitive advantage, especially as the domestic pipeline fluctuates.
Final Word: Profit Is Designed, Not Hoped For
Profit doesn’t just happen at the end of a job. It’s designed from the start, through the right clients, right contracts, right structures, and right delivery models.
As architecture firms grow beyond 20+ employees, these issues become more acute. Without tight financial management, increased revenue can simply mean more risk and more complexity, with little reward.
The Profitability Pyramid offers a framework to challenge that. Build from the bottom with discipline. Secure the middle with smart fee strategies. And aim for the top, where your expertise, efficiency, and value can finally translate into sustainable, resilient profitability.