Steve,
I have a question for you. In our Strategies for Success seminar you shared one of your “war stories” on restoration. If I remember right you stated you did not like doing the re-construction on Insurance losses? May I ask why not? Actually, in insurance work our MAIN, and I do mean, MAIN area of profit for our company is the structural reconstruction. We do very well at it. In fact, we do not do any contents or cleaning work whatsoever! So I have always wondered why you avoiding the structural rebuilding side? My reasoning is, it takes 50 water jobs to make the same gross profit I can make on two medium size fire rebuilds. Just some questions from my ADD brain.
Idly Pondering in Kentucky
Hey Idly,
Always good to hear from our SFS alumni. Re: your question I say whatever flips your switch. For MY company and MY family, reconstruction didn’t work because:
- We were in a small population area and just could not justify the infrastructure (both in tools and skilled full-time labor) needed to handle the very few really large losses we could expect over the course of a year.
- We also found that insurance companies did a much more thorough job both in bidding the work out plus scrutinizing each line item on the structural rebuilding side than they did on the first-response emergency stuff. (I never had to bid my emergency “damage containment” restoration work!)
- The job and payment cycle was much longer in re-construction.
- Even worse, I found (your results obviously differ) that most of the profits and relatively few of the headaches were in the drying, cleaning and deodorizing of the structure and contents. Most of the problems (at least for me) cropped up whenever we tried to do structural rebuilding and even worse, we lost money on top of it!
But structural reconstruction is working for you guys and that is great. And obviously large loss adjusters prefer working with a “one stop does it all” vendor. So I’d like to know how things work out for you. And don’t be a stranger on Steve’s Bleeding Hearts Club and the rest of your SFS site.
Steve
P.S. I will say it is nice to hear from someone who is doing well. In this little “Dear Abby” section I mostly am contacted with “cries for help” from drowning cleaning/restoration professionals. One of the great things about this industry is there are so many different routes to success and you get to choose! Our job at Strategies for Success is to give you the resources you need. Speaking of making help available everyone might want to check out my “Water Damage Customer Interview” form.
Hey everybody,
This one is a little bit different. My good friend and SFS member Ivan Turner posted a more or less impassioned defense of structural restoration on the very thought provoking ICS Magazine Discussion Forum (http://www.i-boards.com/ics/). Now Ivan is a genius in business but either he is too technologically challenged (which I doubt) or just too darn lazy to remember his password to post his “rebuttal” to my post above. So in a slightly edited format from his ICS posting here it is and a big thank you to Ivan Turner:
“I would like to share just a few thoughts on the subject of structural restoration. If nothing else, hopefully this dialogue will continue to shed light on the mysterious subject of restoration repair, which is very near and dear to my own heart.
Providing full service to the end user allows for an overall greater experience for the customer. This is reason enough for me to stay involved in the reconstruction side.
As Steve says it comes down to making the personal decision to enter, or not to enter. Nobody can make that decision for you. Here are some factors to consider:
Profitibility:
To randomly throw out statements advising others not to pursue full service repair work due to low profit margins really does an injustice to those who may currently find themselves in a position where they are contemplating entering the repair side of the industry.
So where does profitibilty come from for those offering full service restoration?
Profitibility can be earned in numerous ways on restoration repair jobs. The most obvious method and often times the least understood is through the traditional “10 & 10”. This allows for 10% Profit and 10% overhead.
Many will argue that this arrangement does not adequately cover the true cost associated with managing restoration repair jobs. Others will agree that it is a fair “profit” for simply acting as a General Contractor. Those who state that 10 & 10 is sufficient profit for only making a telephone call to a tradesperson are “sadly misinformed”. 🙂
A major concern and hurdle for many restorers is when dealing with some insurers who have mandates that restrict 10 and 10 on jobs with less than three trades. An example might be that Insurer X, does not pay O& P on a job where painting was the only trade necessary to restore the dwelling to pre loss condition.
Another effective way of earning profits on the repair side is to “earn on the front end”. This method is designed to seek out trade’s persons and sub contractors who are willing to work at a discounted rate in return for consistent work being sent to them by the restoration contractor.
In my opinion this is the most profitable aspect of General Contracting restoration repair work. Like everything else, it does take patience and a lot of pre screening of trades persons, or “Trades Partners” as we like to refer to them as before jumping into a relationship.
All full service repair firms are in a constant state of risk by the nature of the service they provide. We incur risks as well as exposure to liabilities that may not even be realized without in depth analysis.
Those of us who do substantial repair work that is directly tied in with insurance vendor programs fully understand that at times even the standard 10 & 10 may be jeopardized by rules mandated by the insurers that restrict profitability based on numbers of trades that are actually involved in the repair process. This topic above all others continues to be a painful wedge in the insurer/restoration contractor relationship. Even so, there are many other advantages of doing full service and working with insurers that are rewarding both personally as well as financially that far outweigh this “wedge”.
Competitive Threats:
Tomorrows competitive threats are not likely to be those who traditionally offer “stick building”. Most stick builders would not likely venture into the “remodeling side of construction”. And after all restoration repair work is closer to remodeling than stick building. So spec builders and those who specialize in new home construction are not likely to enter the game anytime soon. These firms are specialized that are geared to build fast and on budget.
The biggest competitive threat if any from others entering the field will most likely be from home remodeler’s entering the game. I’m not so sure that I would even classify this group as a high level threat. Most do not posses the customer communication skills required to survive in the high stakes game of dealing with distraught home owners.
Add to that, the fact that the crucial drying skills that all structural contractors would need to compete on the front end of the marketing game would take a substantial financial commitment as well as a lot of time to achieve a level that would place them on equal footing with an experienced WDR contractor.
Obstacles to overcome:
There will be many obstacles to overcome and many disciplines to learn along the journey to becoming a “Full Service Specialist”. Below are just a few;
•Contracts for customers
•Contracts for tradespersons
•Applicable insurance requirements for the restorer as well as those required for the trades persons.
•Customer communications systems
•Trades person communications systems
•Knowledge of building nomenclature
•Project Management systems
•Accounts receivable management
•Marketing the full service company
Of all of the potential obstacles that a restorer faces, none will get a repair firm into more trouble faster than poor financial management. The road to restoration repair success is littered with companies who lost control of their accounts receivables and literally ran themselves into the poor house.
In closing, while the reconstruction side of the restoration game is filled with obstacles and pitfalls it can be a very lucrative business venture if handled correctly. Like every other part of your business it will begin with a well defined set of systems and procedures.
Through the years I have successfully completed several million dollars worth of restoration repairs. Oddly enough, I have absolutely no background in the construction industry, I honestly can not swing a hammer, and I am one of the dumber guys in the restoration business. (as is often painfully pointed out by my good friend Rich Chavez)
If I can do it, so too can you!
Ivan