Restoration Contractors – Business Dynamics
Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!
Restoration contractors face a different set of business dynamics than the traditional new home builder or remodeler. Unlike the builder and remodeler, restoration companies deal with a third party in their contract negotiations and performance. The new home builder uses the market to determine the value of their product, whereas the restoration contractor is forced to perform services based on pricing models set by insurance underwriters.
The key dynamic is the insurance company. They are paying for the services. They want the maximum value for the lowest price and often use aged pricing models to determine the value of the services the restoration contractor will perform. Worse, most use an overhead and profit markup of ten and ten to determine the total value of the services. The ten percent overhead and ten percent profit are carry overs from the 70’s. In the last fifty years, governmental compliance, risk management and human resources requirements have increased overhead costs to well in excess of twenty percent of the hard costs to perform services.
How can a restoration contractor make a reasonable profit and still cover their overhead costs?
© 2019 – 2022, David J Hoare MSA. All rights reserved.