Roofing Insurance claims Overhead and Profit explained: Greed Or Must?

Roofing Insurance claims Overhead and Profit explained: Greed Or Must?

in today’s video I’m gonna explain
overhead and profit everything you need to know for your business this video is
for both homeowners and contractors I want to explain what overhead and profit
is why insurance companies paying overhead and profit why they don’t pay
who is greedy behind the scenes who is trying to pocket money they should not
be pocketing all of that in today’s video what is overhead and profit
overhead and profit is the line item in insurance estimate in home improvement
industry it’s very simple you file a claim in the case something happened to
your house hailstorm hurricane whatever it is are you property has a damaged you
call the insurance they got out they pretty much agreed to do the work they
say yeah you’re gonna find a contract or we’re gonna pay for the work they’re
gonna issue one of this estimates this was a regional this actual my company
right here we did the job so this job started with a four thousand four
hundred and fifty three dollars there was a regional estimate and final
estimate ended up being twenty seven thousand one hundred and fifty five
dollars big big change but a lot of times scope of work increases
dramatically insurance adjuster comes out she is just very few things maybe
one slope we come out would talk to them they’re like oh yeah it’s way bigger
just like fixing your car or fixing your body you get to the hospital you start
with something and then they diagnose and they find more things so some claims
can be really complicated depends of kind of house you have but all of them
will have something called overhead and profit and overhead and profit usually
is not included in the original estimate and overhead and profit also have been
really big debate between contractors and insurance companies because some
homeowners don’t understand it and accusing contractors sort of being
greedy some insurance companies think contractors have been greedy so pretty
much everybody’s pointing fingers at a contractor like hey you don’t need that
we’ll pay you enough already homeowners look at a number like this
it’s like a beach it’s twenty seven thousand dollars sort of contractor you
know just be thankful for what you get well let me explain to
you and show you why overhead and profit and while it sounds really big it’s not
actually that big so here’s the deal overhead and profit usually comes in the
formula of ten and ten as a matter of fact on the state farm on the very first
page of their estimate they give you like an example of what you’re gonna get
prior you know when they pretty much open the claim funny enough State Farm
is one of the worst companies out there they’ll never pay over and the profit I
believe last year they shortened my business over a hundred thousand dollars
and overhead and profit alone huge loss I mean options are go after them hire
lawyer probably spend a hundred K just chasing hundred K not always win-win for
me so we drop those case I mean it’s cost of business almost but it’s a ten
percent for overhead and ten percent for profit to understand overhead and profit
you need to understand how weak contractors beat on our jobs usually we
calculate materials in the roofing business and a lot of other trades out
there it’s about thirty percent of the job materials about thirty percent of
job labor is gonna be about thirty percent of the job so you’re probably
thinking well if labor and materials is your major cost is thirty percent each
it’s a forty percent gross profit margin you’re right it is so I would say this
number up to this point is pretty accurate it’s about 40 percent and from
that point it breaks something like this sales guy sales representative for the
company gets about ten percent a lot of sales reps in the roofing industry are
independent just like doctors and hospitals are 1099 employees so
technically the work for the hospital but they’re not employee of the hospital
they’re independent so they get paid you know on different pay structure so in
the roofing business and the construction business a lot of times
it’s a commission based only so sales guys don’t earn anything unless he sell
something just like real estate agents it goes into many many industries now
ten percent ghosts tourists overhead and ten percent goes towards profit clear
profit Cu net profit should be about ten percent in a
there is I covered in the last video that good profitable company will net
profit of up to 15% but it can be actually as low as 7 we’re not losing
lost 10% it just fluctuates like for example your overhead can be slightly
bigger your profit can be 12% your commission some people pay their
commissions a little bit higher it can be 12:30 and 15% it doesn’t really
matter where a 10% goes the rough numbers are there your material can be a
little bit more your labor can be a little bit more job per job your your
gross profit can be more I mean everything is fluctuates the 10%
it’s just margin of error you never know what’s gonna go wrong in its
construction and something always don’t go as planned so now let’s talk about
overhead of any company with it let’s say 2 3 million plus again a half which
is not it’s only two three hundred to roofing jobs per year so you’re gonna
have marketing expenses you’re gonna have warehouse expenses this is my
warehouse right here where I’m spending about $3,200 per month about four
thousand square feet here you know you have gas and fuel we provide vehicles to
our guys will pay fuel or my gas and fuel bill right now it’s you know
anywhere between two and three thousand dollars a month you have insurance
expenses insurance can be very very high I mean I’ve paid insurance sometimes you
know they do audit I mean it can be 50 hundred thousand a year bill then you
have administrative expense a few different subscriptions stuff like
QuickBooks stuff like your CRM it adds up really really quick then you have
office supplies I mean I always joke that I’m like it’s a 2018 I’m a
paperless company I don’t print anything but sometimes I come to my office and my
