Thursday, July 20, 2017

What is happening with margins in disaster restoration?

I have been asked recently if margins in reconstruction are changing and if it is still possible to achieve the same margins as they were several years ago.  Below is my response: 

Here are some differences of the influences: (The companies that I work with are not combining costs and revenue from water/fire and construction - they are separated into different ‘jobs')
  1. Is the program work typically from Third Party Administrators?  These jobs are smaller and managed much more strictly - they are doing there best to limit margins and cut areas that are more profitable than others.  Many of the typical TPA projects are under $10,000 so this may not influence your discussion.  Some other vendor programs are tight as well and it depends on which company you are working for. 
  2. States and regions impact margin.  Some are easier than others.  I have a client in Florida that has been averaging over 50% margins. They are not on any vendor programs and all is self directed - that being said they are typically working in the Xactimate environment.  Not being on vendor programs will allow a small bit of pricing flexibility. Some states have higher costs of labor and limited subcontractors that drive costs higher and Xactimate does not keep up with changing costs since the TPA and vendor Xactanalysis feedback confirms the lower pricing causing downward pricing pressure. 
  3. Managing a group of in-house staff requires a lot of management - getting labor and materials to the job site with low costs is difficult.  If you are running in-house labor then managing the staff is one of the most important elements in maintaining margin. 
  4. It is much harder to maintain a 45% margin than ever.  Some companies are able to squeeze subcontractors and suppliers but that only goes so far and ultimately has an impact on quality. 
  5. Changing margin expectations is consequential for restorers.  Accepting that margins are going to be 5 points lower has a huge impact on cash and profits.  Managing the process and having coaching and accountability tied to the numbers helps companies hit expected targets.  I think that 50% used to be achievable but difficult.  Now 45% is achievable but difficult.  I do think that 40% is more common.  Companies that start to accept 35% need to be very focused on their overhead because there are many companies that are running a 32-35% overhead.  The expectation of a 3% net margin is way too low - it should still be 10-15% depending on the revenue numbers (which impact the overhead %).  

The reality is that the cost of labor is way up and materials appear to be stable or increasing and the Xactimate unit costs rarely increase.  There is truth that margins are much more difficult to maintain.  British Columbia was one of the most difficult pricing/cost markets that I have ever worked in.  I worked with a company thad 14 project managers - each was able to maintain a minimum of 34% margins and some were able to hit 40%.  This required focus on proper estimates, proper and consistent change orders, appropriate supplements and limiting the amount of customer credits and discounts.  Too often companies write off deductibles, throw costs at jobs when they miss completion dates, don’t get signed change orders or ask the customer to pay for upgrades, don’t create a budget and then buy out the job before starting, etc.  Making margins requires focus and discipline. 

Thursday, May 25, 2017

Margins in diaster restoration

The following information has been compiled through over twenty-eight years of direct involvement and empirical evidence in the industry. Business Mentors serves as a consulting firm specializing in restoration.  We help restoration companies analyze and improve gross and net margins in addition to working in many other areas.  Our background is in the restoration industry and we are business consultants and restoration business advisors.  

For purposes of this paper we will examine margin by types of work and will also discuss the various deviations.  There are many ways to figure job costs and this paper does not necessarily endorse any methodology.  Individuals need to manage costs and have a plan to meet profitability expectations.  The key in measuring margin is to be consistent in your approach. 

For purposes of this paper the items included in job costs will include: direct labor plus direct labor burden, direct materials, subcontracted labor, and equipment rental.  Some companies apply greater detail to their job costs.  There is not a right and wrong way to manage your job costs.  The material issue is that you are consistent when figuring job costs.  The more information that you apply to the costs, the more information you will have for managing performance and understanding your operation.  That being said, you want to measure information that you have the ability to manage.  Most companies can measure and manage direct costs for jobs and for that reason that is the information that will be reviewed in this report. 

Construction gross margins range from 35-50%.  This means that the direct cost are 50-65%.  The margins can be achieved through direct labor or subcontractors.  If you manage a large in house staff then you have the potential for higher margins. That being said it is very difficult to apply and manage staff labor in a manner that allows you to maximize job profitability.  The challenge with staff labor involves facilitating labor and materials to the jobs as well as managing non-reimbursed time.  When utilizing subcontractor labor either your company or the subcontractor can provide the job materials.  It is strongly recommended to apply some indirect costs to the jobs, which includes shop materials, supplies, dumpsters and other unapplied indirect costs.  In the event that you utilize a superintendent the costs for your job manager should be applied to the job either through direct labor costs or through an allocated percentage. 

