Overhead and Profit (O&P) in Xactimate Line Items?Is it true, there is no O&P in the Xactimate repair line items? Xactiamte trainer and estimating guru, Ben Justesen, joined The DYOJO Podcast to discuss this topic and more. On Xactimate Sessions File 005, Ben responded, "This is a good question. Whether you realize it or not, it's a little bit loaded. When I when I think of overhead and profit (O&P). as a markup, that markup is not included in the Xactimate line items." The Difference Between Markup & Profit for Insurance Claims EstimatingWhat is markup? You have your line items coming together to form the cost of your scope. You add a markup, which in the insurance industry is often considered this arbitrary 10% overhead plus 10% profit (aka 10 and 10). This add-on to the end of your Xactimate estimate is your markup. Markup doesn't actually give you a guaranteed profit margin, which is what you actually take away from the project once you've paid for the work and the cost of goods sold. In simplified terms:
"However," remarks Mr. Justesen, "That markup is only a portion of the margin that you would need. So there is some margin in the line items themselves. But it's on a certain component. That's the labor component. There's are no margin on materials, there is no margin considered on equipment. So the margin that you have to consider is on the labor." in addition to running a multi-site restoration company out of Moses Lake, Washington, Ben also has created the Enlightened Restoration Solutions (ERS) course to help insurance claims estimators elevate their skill sets. He is the leading proponent for encouraging restorers to make their own pricelist within Xactimate and teaches them how to effectively do so. He reminds contractors that if all they rely upon is the 20% markup added to their estimate, they will struggle to cover their true overhead costs or meet their actual profit margin goals. If a restorer sticks to a strict 20% markup, they need to understand they are only netting a 16.67% margin. 20% Markup is only 16,67% Margin for Restoration EstimatesI will try to do this justice. This is something Ben justesen demonstrated when I attended his ERS course. If you watch the video you will notice that I am using the legal pad from the Law Offices of Edward H Cross, aka The Restoration Lawyer. Another resource like to shout out is The Book on Restoration Collections by Ed Cross. This book is available through their website and is designed to take the mystery out of collections for insurance claims.
Restoration professionals hear all the time that 20% overhead and profit (O&P) is more than enough. But, you and I know that this is actually only 16.67% margin. I will demonstrate how:
Why is this? That is because if we had an invoice from a subcontractor for $1,000.00 and the gracious insurance company allowed us to mark that invoice up by 20%, we would then be charging $1,200.00. From our $1,200.00 we pay our sub $1,000.00 and we are left with $200.00. Our $200.00 is only 16.67% of the $1,200.00 that we charged. So, not only did we NOT get at least 20% (which is far lower than ANY insurance company makes as an overhead and profit margin), we also likely had to wait on the money so the insurance and the client allowed us to finance the payment interest free while they waited to pay the $1,200.00 so that we could recoup what is left of our $200.00. Most restoration companies, most contractors, and most insurance companies have a higher profit margin goal than 20%. This markup can really drag those margins down on your individual projects and your overall goals for the year. If you're only getting a 20% markup on the front end, it can really skew your margin on the back end.
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I was invited to contribute to the September 2021 issue of Construction Business Owner Magazine which was dedicated to estimating in the skilled trades. My topic was about how setting clear objectives for estimators will lead to more consistent outcomes — not only in estimating, but also the production process. Consistently top-performing organizations take a holistic approach and view estimating as one process, among many, that leads to a successful outcome. So, whether you are a business owner, training manager, estimator or trades professional looking to develop this skill set, the following will provide three key ways to elevate the estimating process.
NEW BOOK ANNOUNCEMENT: As this series develops, Gabriel J. Jones and I are transforming content from The Xactimate Sessions into a book that will release shortly after the podcast episodes are all released. This will be a great compliment to our first book, Be Intentional: Estimating. Please RSVP your copy today. This book is intended for:
The Xactimate Sessions from The DYOJO Podcast File 003 - Fake it until you Xactimate it The DYOJO Podcast Season 3, Episode 68 Guest: Nick Sharp, Consulting Specialist at Reets Drying Academy If you can't estimate, you become a trainer. Right? Nick Sharp joins us on The DYOJO Podcast to share his experiences from cleaning carpets to learning to fake it until he made it as a reconstruction estimator. Nick shares how his positive mindset and consistent work ethic helped him to progress in his property restoration career. As Nick says, "I never went into anything thinking that I can't do this." This week, on The Xactimate Sessions from The DYOJO Podcast, we sit down to discuss Xactimate with a restorer-turned estimator who transformed into a restoration industry trainer. Nick shares a few tips for aspiring professionals and growth-minded estimators, including:
PODCAST SPONSOR: The DYOJO Podcast is sponsored by Advocate Claim Service (ACS), "Where you can find solutions to claims that are causing you anxiety." David Princeton and his team are ready to help you navigate doubtful and disputed insurance claims. If you are a business owner, manager, or intentional restorer, you will appreciate Nick's insights as well as this key question, "Why are we teaching estimators the program (IE Xactimate) instead of what is going to be profitable?" We supplement our discussion with Nick with clips and comments from many sources including
NEW BOOK ANNOUNCEMENT: As this series develops, Gabriel J. Jones and I are transforming content from The Xactimate Sessions into a book that will release shortly after the podcast episodes are all released. This will be a great compliment to our first book, Be Intentional: Estimating. Please RSVP your copy today. This book is intended for:
