Finnish Architectural Landscape: A Statistical Cross Section
How Much Money Do Architectural Offices Make?
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In this article, you can find a statistical cross-section of the Finnish architectural landscape. As the title suggests, this article is not going to look into the architectural qualities of different offices instead it’s going to use financial data and descriptive statistics to sense the architectural market in Finland.
What’s the point of using financial data? The economy as a social science is essentially concerned with how people interact with things of value. Knowing how much people are willing to pay for a particular service quite often (though not always) can give an approximate hint about the value it provides to society. Additionally, Financial information is always meticulously collected and stored for management and taxation purposes. Since every office collects and stores financial data in a similar manner, we have a common metrics to compare otherwise very different organizations. Luckily for us, this information is openly available in Finland. With the use of some basic descriptive statistics, we can now analyze the information in the field and hopefully gain some useful insights. The dataset used for the article can be found below.
Where is Finnish Architecture Produced?
Before we take a deeper look into the financial performance of offices lets first see where the Finnish architectural offices are located. There are around 2615 registered offices across Finland.
The map on the left shows the spatial distribution of architectural offices in Finland. Taking into account that Finland’s urbanization level is approximately 85.45%, It is not surprising that the majority of offices are clustered around metropolitan areas. The choropleth map below shows that Uusimaa is clearly the most densely packed region. An interesting observation is that 1.12% of offices are located above the arctic cycle. Furthermore, there is an architectural office registered above the 69th Latitude very close to the Finnish border with Norway. Finnish respect for personal space illustrated at its best.
The graph above shows that Helsinki is the center of architectural production with 377 registered offices. However, if we join the number of offices in the Helsinki metropolitan area (Helsinki, Espoo, and Vantaa) this number will rise to 499 (19.08% of all offices in Finland). Tampere comes second with 103 offices. This does not come as a surprise since Helsinki as the capital of Finland has the highest population. A relatively high population often means higher overall economic activity and a higher rate of investments.
How Big are Architectural Offices in Finland?
Now that we know where the Finnish architectural offices are located let’s take a look at how big they are.
The majority of the offices in Finland are definitely on a smaller side of the spectrum. 50% of offices have one or two employees. Naturally, when we have a positively skewed distribution the mean(average) is not a reliable measure. The few outliers (offices with a very high number of employees) distort the mean value. Therefore, in situations like this, it is more useful to look at the quartiles of the dataset instead.
25%: Only one employee
25%: Two employees
25%: Between 2 and 7 employees
20%: Between 7 and 32 employees
5%: More than 32 employees
Offices that have more than 32 employees can be confidently considered big for Finland. Only 5% of offices reach or surpass this size. Below you can find the top 20 Biggest offices in Finland (2019).
Optiplan is clearly leading the list. However, as we will see soon, just because the office has grown doesn’t mean its growth is supported by its financial performance.
How Much Architectural Offices Earn?
At this point, the dataset had to be trimmed down to include only 1873 offices. The problem is that the big portion of registered offices are “one employee offices” that don’t see much economic activity throughout the year. Including these offices would blur the overall picture. However, It has been verified that the picked sample reflects the overall population. Below you can see the profit distribution in Finnish architectural offices during the year of 2019.
As expected the profit distribution is positively skewed. The median profit for the offices in Finland is 7000€. This means that 50% of the offices in Finland made less then 7000€ during the 2019 financial year. The long-tailed distribution means that Mean(average) is again not a reliable metric here. Additionally, office size is a major factor that determines the amount of money generated by the company. Therefore, it is more sensible to look at the quartiles of the dataset grouped by office size.
What can be seen from the graph above is that the offices with more than 40 employees seem to generate higher median profit but they are also subjected to higher volatility in profits (possibly due to high operational costs). 30–40 employees seems to be the sweet spot. For offices of this scale, the median income is higher than in 95% of the offices in Finland yet the range of profits is not as vast as with the larger offices.
25 % of Finnish offices did not earn money in 2019.
25 % earn between 0€ and 7.000€.
25% earn between 7.000€ and 38.000€.
20 % earn between 38.000€ and 307.000€.
Only the Top 5% earns more then 307.000€ per year.
Who are the top 5%?
Now that we have a rough idea about the overall situation let’s look at the top performers. These are the companies that are “exceptions” and have profits that are way above what the majority of the offices make. Below you can see the top 25 office by turnover in 2019.
In the 2019 Architectural market as a whole was worth approximately 356.784.000 €. The market share of these 25 firms together accounts for 45.47% of the whole market. This might be a little concerning. This leaves 54.53% of available capital for the remaining 2592 offices to share. Naturally, this results in fierce competition between smaller offices(More on this later).
Additionally, high turnover doesn’t equal to a profitable company (the distinction between turnover and profit). In companies with high turnover but negative profits capacity for growth is rather limited. If the same turnover/profit ratio persists for several years then the company will quickly burn through its cash and increase the debt burden. These offices are worth avoiding both as an employee and as a client. Somewhere along the road, these companies will need to cut their operative expenses. For architectural offices, operative expenses include rent, computers, equipment, software licenses, etc. However, the biggest expense is often the payroll(employees).
How Much Architects Earn?
How much money architects earn for generating a 350 million euro industry? Below you can see the salary distribution for architects employed In Finland.
