ATO benchmarks for architecture firms

The ATO's architectural services group takes in practices serving home, commercial and industrial building clients across a broad range of architectural work. Some also design buildings, structures or land developments, draw up building contracts, carry out building inspections or practise landscape architecture. For this industry the ATO's key benchmark range is the ratio of total expenses to turnover, which it finds predicts turnover most accurately.

Practices are grouped by the main activity given in their trading name and business description. The population excludes the very smallest and largest by turnover, practices listing several activities, and any that had not traded for a full year before the year began. Statistical outliers are then taken out.

Turnover here is fee income for services, measured excluding GST. The expense figure is the year's total expenses with payments to associated persons, such as relatives on the staff, taken out. The ATO's page for architects carries no cost of sales range at all. The ATO releases a ratio only when enough of an industry reports that expense, and many service businesses have little cost of sales; where such a ratio is published, salary and wages are kept out of it.

For a practice selling design time, almost every cost lands in total expenses: wages for drafting and design staff, consultant fees for engineering or survey work on a project, studio rent, software licences, insurance, printing, and car running costs for trips to clients and building sites. The ATO's page adds rent and motor vehicle ratios as other benchmarks for this industry, and both costs form part of the total.

Each band holds a group of practices around the mean ratio for its turnover range, and its edges set no minimum or maximum. Its edges are rounded to whole numbers, and the turnover ranges are drawn up for this industry alone.

In both years the expense share climbs as turnover grows, and neighbouring bands overlap. The band tightens towards the top: in 2023-24 it narrows at each step, while in 2022-23 the lowest and middle bands are equally wide, with the top band narrowest. Between the years, the middle band is unchanged, the lowest band keeps its bottom edge but reaches higher in 2023-24, and the top band keeps its upper edge but starts lower. The lowest and middle turnover ranges also begin at higher turnover in 2023-24, so those comparisons are between ranges that do not match exactly.

Of the reasons the ATO gives for a result above the band, some fit an architecture practice closely. Staff costs can be high for the fees coming in, for instance when a team is kept on through a quiet spell between commissions. Fees pitched below what other practices charge for similar work act like a lower mark-up. An invoice raised outside the accounting software and never recorded lifts the share too.

A result under the band can come from costs left out of the books, fees that carry a bigger margin, or a practice that simply runs leaner. In a practice, missing costs can include consultant bills or software charges paid on a personal card and never entered. Before reading anything into a result, these checks rule out a recording cause:

• all consultant, printing and software bills are in the books, card payments included
• each fee invoice is matched to a deposit in the business bank account
• staff wages for the whole year appear in the profit and loss

Begin with the profit and loss for a complete financial year. Remove payments to associated persons from total expenses, as the ATO does, then divide what remains by fee turnover excluding GST and set the share beside the band for the practice's turnover range.

Practices in their opening year and those combining activities sit outside the ATO's population, so figures from a new practice, from only part of a year, or from a firm that also does building work are set against a group unlike them. A large one-off expense, such as moving studio, inflates the year it falls in. Fees billed in project stages can also bunch into a single year, which can move a practice between turnover ranges from year to year.