DEALS FROM THE DYOJO: The DYOJO collaboration with DocuSketch offering a $200 discount on the initial hardware package to members of The DYOJO Nation who use the custom code "DS-DYOJO1". The DYOJO Podcast, the official home of the DYOJO Nation as so declared by The Global Watchdog, Pete Consigli, exists to help intentional restorers to shorten their DANG learning curve for personal and professional development. How to go toe-to-toe with a contractor and win every time during insurance claims negotiations8/2/2021 Jon Isaacson, The Intentional Restorer, was invited to present a breakout session for the 2021 IA Path Virtual Job Fair. What is the IA Path Adjuster Job Fair? The IA Path Adjuster Job Fair is an online platform for adjusters and companies looking for adjusters to find each other. This is adjuster-specific networking designed for insurance adjusters and those looking to recruit and hire insurance adjusters. https://virtual.adjusterjobfair.com This is a twice-annual event. Dates for the two upcoming events are,
This event was created by Chris Stanley and his team. Chris was a guest on The DYOJO Podcast Episode 38 where, among other topics, we discussed how to work with an insurance adjuster's "box". Chris explained his process for working insurance claims in the automobile wing and how those principles can apply to property insurance as well. For this presentation, How To Go Toe-To-Toe With A Contractor And Win Every Time During Insurance Claim Negotiations, we played off of the title of a presentation that Bill Wilson, author of When Words Collide, used to use to share his process for doubtful and disputed claims. We had the pleasure of diving into this topic with Bill and David Princeton (Advocate Claim Service), on The DYOJO Podcast Episode 48. Sample dialogue from this presentation: In insurance work, where Xactimate is the common estimating platform, the first step is to establish the agreed-upon scope (based on data capture) and then build an estimate that reflects this approach (data input). Thorough data capture leads to accurate data input. These are also fundamental elements of a contract. Insurance is a bit unique in this aspect, where the scope is negotiated between the contractor and the insurance carrier which establishes the agreed-upon scope whereby the contract between the customer and the contractor will be created. The primary goal (aka the standard) for insurance claims repairs is: To restore the property to resemble pre-loss conditions, no more and no less. This is the standard by which all efforts should be judged. This standard is critical to remember during all phases and starts with the estimating process. The property restoration estimator, insurance adjuster, and homeowner/insured should have a “meeting of the minds” to confirm the scope of work relevant to that standard. The DYOJO Way of the Intentional Adjuster: Use this standard as your opening statement to the client as well as your introduction to the contractor, take the lead on the conversation and establish the process for your discussions. (Read more on The Standard) In insurance work, the agreed scope of work is a foundational element. While many people focus on the price, in insurance the standard estimating tool is called Xactimate which helps create a common language between contractors and carriers. Xactimate estimates are constructed based upon quantities and are composed line by line and room by room. While Xactimate is often over-utilized as a guide for the insurance claims repair process, it is also blamed when either party doesn’t agree with the output. Thorough data capture leads to accurate data input. The software’s role should be understood as communicating a fair and reasonable price in relationship to the scope of work necessary: To restore the property to resemble pre-loss conditions, no more and no less. The DYOJO Podcast airs Thursdays at 9am PST, you can WATCH on YouTube or LISTEN on Spotify. The podcast for the intentional restorer, helping you shorten your DANG learning curve for personal and professional development. thedyojo.com/listen This week, on The Xactimate Sessions from The DYOJO Podcast, we sit down to discuss Xactimate with Xactimate. Brian Austin is the director of instructional design at Verisk, Xactware division. Verisk is the parent company that owns Xactware which produces Xactimate. So, if you could ask Xactimate one question, what would it be? We asked Brian several questions and he said that Xactware has worked diligently to build feedback into their systems. Xactimate wants to hear from the everyday restoration contractor and all of its users. SPONSOR: The DYOJO Podcast is sponsored by Advocate Claim Service (ACS), "Where you can find solutions to claims that are causing you anxiety." David Princeton and his team are ready to help you navigate doubtful and disputed insurance claims. Are you able to deviate from Xactimate pricing?The Advocacy and Government Affairs (AGA) Committee of the Restoration Industry Association (RIA) was able to bring Mike Fulton, President of Xactware on for a industry briefing on Facebook Live, June 18, 2021. It appears that this video may no longer be available but portions can be seen via THIS LINK. Ed Cross, The Restoration Advocate, reminds contractors that Section 9 "Limited Warranties" of the Xactware licensing agreement reads, "You are responsible to ensure the estimate includes pricing consistent with components including, but not limited to, actual materials, equipment, and labor pricing...You agree to not inhibit or preclude deviations from the Price Data where contractor requirements, market conditions, demand, or any other factor warrants the use of a different line item price in the specific situation." Resources from Xactimate for new estimatorsThe Xactimate Sessions from The DYOJO Podcast File 002 - Learning to XM8 with all the resources from Xactimate The DYOJO Podcast Season 3, Episode 66 Guest: Brian Austin, Director of Instructional Design at Verisk Brian shares many of the tools available to all Xactimate users including many that are included with your annual Xactware subscription:
Three tips elevating your Xactimate skillsIf you didn't catch this from the previous paragraph, Xactware offers ILX Construction Training which is included in your annual Xactware license and is designed to help take an employees through the complete building process. In addition to these resources, Brian shares three tips for elevating your Xactimate game as well as your personal and professional development:
The DYOJO collaboration with DocuSketch offering a $200 discount on the initial hardware package to members of The DYOJO Nation who use the custom code "DS-DYOJO1". The DYOJO Podcast, the official home of the DYOJO Nation as so declared by The Global Watchdog, Pete Consigli, exists to help intentional restorers to shorten their DANG learning curve for personal and professional development. WATCH on YouTube or LISTEN on Spotify, Thursday at 9 am PST. |
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