employees printing books here and it drives me crazy every single time but I
cannot even tell how much money I spend on printing expenses like I literally
can start printing books here then you have to train your sales guys your
employees you see you buy different online subscriptions to train them or
maybe you travel with them on different training you you know you have days
where nobody’s paying you and you do have expense to Train
you guys you know whether their hourly employee or celery or it doesn’t really
matter did I have insurance twice I have insurance twice because actually have
different insurances here actually you will have probably three four inches you
have car insurance you have general liability insurance work I’m insurance I
mean stuff like insurance for your tools all of that so insurance twice not gonna
take it out because we do have a lot of insurance expenses overall guys this is
your overhead and overhead it’s what skills a lot of businesses
because sometimes we don’t see trees through the forest we were busy we think
here like for example if you have ten thousand dollar job here and material
cost three and labor cost three you think you know I just made four thousand
dollars but what if you only do two of those jobs you know per week what if it
rains for two weeks I mean your bills don’t stop coming
you always get those charges your overhead is always there you already
have agreement with your receptionist how much she is getting paid per hour
that’s you know your green tea here 40 hours a week maybe she’s a seller employ
all of that stuff so now we go back to insurance company and we’re trying to
negotiate with them on the jobs because you as a homeowner not paying us
insurance is paying us but insurance always have excuse not to pay here’s a
few excuses what insurance companies use and not to pay overhead and profit one
they say well you only have one trade we don’t know you overhead and profit we
only pay overhead and profit when you have two or three trades listen if your
insurance company I have a message for you does any of this goes away if I do
200 roofing jobs per year and it’s just one trade no it stays how many trades
per job has nothing to do with my overhead am i bill for my warehouse
gonna go away just because I don’t do painting on a certain job no in my
reception is going to charge me less because we’re only schedule one crew
instead of two kurz no and my production manager gonna get paid less because he’s
scheduled want three per job versus two no all of my overhead and staying there
in also why should I not make money on a job why should I not like the profit on
the job if it’s only one trade I mean this is my
business model I don’t want to have five chase per job I mean if I do if
homeowners has siding and gutters and all of that sure but it has nothing to
do with profitability of the business or overhead absolutely nothing it’s
irrelevant but insurance company use it all the time I don’t think it’s legal I
don’t think it’s more about they do they pretty much say you have to have it
depends by insurance company some of them say couple trades or whatever I’m
telling you this even if you have one trade you have legal argument to argue
with the insurance company that they owe overhead and profit because it doesn’t
change this does not change if it’s one or three trades now some insurance
companies say well this job was not complex enough you pretty much just made
two phone calls and you know I mean they use every argument in the book every
excuse in the book again my complexity of the job has nothing to do with my
overhead nothing to do with my bills nothing to do with what I do day to day
I mean my overhead is there and I am I’m on business I need to make profit
otherwise I’m gonna be closing doors and who’s gonna be serving those customers
anyway who’s gonna be taking care of insurance and then because it’s a
roofing business and it’s a roofing channel I want to talk about this excuse
they say the roofing doesn’t really count they say that well it’s already
included it’s only one trade you’re only doing roofing and and it’s also a lot of
BS guys Xactimate does not include overhead and profit and a little friend
trade if your insurance company you have a proof that it is included please
comment below send me email and I would like to review it but I’m telling you
right now that roofing trade in the insurance paperwork an exacta my
paperwork does not include overhead and profit now who is greedy here is a
contractor still greedy you think because we only have three parties
involved we have insurance company we have homeowner and we have a contract
again everybody’s pointing finger at the contractor as a matter of fact insurance
company often goes to the homeowner and say well if your contractor is not gonna
do it without overhead and profit we have contractors who will and I’m pretty
sure they do there is a lot of contractors who don’t want to be making
money who don’t care if they’re in business next year or not who will eat
deductible who will do the job for the bare minimum there’s guys out there I
would have been business five years from now I owe it to my clients I don’t want
to put my business in jeopardy last year guys my business eight hundred and
seventy thousand dollars in overhead and profit we collected some we collected
over half but one hundred and seventy thousand dollars it’s my loss for one
year and that’s with me collecting you like this job right here we collected on
that one but it was a fight and it’s not a easy fight so my answer and what I see
in the industry the greedy is out of all its insurance number one the greediest
bastards out there they just don’t care about industry they don’t want to take
care of the homeowner so contractors because when you screw in the contractor
you’re actually doing big disservice to the homeowner as well because when
contractors not profitable when his overhead is not met he’s gonna be out of
business you’re just contributing to the failure in the industry because in seven
years ninety percent of the contractors are out of business this is one of the
reasons why this is the reason because one contractor is profitable he can pay
