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Common Pricing Structures in Restoration Contracting and How The Right One Can Increase Overhead and Profit For Your Business. 

Restoration work is a critical service that helps bring homes and businesses affected by water, fire, and other disasters to their pre-loss condition. However, there are different ways to determine the cost of restoration work depending on the nature of the project, the client’s needs, and the contractor’s own goals and priorities. 

Careful consideration of these factors and selecting the most appropriate pricing structure can help restoration contractors improve their overhead and profit to build a successful and sustainable business. Here’s a brief overview of the different pricing structures used in restoration work.

Xactimate Pricing

Xactimate pricing is a software system used by insurance companies and contractors to estimate the cost of repairing or replacing property that has been damaged. It operates by using a database of pricing information to create an estimate based on the specific details of the damage.

Xactimate takes into account various factors such as the type and extent of damage, the materials required for repair or replacement, and the labor involved in completing the job. It then provides an estimated cost for the work based on average rates for labor and materials. 

However, there is often a difference between Xactimate pricing and actual cost for restoration contractors because Xactimate uses averages and those averages are heavily influenced by the amount of pricing data insurance companies regularly upload. That’s why it’s important to review the price of line items and adjust accordingly, or upload custom pricing every time you create an invoice. 

“Knowing how you can affect the pricing in your area by uploading your data correctly is one of the first steps you have to take to ensure you’re getting paid a fair price for the work you perform,” said Josh Ehmke, Co-founder and Owner of One Claim Solution.

Since Xactimate is managed and owned by the Insurance Services Office, contractors consistently uploading their data is the only way to influence the pricing to evolve. However, this practice has become a hot topic, especially for contractors who don’t bill Xactimate rates and therefore don’t use the software. While it’s true that contractors who don’t use Xactimate won’t be reflected in the software’s algorithm, it’s still crucial that contractors who are using Xactimate upload their custom pricing whenever creating an invoice. 

“The only way to influence pricing to evolve is to get enough custom pricing in there from a volume perspective,” said Jeremy Traasdahl, Co-founder of One Claim Solution. “Although one contractor may not have much impact, if every contractor uploaded custom pricing every time, it would make a difference.” 

Custom Xactimate Pricing

Speaking of custom pricing, some situations may call for a more customized pricing structure than what is straight out of Xactimate. Custom Xactimate pricing refers to the process of creating a personalized estimate using the Xactimate software as a basis. It involves modifying the standard Xactimate pricing data to reflect the specific costs and pricing for a particular region or situation.

Custom Xactimate pricing is typically used when the standard Xactimate pricing does not accurately reflect the local market conditions or the specific requirements of a job. For instance, suppose a homeowner has a custom-built kitchen with high-end appliances, cabinets, and countertops. In that case, a restoration contractor may need to use custom Xactimate pricing to accurately estimate the cost of repairing or replacing these features. The custom pricing would take into account the specific brand, model, and style of the appliances, cabinets, and countertops to ensure the estimate reflects the actual cost of restoring the kitchen to its pre-loss condition.

Additional Pricing Methods

Contractors may use different methods to price their services, even without the use of Xactimate or other software pricing tools. Here are some common pricing methods that contractors might use:

  1. Time and Materials: This pricing method involves charging the client based on the time and materials required to complete the job. The contractor may provide an hourly rate for labor, and then add the cost of materials used in the project. This method allows for flexibility as the actual cost can vary depending on the specific job.
  2. Cost-Plus: In this pricing method, the contractor adds a markup percentage to the cost of the project. This markup percentage is often negotiable between the contractor and client and covers the contractor’s overhead expenses and profit margin.
  3. Fixed Price: The contractor provides a fixed price for the entire project, regardless of how much time or materials are required. This pricing method offers a clear and predictable cost for the client, but may require more detailed planning and cost estimation from the contractor.
  4. Value-Based Pricing: This method involves pricing the services based on the perceived value to the client, rather than the actual cost. For example, if the contractor is providing a service that saves the client a significant amount of money or time, they may price the service higher based on the perceived value to the client.

Regardless of the pricing method used, it’s important for the contractor to ensure their pricing is fair and reasonable based on the market rates and the specifics of the job. Clear communication with the client about pricing and any potential additional costs or fees is also essential for building trust and avoiding misunderstandings.

Increase Overhead & Profit For Your Restoration Business

Choosing the right pricing strategy for your restoration business can have a significant impact on the operational costs and revenue generation of your restoration company in numerous ways including:

  1. Increased Revenue: The right pricing structure will account for the actual cost of labor and materials, and will also have a comprehensive scope of commonly missed line items – like thermal imaging and supervisor hours. Using a pricing structure that accounts for these factors increases revenue and profitability because it allows the restoration contractor to charge the right amount for their services based on the actual cost of providing them and the profit the contractor wants on a job.
  2. Cost Reduction: By bundling services together at a discounted rate, customers may purchase additional services they may not have considered otherwise.
  3. More Accurate Costing: By evaluating and implementing the right pricing structure, a restoration contractor can gain a better understanding of the actual cost of providing their services. This can help them make more informed decisions regarding pricing and service offerings, which can ultimately lead to increased profits.
  4. Improved Efficiency: By implementing pricing structures that incentivize restoration teams to perform at their highest level, such as performance-based pricing, a restoration contractor can improve efficiency and reduce waste. This can ultimately lead to increased profitability by reducing overhead costs.

At One Claim Solution, we believe that contractors deserve fair compensation for their work, which is why we focus on helping them achieve the best possible return on their invoices. That’s why we start by looking at a restoration contractor’s invoices and pricing structure and provide coaching on custom pricing and comprehensive scope. If an insurance adjuster pushes back on the invoice, we have the legal expertise to cite case law that supports the pricing structure and commonly disputed line items. We pride ourselves on successfully advocating for restoration contractors on these fronts so they’re paid what they’re owed.

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