Water Damage
Water damage margins are perhaps the most misleading and hard to measure gross profit item in a restoration company.  A restoration company prepares and staffs to respond to jobsites in a marketplace twenty-four hours a day, three hundred sixty five days a year.  Each company needs to provide training and equipment for each job and they are rarely costed to the job.  There are formulas that a company can use that will figure an exact cost.  Previous analysis has shown equipment costs to be approximately ten percent of the rental rate.  Direct costs range between 75% to over 85%.  Margins on water damage work have been decreasing due to the tracking and control of the claims management programs.  Margins in the water damage industry are still strong and compensate for the specialized equipment, capital spending, training and staffing required in order to meet the needs of our clients.  Companies need to look at the cost of being prepared to respond 24/365 and the substantial training and capital costs involved in mitigation services.  The overhead involved with a mitigation service is substantially higher than for construction. 

Restoration Cleaning
This category of work includes contents and structural cleaning in order to remove contaminates and odor.  The work consists of specialty techniques and cleaning solutions in order to remove the contaminate.  Contents cleaning can take place on location or in the restoration facility.  Companies measuring job profitability rarely take into consideration the substantial facility costs and equipment required to produce the work.  Gross profit for this work ranges from 45-60% meaning the direct costs are 40-55%. The costs consist of labor and cleaning supplies, packing material and any other moving related costs.  The capital costs for cleaning are substantial when you take into consideration vehicles, training, cleaning equipment - especially for in-house cleaning and storage facilities.  A cleaning company will have a substantially higher overhead than a construction - or even mitigation company.  

Mold remediation
Mold remediation consists of the work to remove mold from contaminated items and also remedial demolition of items than cannot be properly decontaminated.  This work does not include the actual replacement and repair.  Job profitability ranges from 40-55% that means the job costs range from 45-60%.   There are a variety of services that can be completed in house and others subcontracted.  These services require a substantial capital commitment.  If subcontracted the contractor may be limited to ten percent overhead and ten percent profit that relates to a 17 percent gross margin.  These services range from laundry and soft contents to furniture refinishing.

The above information is a guideline and not a reflection of the margins that will be achieved on any given job.  There is a dynamic that has changed the industry in the past decade or so.  Previously contractors could assemble their costs and then apply a price that allowed the target margin to be hit.  Today, in most cases, contractors will need to assemble the price and then put the costs in line to meet the margin expectations. Hitting job profitability numbers requires a concerted effort on the part of all participants involved in managing and producing a job.

Groundhog Day?

One major difference between successful contractors and ones that continually struggle is the presence of a strategic plan.  Does it appear that your weeks are driven by crisis and your days filled with busy activities – running to get nowhere?  I am not saying that you are not getting things done, but is it what you want to be working on? 

When you are working on your business, rather than in your business, then you can change your opportunities and your future.  I know of many business owners that know that things need to change in their business, yet cannot make it happen.  In the movie Groundhog Day, Bill Murray’s character was stuck reliving the same day until apprently he got it right.  Although it is not known for sure, some people say that it took ten years and others (people with too much time on their hands) say that it was more like 30 or 40 years, to break the cycle. 

Are you stuck in the same endless cycle even though you know that it should be different?  The process of getting out of your rut starts by acknowledging the realities of your situation and then crafting a plan for change.  This process should start with the following:
  • What are the big picture goals for the future? Does this align with our mission and vision?
  • What items are currently limiting your business?
  •  Do you have quantifiable metrics that objectively tell the story of how your business is performing?
  • Have you properly identified the roles, responsibilities and expectations of your team members?
  • Are you key managers performing at least to industry standards?
  • Do you have needed capital to finance your growth?
  • Do you have the right people, in the right positions in your business?
  • Are you paying too much or too little?
  • Do you have a marketing plan and regularly look at the return on investment for your various programs or do you just perform the same activities each year – and if you want to grow then just do more?
  • Do you have the correct short term goals that will put you on track to achieving your long term expectations?

Your strategic plan should answer the questions above and more.  Growing companies think that if they are going to double the size of their business then all that is needed is to replicate and grow the current structure of the business.  In reality a five million company is rarely built by doubling the staff of a 2.5 million company.  Building a growing company requires establishing a foundation that will support the desired growth.

If you would like to discuss the steps you are taking to grow your business or learn more about the strategic planning services offered by Business Mentors please reply to this email – or call 541 359 4117.  We have programs that range from virtual strategic planning through 3-day on location 

Monday, May 15, 2017

Monday Stress?