his employees well he can pay his bills on time he’s not suffering financially
he moves on he takes care of the customers now when the customers taken
care of you know they give contractor more
business everybody prosper it’s all good now what’s happening when you take you
know twenty percent and you just shorting them of course you greedy
you know you pocket all those money and now homeowner is getting screwed
actually as well so now with all fairness homeowners can be greedy too I
see it happening all the time and not many people talking about it especially
not on YouTube or Facebook but homeowner also a lot of times look at
paperwork and they just judge you they look at it give me $10,000 sometimes it
can be $30,000 and we have bills not paid here I mean in five years I have
two customers they did not pay me for my aunt we took them to court settled you
know we got paid but homeowner will look at $30,000
mmm materials were only ten labor was only ten I already paid you enough I’m
just gonna pocket you know like 20 percent and they literally tell in
contractors like you got enough just be happy for what you got I don’t believe I
owe you well legally they have to pay but
morally when people see those checks in their names because insurance actually
pay homeowner something triggers they all of a sudden have little amnesia that
they have to actually write a check to the contractor and they decided to keep
money I personally had the clients who told me like Misha I’m sorry I spent the
money like what do you mean you spend the mine he’s like the media I spent the
money you know it was a lot of money written to my name expended I don’t have
it I’m like well we’re gonna do a payment plan but I’m not walking away
from $6,000 final thing we’re looking to meet you but you get like $35,000 and my
own guys don’t matter okay I get you like I got it so you think
$35,000 is a lot of money do you want to help me do you want me to send your bill
for my insurance work on when I get fifty thousand dollar bill and I don’t
have it in my bank because of customers like that if you want to look how much
you pay me I’m gonna start showing you some bills that I paid and you will be
blown away you’ll be like I don’t want to be in that business because
everybody’s looking here and nobody’s looking here and this is the hard part
this is the reason overhead and profit exists right it was not borne by our
greed it was born out of necessity and somebody’s definitely taking advantage
of it so now Kent contractor has become greedy absolutely I’m not going to
defend contractors in this channel because contractors also contribute to
it right so contractors a lot of times they supplement for items they didn’t do
it’s not more else right but they don’t do it and my
message to contractor if you’re sending one of this to insurance company or show
that the homeowner make sure you can back up every item every single time if
you’re not gonna do it it’s not for the homeowner to find out or insurance
company hey you didn’t do it it’s your job and it’s your responsibility to
triple-check you estimate that hey I did everything and I’m charging for every
item if you didn’t do guess what call the freakin insurance company and
say hey I didn’t do that part take it away it can be 500 bucks it can be 5,000
you know who you are you know what you do I’ve see I met way too many guys who
is screwing insurance companies and homeowners and charging for the stuff
they didn’t do don’t make us look bad so contractors can be greedy also if you do
don’t have overhead if you’re working out of your garage I mean it’s up to you
how you do it like for me the only contractors who should not be charging
and I’m not saying that in the way that you know you don’t have legal right you
probably have legal right but I wouldn’t fight over it because if you truly don’t
have overhead if your paper contractor working out of your house you don’t have
sales guys you you keep your commissions you keep your overhead you are making
twenty thirty percent of profit margins I mean maybe don’t be greedy
don’t try to pursue get too much attention to you because for me it’s
just hard to justify but if you really did business good work in contractor who
takes care of his employees who takes care of his business who in his seated
to stay and want to keep marketing and keep branding and keep you know growing
his warehouses and stuff then for sure you do need overhead and profit just to
stay in business so I want to end this video with a huge huge credit to guy
named Steve Patrick he’s one of the veterans in on this topic he actually
wrote a book about overhead and profit so check out the group on Facebook it
called level the playing field pretty much the whole group is best resource
for the contractor who’s trying to get overhead and profit who is fighting that
wall or hit that wall and by insurance companies and don’t know how
to get overhead and profit Steve Patrick is one of the best guys in
the industry who knows how to make insurance companies pay and I want to
finish with a message to the homeowners if you look at the paperwork and you
think it’s a lot of money don’t let the numbers block you with a
good experience with your contractor if you happy with the work if company did
everything they said they supposed to do like be on your contractor side not a
new insurance company side insurance company won’t save money for them not
for you your contractor you deserve to get paid
it’s not your money either it’s insurance company money you’ve been
paying premiums let your contractor be profitable be successful and he will
take care of all your future needs for years to come you don’t want to a
contractor to be in jeopardy to be out of business so that’s my message for you
guys I would like to hear from you what do you guys think about this topic
what do you don’t agree maybe this is social media world
you’re not gonna offend me with a negative comment comment below I would
like to start conversation I like negative comments I read all my comments
give me one of those or one of those whether you agree or disagree and I’ll
see you guys in the next video

