The Firm Health Triad
The Firm Health Triad is utilization, realization and net multiplier read as one set rather than three separate numbers. Most architecture and engineering firms track at least one of them. Reading them together is what tells you which one is actually holding the practice back.
The three measures
| Metric | Formula | Answers |
|---|---|---|
| Utilization | Billable hours / available hours | Are we busy? |
| Realization | Billed revenue / standard value of hours worked | Are we collecting for it? |
| Net multiplier | Net revenue / direct labour cost | Are we priced properly? |
Reading them together
Each metric on its own hides a different failure. The combination is diagnostic:
| Pattern | What it usually means |
|---|---|
| High utilization, low realization | The team is busy but the work is not being billed. This is a scoping and change-order problem, not a productivity one. |
| Low utilization, high realization | What you do win is billed cleanly, but there is not enough of it. A pipeline problem, not a delivery problem. |
| Both strong, multiplier weak | The work is done and billed but priced too low, or overhead has grown faster than fees. A pricing problem. |
| All three weak | Structural rather than tactical. Usually the fee model itself rather than any single project. |
A worked example
A 20-person practice, one quarter:
- Available hours: 20 staff x 520 hours = 10,400
- Billable hours: 6,240, so utilization is 60 percent
- Standard value of those hours: $936,000 at a $150 blended rate
- Actually invoiced: $795,600, so realization is 85 percent
- Direct labour cost: $265,200, so net multiplier is 3.0
Utilization and multiplier are both healthy. Realization at 85 percent is the outlier, and it represents roughly $140,000 of work performed but never billed in a single quarter. That is the number to fix first, because the cost has already been incurred. Raising utilization to 65 percent would add less, and take longer.
Common questions
What is the Firm Health Triad?
The Firm Health Triad is utilization, realization and net multiplier read as one set rather than three separate numbers. Utilization measures how much of your available time is billable, realization measures how much of that billable time you actually collect, and net multiplier measures what each dollar of direct labour returns as net revenue. Any one of them alone can be misread; together they identify which of the three is the binding constraint.
How do you calculate utilization rate?
Utilization rate = billable hours divided by total available hours, expressed as a percentage. For an architecture or engineering firm, 60 to 65 percent is a common target for technical staff, lower for principals who carry business development time.
How do you calculate realization rate?
Realization rate = revenue actually billed divided by the standard value of the hours worked, expressed as a percentage. If a project logged $100,000 of time at standard rates but only $85,000 was invoiced, realization is 85 percent. The gap is written-off time, discounting or scope absorbed without a fee change.
How do you calculate net multiplier?
Net multiplier = net revenue divided by direct labour cost. A net multiplier of 3.0 means every dollar of direct labour produced three dollars of net revenue. Most A&E practices target somewhere between 2.8 and 3.2, though the right number depends on overhead structure.
Why read the three metrics together?
Because each one alone hides a different problem. High utilization with low realization means the team is busy but the work is not being billed, which is a scoping or change-order problem, not a productivity one. Strong utilization and realization with a weak multiplier means the work is being done and billed but priced too low. Weak utilization with strong realization usually means there is not enough work, not that the work is unprofitable.
Which number should a firm fix first?
Fix realization first when it is below about 90 percent. Unbilled work that has already been performed is the fastest recoverable money, because the cost is already sunk. Utilization improvements require either more work or fewer people, and multiplier improvements require repricing, both of which take longer to act on.
Costifys computes all three continuously from your timesheets and invoices. See the reporting features, or read more on improving utilization and understanding realization rates.