Happy Monday! Were you one of the many that spent most of Saturday decompressing from the week and then most of Sunday stressing about the challenges of the week to come? If you live in this world it could be easy to understand how you can get burned out. I would also guess that many of these entrepreneurs also find it difficult to get away on vacation for fear of what will be happening in the business in their absence. From my experience I would also guess that these businesses also struggle to make money. I am sure that it often crosses your mind that you could simply work for someone else and get rid of so many problems and make the same amount without the risk of business ownership. The challenge is that you are an entrepreneur and know that you are just a few breaks away from having a great business.  

After a while the stress of running a struggling business starts to eat away at the company culture and you have staff that may care about you but they are not engaged in the business – just filling a space and getting a paycheck. If this sounds like your business – you not alone. Perhaps it is time to get a fresh perspective on your business and get out of this endless cycle. Business Mentors helps business owners create a solid plan for their future and take steps to create actionable change in their business. With the right direction you can become engaged in your business, develop positive accountability and start winning.  

We have many different programs from advisory services to full mentoring. Most of our programs start with a one-time 3 day on-location strategic planning program. This is a simple – low risk opportunity to have an outside review of your business from someone that has worked in the restoration industry for decades. 

If you would like to learn more about how our program works send an email with the subject line – ‘Winning’ to You can also call 541 359 4117. 

Thursday, April 27, 2017

A Path Less Traveled

Over the past several months our family has been wresting with the decision of where our oldest daughter will attend high school this next year.  I started to think about the words of Robert Frost’s poem The Road Not Taken.  In the summary of the poem he states that he took “the one less traveled by and that made all the difference.”  I suppose the only way to know for sure is if he could have followed someone else taking the other path.  Perhaps the other path would have lead to a better destination. 

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

Life is a series of decisions and the person that you become is the result of the choices you make and the impacts of the paths that you take.  The subject of the poem discusses the potential of returning and taking the other path at a later time.  In reality, the sigh of the author expresses an understanding that paths not taken are rarely, if ever, explored.  I guess this leaves the need to fully accept the rewards and consequences of the paths you take.

Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

The introspection for you individually and in your business is to first realize that there may be more than one path to take and secondly to make good decisions along the way.  My father has told me that life is something that is lived forward and understood backward.  Wouldn’t it be interesting to understand forward and then live the predictable results of the paths that you take?  It sure would be easier to have full confidence in our daily decisions.  In reality this would come with another set of challenges as we try and cope with a predictable life.  I would opine that we would also become less of a complete person by avoiding the inevitable challenges that create the character of the person we will become.  I look back on my life and realize that true growth has come through the challenges and setbacks, more than success.

Your opportunity is to make choices and walk a path to find the joys, challenges and enjoy the journey.  I think the best you can ask for is to have wisdom in your decisions and where necessary to have good advice that makes decisions easier and help you overcome challenges that inevitably will arise. 

You will create the ending to your own poem that states, “I took responsibility for the path that I chose, and I own the results of those decisions.”  You will become the result of the decisions you make and also the paths that you realized you should have taken.  It is important to occasionally think about your previous decisions to learn the impact of those decisions and to avoid similar mistakes in the future.  It is also critical to realize that your current reality is the result of your previous decisions.  Taking responsibility for where you are in life is an important step in accessing opportunities in the future.

Consider embracing the attitude of those that practice Zen and live fully in your day, today.  If you practice Zen then you understand that there is no tomorrow and no yesterday – you only have today.  I like to take bits and pieces of this practice for my own use and enjoy the memories of yesterday and also learn from the failures, so I can prevent them in the future.  I also will make decisions today that will benefit my family, my business, my community and me, for tomorrow.  I endeavor to do all of this while embracing the simple joys of today. 

Wishing you much joy and success in your decisions today and delight in the uncertainty of tomorrow.

Tuesday, February 21, 2017

Foundational building blocks for the next generation restoration company

Radical changes are coming our way in restoration. It is time to start a dialog about not only the changes that companies can make, but also next-generation characteristics a successful restoration company. 

This requires looking not only into insurance and restoration trends, but also advances in the areas of business and technology. Many dynamic elements are at work, with an endpoint that is unknown. What is known, however, is the fact that things are going to look different than they do today. Throughout the course of this series I will explore some of the root causes of the challenges, as well as the resulting impacts and considerations for excelling in an uncertain environment.

Claims management has become quite confusing with such ongoing issues that need to addressed as internally managed vendor programs, third-party administrators, working with the restoration franchises, specialty vendors, full service restoration contractors and more. The challenge comes with undertaking the challenge of trying to unwrap the contributing factors to these challenges and then set a coarse to succeed in this ever-changing world. Making predictions about claims management will be difficult given the fact that the insurance world appears to be unclear on their own direction. 

