The myth about O&P, and 10/10Nov 16, 2021
We often hear of insurance companies and third party adjusters claiming that restorers overcharged them for work. The claim is usually that the “restoration industry standard” is “10/10”, or that overhead and profit (O&P) cannot be included in the invoice.
Let’s be clear here, there is no such industry standard. There never has been and there never will be (unless you are on a program, then you have to play by the rules that you agreed to). If you have read the book that we talk about in Disaster Podcaster EP 22 Restoration Markup and Margin, you know that few restorers can run a business and breakeven at 10/10, let alone make a profit. The idea that a restoration company can survive at a low markup defies the mathematics of basic business and common sense.
Our experience in the industry tells us that “industry standard” of 10/10 is a old benchmark that has been propagated by insurance companies and TPAs that are trying to keep their costs down.
At some point the industry made a sweeping application to 10/10. It was likely done with the best of intentions, but it has turned into a hard and fast rule that is cutting a lot of contractors short!
Hear me. 10/10 has a place. But it isn’t a blanket that should be applied to every situation. It isn’t as easy as marking up your raw cost with 10/10 and calling it a day.
We talk to restoration business owners and restoration company leaders about this every single day who are trying to wrap their heads around the notion that 10/10 as a standard is antiquated if even legitimate, yet they struggle to make payroll every single month.
Even worse is the ongoing ploy of invoicing a job that at COST ONLY because the insurance company “doesn’t pay O&P”. No overhead and profit margins “are allowed”. The contractor is somehow supposed to extract any money they need for overhead and profit from the original contract amount.
Or how about this one: “We don’t pay supervisor hours.” As if a large insurance organization isn’t fat with middle management. Its laughable. The sad part is that there must be thousands of restoration companies that cave to that line and cut supervisor hours from invoices. The reason we can confidently make the claim is because we hear this argument from restorers that we talk to several times a month when they call for advice on how to combat the assertions of insurance companies and TPAs.
How do you combat this nonsense? Here is our best advice:
- Reduce the number of program jobs you take. If you can eliminate them completely, you will absolutely see your profits increase. We help restorers reconfigure their business to do just this.
- Remember that you have a contract with the client. NOT the insurance company or adjuster.
- Stop talking to insurance companies and TPAs. YOU HAVE PERMISSION… more importantly, your peers will thank you. We did an entire blog on this subject, and have a template email/letter in the blog that you can use to professionally respond to adjusters that contact you directly.
- KNOW YOUR NUMBERS!
- P&L - Get with your bookkeeper and/or CPA and get your P&Ls organized and updated EVERY single month.
- WIP - Build a way to track every single job that comes in so you can track it from Work Auth to payment. A spreadsheet generally works very well. Review weekly.
- Build a dashboard so that this information is updated regularly and can be at your finger tips at a moments notice.
- We can help you get all of this together. Contact Us!
Remember this above all else. You have spent your career becoming the best that you can be. Never let someone else (especially someone who is not a expert in the work that you do) tell you what you should and should not charge. You are the leader and/or owner. Know your numbers. Price appropriately with your overhead and a healthy profit on every job, and you will see a lot of tension and stress melt away!
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