Originally posted 2009-03-27 09:00:00.

For this week’s Guest Post Friday, Musings is privileged to have a good friend Rick Provost weigh in. Rick has over 20 years of experience helping to build the country’s largest design/build franchise network specializing in exterior home improvement. Formerly the President and CEO of Archadeck®, Rick now provides his franchising expertise through The Consultancy, a consulting firm specializing in business systems development for contractors. Rick also is a facilitator, coach, and consultant for Business Networks, a peer-review network for remodelers and insurance restoration contractors, and a columnist for Remodeling Magazine Online.

While at a recent conference of the Restoration Industry Association (RIA), I heard several contractors complain about remodelers and home builders attempting to get into the insurance restoration business. With head-shaking disdain, they remarked that the restoration business isn’t as simple as builders think. And they’re right.

But that’s not what some would have us believe. Shortly after the conference, I found a Website advertising a book that would teach contractors the Six Easy Steps to becoming an insurance restoration contractor, including how to achieve a remarkably precise 87.62% bid success rate, with HUGE PROFITS. BIG, FAT, WONDERFUL 20% to 40% PROFITS!

A few of these “easy steps” remind me of the first half of comedian Steve Martin’s joke about how to become a millionaire and never pay taxes: “First…get a million dollars.”

Easy Step 1 is to “Establish a relationship with the proper insurance company ‘insider’, known as an adjuster.” Go ahead and establish that relationship. However it helps to have knowledge of the special procedures unique to restoration work. Easy Steps 2 through 6 are to analyze the damage, perform the repair cost analysis, obtain an agreed scope and price from the insurance adjuster, set up the contractual relationship, and then proceed with the repairs. Bingo!

Let’s isolate just one of those “easy” steps. An insurance estimate is scoped and priced differently than a remodeling job, usually using the Xactimate software program, which requires special training. If you’re a participant in an insurer’s program, they will pay your cost based on Xactimate’s pre-set values plus 10% markup — not margin — for your overhead, plus 10% for profit. (Pause for laughter.) Money is made in this business, to be sure. But could you make money in your business if you used that formula, literally?

Now, perhaps I’m being cynical. Maybe it is easy to dive into 24-hour emergency response and restoration of water, smoke, and fire damage. Maybe you have the equipment to perform content inventory and pack-out, fire damage demolition, smoke mitigation, mold remediation, gray and black water mitigation, and even (shudder) trauma scene cleanup. But I’ve made my point. Restoration work is a completely different animal than remodeling.

Different, that is, until you get to the “put-back” or rebuilding step. This is where the remodeling industry intersects with the restoration industry. Put-back means what it implies–replacing the structure and finishes to their original state: framing, insulation, drywall, trim, flooring, painting, and so on. Margins are typically lower than for mitigation work because put-back requires management and technical skills that cost more in the marketplace. This would obviously dilute a restoration contractor’s blended margin if he carried the fixed costs necessary to perform that kind of work. Therefore, many choose not to pursue it. But it’s also the type of work that matches a remodeler’s skills and resources.

Given the state of the remodeling industry right now and for the foreseeable future, this may present an opportunity for you to subcontract for a local restoration firm that does not currently perform the put-back portion of insurance claims work. The difficulty will be in convincing them that their company’s good name will not be tarnished by your failure to perform acceptably. That’s a hot-button issue, as their business relies on maintaining a satisfactory reputation among the insurance adjusters who feed them work. One bad job could undo years of goodwill.

So if you can demonstrate why there would be no risk in subbing to your company; or if you’re willing to become an employee, there might be an opportunity for steady work through this protracted slowdown. After all, fires and burst pipes don’t care about the economy.

(P.S. The second half of Martin’s joke is “Then say… ‘I forgot!’”)