Setting the table for uncertainty, as well as a need for insurance companies to adapt their strategy. One of the biggest changes to insurance is the development of new technology. Things like mobile communication, artificial intelligence, predictive analytics, and cloud computing may seem futuristic, but are actually playing a role in insurance and claims management today. When we understand how these issues impact and drive the claims settlement, we can then be more aware of how we can support this process. 

The insurance world of yesterday was fairly simple. Property owners would drive to their corner agent and purchase needed coverage from the same company that had been writing their policies for years—and perhaps, for that matter, even had their parent’s coverage prior. Today, people can sit at their computer or smart phone and pull up quotes from dozens of companies instantaneously. Analytics allow these companies to quickly determine if this is a desired client for the company and offer a competitive or expensive policy, thus speeding the underwriting process. Most every mainline insurance company allows policy holders to purchase through agents or direct through their website or ‘apps.’  A new wave of virtual insurance companies is hitting the market using analytics to screen clients, A.I. (artificially intelligence) computers to fill the sales channels and even the claims adjusting process. These new companies will offer a different insurance price point and also service level. Many of today’s younger clients are more comfortable communicating with and through computers, which will help facilitate this process of automation. 

The claims side of technology is nearly dramatic as the sales side. Insurance companies realize that there are substantial cost savings through utilizing technology. The first thing to understand is that nearly 80% of an insurance company’s costs are associated with claims fulfillment. When these companies need to make financial adjustments to their business, it is natural to start reviewing settlement costs from first notice of loss through conclusion. Technology will have a huge impact in all areas of this process. Companies realize they need to take action to speed cycle time, reduce fraud, improve service, eliminate redundant processes and cut claims administrative time. These adjustments will have direct impacts on profitability in their business. 

The future of claims relies on tying the communication systems, starting with first notice of loss. The customer could conceivably connect with the insurance company on their smart phone, showing impacted areas and verifying actual damage. This limits fraud and also starts the documentation process. This process will improve the subrogation success as well due to more timely and detailed documentation. The in-house adjuster or even artificial intelligence systems are able to properly dispatch services, adjusters or even administer payments.

Rather than drawing any conclusions, the intention instead is to lay the groundwork for influences in the insurance world that will impact restoration. I hope that you are starting to see trends that are developing that will be pushed through to contractors. In future columns, I will explore such topics as labor issues, program expectations and contractor impacts.

Monday, January 30, 2017

Customer Service is a Choice

Customer service is not an activity or a department rather it is an attitude and series of decisions.  You can take steps in your business to provide exceptional customer service and you may find that this is one of the lowest cost and highest impact changes that you can make in your business. 

Often great service is simply the result of how you do something rather than what you do. When you understand this then you know that great service is all about a decision to speak or act deliberately.

The other day I was at the airport in Chicago getting ready for a flight to Portland.  The captain stepped up to the microphone in the boarding area.  My first thought was that this is not going to be good news.  I have heard pilots in the boarding area only about 2 other times and each was bad news. To my surprise the pilot welcomed us to the flight and thanked us for flying United Airlines.  He continued to tell us about the flight and then said that he looked forward to flying with us that evening.  I was surprised to hear good rather than bad news.  When I stepped on the plane the flight attendant was in her typical place at the door of the airplane and the pilot was standing right next to her welcoming everyone on board and handing out a card that had information about the 757 that we were flying on that evening.  Due to my frequent flyer status I was upgraded to first class on the flight that evening.  During the flight each of the flyers in my cabin was handed a business card from the pilot with a personal thank you note written on the back.  Near the end of the flight there was an announcement from the purser about the cards that were handed out when we entered the plane.  She asked us to look at the cards and if there was a particular mark on the card, those two people should ring there call buttons and the attendant would deliver a bottle of wine to take home, compliments of the captain. 

When I returned home I decided to send a thank you email to Captain Flannigan, since I was holding his business card.  I was surprised that not only did he return a message, but he also visited our company website and made some personal comments about the business that my father and I had built.  I was struck by this attention by someone that comes into contact with so many customers, every day.  Once again I sent a follow up note to express my surprise at his attention and to say thank you.  I received another letter with his thoughts and philosophy on customer service. 

This is an interesting story and when you look at the details, there are a couple of really salient points to be taken from this series of events.  The first thing that comes to mind is that if the pilots on every plane took the same time and effort to appreciate their clients it could make a huge difference to the company.  Another thing that I noticed was that this set of events cost very little if any money or time.  This pilot did not spend any more time to deliver exceptional customer service, rather he made deliberate decisions on how to spend his time.  At this point you should realize that this example of great service was simply a personal decision to deliver great service. 

