3 Ways Restoration Contractors Can Make Money in Construction Services
Grow Restoration Business through Construction Services
There are 3 ways restoration contractors make money from construction services. It all depends on your risk reward tradeoff.
- Some mitigation contractors choose not to get into full construction services, but they understand that capturing the construction side of their mitigation work is not hard to do. Therefore, the restoration contractor may “claim” they do construction when speaking to the customer, but then pass it to a general contractor for up to a 20% referral fee. It is not uncommon, nor inappropriate, to claim the overhead and profit as a referral fee leaving the full scope of repair for the general contractor who can still pull a 30% profit from the job. A 30% profit for most remodelers and general contractors is at the top end of their expectation for most work they do. So, everyone is happy with this arrangement.
- A way to enhance the profit margin is to pull out flooring and pass the remainder of the job to the general contractor. Flooring is typically the single largest line item of a repair bill so it is a sizable amount to pull out. Tapping into the Shaw Industries wholesale distributor for the restoration industry who sells flooring material at as much as 50% below Xactimate pricing yields deeply discounted savings. Hiring a subcontractor at 60% of what Xactimate pays you (i.e., Denver: CODE8X_MAR17 – FLR LAB – $49.92 hourly) for installation you can lock in a hefty profit margin too. Materials and labor savings together can produce as much as a 15% total job profit. Add this to your existing 20% overhead and profit referral fee and you yield a total 30% – 35% per job profit margin – not bad for a referral and managing flooring on your own!! See my blog – How to Make Killer Profits on Flooring Every Time – (http://growmyrestorationbusiness.com/grow-restoration-business-by-making-killer-profits-on-flooring/) and Catapult Your Profits with Direct Buy Flooring at 50% Below Xactimate Pricing – (http://growmyrestorationbusiness.com/improve-profits-purchasing-flooring/)
- Lastly, for those who go all in on construction as I did, you can take on the whole job and with good sourcing, controlling material and labor costs, using Xactimate as a key management tool, establishing a sizable subcontractor pool, and identifying wholesale distributors for discounted building materials you can yield a 45% – 50% per job profit.
Risk Reward Tradeoff
Risk Reward is all about how deeply do you want to get into construction and how much profit satisfies you for the amount of work required to produce it. The main point here – there is money to be made at each level of construction involvement and you should make every attempt to secure it.
- 20% profit = overhead + profit
- 35% profit = overhead+profit+flooring
- 50% profit = complete the entire job
Expand Your Service Offerings by Adding Construction Services
Many mitigation-only contractors follow this same progression when first starting out in construction services. You can’t run until you learn how to walk and the progression helps them learn their way at a reasonable pace. This provides time to gain the management skills needed, to implement key and vital systems, and to gain the revenue needed for new hires when we view this startup in terms of a series of steps that over time increases the involvement, responsibility, and financial investment to gain increasingly higher levels of reward.
In any event … getting a piece of the construction pie is worth pursuing by any restoration contractor.
Reference: 6-Month Coaching Plan: The Sales Doubler – Fast Track Your Company’s Growth By Becoming a Full-Service Industry Leader
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