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In this 3rd installment of our 5-part series on common restoration business challenges, we focus on maintaining profitability in your restoration business.  If you missed the first two installments you can check them out – the first is on hiring and the second is on lead generation.

There is tremendous profit potential in the restoration industry. Restoration companies built to handle high volumes of work can enjoy profit margins in the range of 40-75% or more. But, this business is also capital intensive –requiring a healthy investment in equipment and labor. If you don’t know your numbers, you can quickly start running a net loss. And everyone knows that if you’re losing money, you won’t stay in business very long!

You might be a sales and marketing ace who can generate new business with the best, but if you can’t manage to keep any of that money in bottom-line profits, what’s the point? Without maintaining profitability to help you grow the business, all of your sweat and effort will amount to little. Fortunately, there’s a lot you can control that will impact your ability to keep more of your hard-earned money. Here are some things you can do to address this critical aspect of your business:

Establish Profit Benchmarks for Your Restoration Services

The best restoration business owners set profitability goals. Goals give you something to aim for, a target result to work toward achieving. You should review every restoration service you offer and establish an appropriate profit margin goal for each one. Each source of service revenue should be separately itemized on your Profit & Loss Statements.

For any globally shared costs across your service lines (such as expenditures for rent, equipment, employees, etc.), be sure to assign a proportionate amount of those costs to each service line. Doing so will fairly distribute the burden of overhead cost across your services and more accurately portray each one’s profitability. Empowered with that information, you’ll be able to quickly see which services are achieving their profitability benchmarks –and which need your time and attention.

Master the Skill of Estimating in Restoration

Estimators often underbid a job because they don’t have an established system to follow. Without the consistency that a good system provides, an estimator might miss a step or two in their bid development. What is the end result of not having a process? It’s not getting paid the total value of work performed for customers. If this describes your approach to estimating jobs, you’re giving away valuable time and money, and you don’t even realize it!

You can—and should—maximize profitability for every job by creating a reliable, consistent estimating process. The secret to doing so is to develop and document a standard estimating workflow. It might include things like bid criteria, checklists, evaluations, itemized action steps, or any other information needed to make your process repeatable. Then over time, you should look for ways to improve your strategy. As you do, you’ll generate better and more accurate job estimates, resulting in greater financial returns for your effort.

Watch Those Material Costs in Your Restoration Business

Material costs can quickly destroy the profit potential of any job. If an estimate doesn’t clearly itemize the unit quantities needed for a given restoration project, it’s common to over-purchase materials. Once your estimating systems are tuned and accurate, you’ll be able to rely on your projected quantity counts.

That being said, accurate information doesn’t do much good if you and your team don’t take the time to review estimated quantity and cost details before making purchases. It happens all the time, and it shouldn’t. Avoid this blunder by taking pains to know just how much of each material item is actually needed for a job, instead of just “winging it.” Excess material purchases are nothing but a waste—a purely needless hit against your financial bottom-line.

Use Employee Pay Incentives in Your Restoration Business

You can help your employees to think and act like an owner by rewarding them like one. When an employee knows their paycheck will increase based on the business’s overall profitability, they will very often be more motivated to perform their job well. It takes a little planning and effort to set up a new incentive payment system. But the benefit of doing so will quickly become apparent.

Pro tip: Keep incentives simple so that your people easily understand them. Once you’ve dialed in a good incentive plan, roll it out. Talk about it with your employees. Explain the logic and intent behind it. Make it an attractive part of your company’s culture –a reason that entices people to work smarter and harder. When implemented well, your people will align their interests with yours, driving profitability to new heights. As an added bonus, pay incentives often help people feel appreciated and want to stick around for the long term!

Always be Learning in Your Restoration Business

Maintaining profitability in your restoration business is a process of constant improvement and having systems across the company that enable you and your staff to operate at consitenly high levels. Are you interested to know more about what it takes to become one of the top independent restoration companies in your market? Download our complimentary guide to find out how we did it in our own restoration company, Power Dry: Managing the 5 Stages of Growth in a Restoration Company.

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