In the restoration industry today, the cost of doing business and the ever-changing market of how sales are generated is getting more and more challenging. One thing that hasn’t changed is the 20% markup factor for overhead and profit, commonly known as the “10 & 10” O&P. No one really knows who came up with the 10% and 10% concept, but most restoration contractors will agree these allowances, especially the 10% allowance to cover overhead expenses, are for the most part outdated and unrealistic. Overhead costs vary from company to company, and the one-size-fits-all mentality is not only unfair but often detrimental to the survival of some restoration companies. In order for any for-profit company to survive, it has to make enough profit after costs to not only cover the operating expenses but have enough left over to grow the business as well as carry it through the slow times.
Most insurance carriers won’t deviate from the 10% for overhead and 10% for profit markup without a fight, even if the contractor performing the work can prove his or her company’s overhead is more. One reason for this is that there are always contractors out there who are willing to work with these allowances. Prior to 2010, some carriers, including Allstate, had varying amounts they would allow for O&P and some allowed as much as 19% for overhead and 19% for profit or more depending on the location, project complexity, or other factors. The adherence to the 10% overhead allowance in most of today’s structural repair estimates has caused significant financial hardship for many restoration contractors. This is due primarily to the increased costs of doing business and the inability to make enough profit to cover the overhead burden.