Since my flight I have seen Captain Flannigan featured in the Wall Street Journal, several email updates and a book.  What would be the impact if the airline could harness this effort and embark on a companywide campaign to deliver exceptional service on every flight?  I suspect that this would be an incredible undertaking but perhaps might be worth the effort – this low cost, high impact campaign could transform an airline.  At the same time this engagement would need to be genuine rather than scripted.

What can you do in your business that empowers and challenges your front line staff to dramatically exceed your customer’s expectations?  You may be lucky and have a couple of motivated people that will perform exceptionally well, but that will not often happen without your guidance.  Your challenge is to create a company culture that causes your employees to make a decision and take steps to deliver their service in a deliberate and exceptional manner – it could transform your business.

I had a great employee working for me about 15 years ago.  I knew that he had a desire to create cheerleader clients on every project.  I would challenge him in the morning before going to a new job to come back with a letter of recommendation.  He came back one day and told me that we would definitely get a letter from this client.  Several days later we received a glowing recommendation.  After the letter arrived I started to wonder what he had done to get the letter.  Brian explained that the customer took a lot of interest in what he was doing and would watch his work and talk. She mentioned that she was having a problem with her interior doors sticking.  He said that he adjusted the doors so they would all shut properly.  After congratulating him for the great work it crossed my mind that this must have taken a lot of time and perhaps I had to do a better job of defining boundaries in serving our customers.  He told me that it was a quick fix and took about fifteen minutes and since he usually only takes a fifteen minute lunch he took care of the doors during his break.  Brian and the crew that we had working with us at that time consistently delivered exceptional customer service.  Our company was recognized for consistently delivering great service.  This become a competitive advantage for our company and helped us excel in our market. 

Both of the situations outlined above were similar since it was a decision to exceed the customer’s expectation rather than a program, campaign or department.  In some cases you may be lucky to have great employees that are driven to excel.  In most situations you have great staff members that will take the extra step when challenged or directed.  As a leader in your business, it is your job to provide an environment where your employees will flourish and take initiative.  Customer service is a decision not a department.  Provide a foundation with training on customer service, define the client’s baseline expectations and then create an environment where your staff is motivated, encouraged and rewarded to exceed these expectations.  When you take these steps, you are well on your way to transforming your business and creating a sustainable competitive advantage for your business.

Below is a copy of the email correspondence from Captain Flannigan that he has given me permission to reprint.  There are several great customer service ideas here and it provides a great example of how exceptional service can be delivered with an attention to detail and changing the way in which you approach a job, not the time or money spent to exceed expectations. 

I was given permission to use his thoughts in exchange for posting Captain Flannigan’s email address -  Please reply to him if you have any thoughts or questions regarding great customer service.

In the service business the recipe for success is quite easy. Choose your attitude for the day, anticipate your customer’s needs and exceed their expectations. I have a few work philosophies and they have proved effective over the years;

-- I believe that each customer deserves a good travel experience whether on United, American, Continental.........train, bus, taxi or with your best friend in his car. You deserve a safe and comfortable ride.

--Treat each customer as if it is their first flight and have no expectations. ....I lead by example and this helps motivate the crew to do a better job. When they see me stow bags, assist moms with strollers and answer questions as if it is the first time I heard it, they are brought back to their new hire days.

--It is easier to keep the customers you have than to find new ones....United has a devoted sales team to find new customers and it is time consuming and expensive but necessary. My job is somewhat easier and less expensive and that is to provide a safe and customer-oriented service. If I do my job then the folks in the sales department will have less pressure on themselves.

Phillip, I Googled your name and business and was quite impressed what you and your dad have put together. I practice one customer at a time but would love to make a bigger impact. I was on the front page of the WSJ and on the morning shows of CBS, ABC and NBC. If you can use me as an example in your business feel free to do so. It would be nice to know that I have a hand in making this world a better place to live.

Phillip, thanks for flying "The Friendly Skies" of United Airlines. Your business is greatly appreciated. If you are ever on one of my flights again stop up to the cockpit and say hello. If we have time I will go out and buy us a ( cup of coffee).

Phillip Rosebrook JR., CR is a business consultant specializing in helping restoration companies create and achieve a vision for their company.  He has been active in the restoration business since 1988 and is nearing 1 million miles flying with United Airlines. He can be reached at, twitter@busnsmntors or by calling 541 359 4117.