Estimates are the cornerstone of every restoration job. Yet, understanding the financial differences between overhead, margin and markup remains a persistent challenge across the industry. That lack of clarity often leads to underpriced jobs, eroding profit and trust with our partners.

The restoration industry’s challenge with financial literacy has never been more critical, as this year’s slower CAT season has left many restoration business owners with fewer jobs and a renewed focus on finances.  

Contractors can ensure long-term profitability in the year ahead by better understanding how overhead impacts their bottom line and how common misconceptions can result in costly mistakes.

Breaking Down Overhead and Markup 

A key distinction contractors must learn with financial literacy is the difference between markup and margin. Let’s start with breaking this down: 

• Markup is a percentage added to the cost, while   
• Margin is the percentage of revenue from each job. 

But that’s only part of the equation; there’s also margin built into labor rates, which can further affect your revenue.

Overhead, on the other hand, represents the ongoing costs of running your business that is unrelated to a specific job, for example, rent, utilities, insurance, etc. These expenses must be recovered through job pricing, meaning contractors have to factor the margin needed for overhead into their estimates to ensure true profitability.

Consider an estimate for $100. Applying a 20% markup, or $20, brings the selling price to $120. However, a 20% markup does not mean a business is earning a 20% profit margin, as it only yields about 16–17% in margins when calculated correctly. Factor in overhead costs like rent, insurance and admin salaries, and this small gap grows to detract additional profit.

What may appear as a small difference in margins compounds over time and coupled with an overdependence on pricing software, this mistake often leads contractors to lose financial control. In a slower market, financial literacy is the defining factor between stability and operating in the red.

The Real-World Impact of Poor Financial Literacy 

According to the RIA’s Cost of Doing Business Report, the average overhead for a restoration job hovers around 36% and is only rising with declining revenue. Underestimating overhead costs leads to a loss in profits, especially if your revenue streams decline but overhead remains fixed. Revenue may also decline from missed items that should have been included in the upfront estimate, often due to the overreliance of estimating software. Failing to understand what’s included in each line item, or to capture proper documentation for additional ones, can further erode both revenue and profit.

There’s a clear disconnect when the overhead sits at 36% while the “overhead” percentage added to estimates is only 10%. When terms meant to represent margin are instead used for markup at the end of an estimate, confusion sets in from the start. Another key disconnect lies in overlooking where the margin actually exists within labor overhead in line items, across market conditions and in the final markup applied to the estimate. Over time, missing just a few percentage points in calculating your profit margin can compound and break a company’s bottom line.

Additionally, the pricing solutions contractors rely on are not meant to be absolute, and without consistent field feedback, inaccuracies only deepen over time. For example, if fewer than 10% of contractors provide input, the pricing solution never adjusts to real market conditions. An overdependence on these systems leads to outdated labor rates, unintentionally signaling to the software that the price is valid. Over time, this perpetuates artificially low rates and diminishes profit across the industry. Once contractors align their labor rates with their financial realities and provide consistent feedback, they can begin achieving healthier, more sustainable margins.

Weak financial literacy results in real-world consequences, such as lost profit, fewer jobs and/or reduction in staff hours. In order to achieve long-term success and avoid these risks, small business owners must have a strong grasp on the basics. 

How Technology and Training Improves Financial Hygiene 

Filling out an estimate correctly is key to the financial equation and accurate estimating begins with accurate data. Financial performance improves when jobs are well scoped and documented, ensuring the numbers are right from the start.

360° documentation tools create objective, time-stamped records of the job, reducing disputes and callbacks by providing transparent, verifiable visuals for every line item in an estimate. True financial literacy comes from understanding the “why” behind the numbers, not just entering them into a spreadsheet. With the help of 360° tools, contractors can bridge this gap by providing real-world context for estimates and validating cost at every step of the way, ensuring that every additional line item is clearly documented and justified.

Combining technology with in-person, hands-on training remains an untapped opportunity in the restoration field. Classes focused on documenting, estimating and financial best practices enable contractors to connect accurate field data with improved revenue outcomes. Through these training sessions, contractors can learn where money is often “left on the table” and how to leverage technology like 360° documentation to control margins.

Promoting Financial Success in 2026 and Beyond

The restoration industry can no longer afford to leave money on the table and operate with weak financial literacy in 2026. As contractors continue to see high volumes of claims, those who prioritize financial literacy, disciplined budgeting and tech investment combined with training will set themselves up for success.

With a renewed focus on financial literacy in 2026, the restoration industry can work towards creating healthy revenue streams and achieving stronger profitability, even when natural disasters take a pause.