The graph includes the salaries of 5388 architects across Finland in 2019. This graph excludes the first and ninth deciles(Top and bottom 10%) in order to exclude exceptionally high and exceptionally low salaries that are fairly uncommon. The mean salary for architecture professions in 2019 was 4173€ and the median was at 4072€. The spike between 5500 and 6000 is probably not due to high office salaries but rather one employee architectural offices where the owner is exceptionally generous with his own salary. This is relatively high if we compare to the world’s average. However, The money for free education and free healthcare has to come from somewhere. Progressive taxes and high living expenses in Finland can melt the salary away pretty quickly. Approximately 20% — 25% of the average architects’ salary is the income tax. On top of that 7.15% pension insurance contribution and 1.25% and unemployment insurance contribution ( rough approximation).
If you’re in architecture for money then it’s very likely that you’re in the wrong field.
As demonstrated earlier not all offices in the top 25 are profitable despite their high turnover. And the salary distributions show the costs of operating an architectural office in Finland are relatively high. Additionally, besides the payroll, it is a common occurrence for the office to offer a generous benefits package that might include weekly yoga, massage, and international office trips once or twice per year. Of course, these measures are not purely for employees’ wellbeing since they also provide some tax relief. Nevertheless, these are valid expenses, and not having any benefits puts an office in a precarious position when it’s hunting for a limited pool of talents.
All of these expenses require not only high turnover but also professional management to balance the delicate equation and come out as profitable. Below you can the 20 most profitable offices during 2019 and as you can see the names are quite different from the previous list.
How Offices Scale?
At what rate should offices in Finland grow? Intuitively we understand that more profit leads to bigger offices with more employees. How are these variables correlated in reality?
In order to answer this question, it’s important to understand the causal relationships between these variables. Very often offices are paid more for bigger and more complex projects since big projects require more working hours to complete. Subsequently, the necessity to handle more complex projects might force the office to hire new employees. On the other hand, offices that have highly skilled workers or rely on automation do not necessarily need to scale at the same rate as other offices. With this in mind, let’s take a look at the simple scatter plot below.
With simple linear regression, we can see that the variables are indeed positively correlated with a correlation coefficient of r = 0.699 (r =1 would mean perfect positive correlation, r = 0 no correlation, and r = -1 strong negative correlation). Although the regression does not describe the bigger offices accurately (due to the big variance in profits mentioned earlier) the general trend can still be identified. r = 0.699 is a relatively strong association. Note that Linear Regression sacrifices accuracy for each individual data point in order to illustrate the overall correlation.
Based on these results we can estimate the following simple formula:
Number of Employees ≈ 45.7 * Profit + 3.37
*Company profit should be in millions. For instance: 300.000€ = 0.3
Real-life examples of applying the formula:
Geometria Architecture Oy
Estimated Num. of Employees ≈ 45.7 * 0.022+ 3.37
Estimated Num. of Employees ≈ 4
Actual Num. of Employees = 3
Avanto Arkkitehdit Oy
Estimated Num. of Employees ≈ 45.7 * 0.043+ 3.37
Estimated Num. of Employees ≈ 5
Actual Num. of Employees = 4
Arkkitehdit Rudanko + Kankkunen
Estimated Num. of Employees ≈ 45.7 * 0.148 + 3.37
Estimated Num. of Employees ≈ 10
Actual Num. of Employees = 12
Arkkitehtitoimisto K2S
Estimated Num. of Employees ≈ 45.7 * 0.345 + 3.37
Estimated Num. of Employees ≈ 19
Actual Num. of Employees = 12
Futudesign Oy
Estimated Num. of Employees ≈ 45.7 * 0.243 + 3.37
Estimated Num. of Employees ≈ 14
Actual Num. of Employees = 14
Arkkitehtitoimisto ALA
Estimated Num. of Employees ≈ 45.7 * 0.538 + 3.37
Estimated Num. of Employees ≈ 28
Actual Num. of Employees = 50
You can use the formula to determine your office’s position relative to the market. If the estimated number of employees is significantly lower then the actual number of employees, it could mean that there are offices in Finland that generate a similar profit with fewer resources. On the other hand, If the estimated number of employees is significantly higher than the actual number, it could mean that your operations are efficient and you might have room for growth.
In any case, it's good to keep in mind that employees are not just numbers on a balance sheet. Often what they bring to your organization is not measurable with a financial report.
The Dataset
These are only a few of the aspects that can be studied with the underlying dataset. Those interested in their own expiration can find the dataset here. It takes time and effort to produce a datasets please follow the copyright guidelines.
GitHub
You can find the underlying Jupiter notebook and the initial exploratory data analysis in this GitHub repo.
Sources
The data for this article was provided by:
Tools
Scraping: Beautiful Soup, Selenium
Analysis: Python, Pandas, NumPy, SciPy
Graphs: Matplotlib, Seaborn
Disclaimer
Take the results with a healthy dose of skepticism. I am neither an economist nor an anaccountant.
There is a lot of “luck” involved in running an office. To an extent all listed offices are successful since we do not have information on offices that did not survive the market.
Profit vs the number of employee relationships is just one feature for comparison. If you ever glanced at the financial statement of a publicly-traded company you know that one number is never enough for evaluating complex organizations.
The article is as good as the underlying dataset. If your office is missing, it is due to Fonecta not having your office information.
About the Author
I am an architectural researcher/Ph.D. Candidate at Aalto University.