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About the Author: Oren Garnes


  1. Now you've got me checking the figures on my recent roofing claim to see what my insurance company offered as "overhead and profit." I don't see a line item charge for "overhead and profit" on my estimate from Travelers here in Colorado on a $35K claim.

  2. Nice break down. I also view it in a different way when it comes to O&P inside of Xactimate. Xactimate makes pricing for each line item to be fair market value for that line item. (That is a different discussion in itself for certain line items, but that is their goal) The price in that line item can only be fair market value if the entire estimate is written by the rules of the actual software. If you do not abide by the rules of Xactimate on how an estimate really works then you do not come up with fair market value for a job. So when Xactimate publishes a white paper on O&P to explain how and when it is used then if an estimate goes against those rules then the estimate is no longer a reflection of fair market value. So to the homeowner out there, in most cases, if the insurance company uses Xactimate and does not add in O&P then they have shorted your contractor fair market value. Keep in mind your pay fair market value on your premiums and deductibles.

  3. Great video on o&p Dimitri! Thanks for the info. We just had Steve Patrick train our company a few months ago, he was great at illuminating us on the subject

  4. Enjoyed the video. I worked for State Farm as an adjuster for years always preaching coordination and complexity. Now I am a contractor and I see how wrong we were to deny contractors O&P. Every year we would change our stance on O&P sometimes going as far as to ask for a general contractors license. Every year we would find ways to pay less and less. In 2008 we automatically paid for all vents, valley metal and pipe Jack's. If we missed a pipe Jack we could get written up. Then all a sudden in 2009 we were told do not pay for any of these items unless it is actually damaged by a physical loss covered under our policy. Such crap if you ask me. This leads to contractors reusing vents, drip edge and other items that should be replaced when doing a re-roof.

  5. I usually don't even know how much insurance has paid the home owner . I put a bid on the job ,sometimes homeowner has to come up with more money weather it comes out of there pocket or we go back to insurance with the actual scope of work or the home owner got more money than my bid is for and gets to keep a couple of bucks ….. I do not let insurance dictate my pricing

  6. It took me like 4 months of watching your channel to realize you were the guys sitting in front of me at Steve Patrick in February that left their camera. Funny to see this come up on the channel now.

  7. As a homeowner that is dealing with state farm right now about this exact issue, how should I go about convincing them to pay o&p. My contractor is super professional and I feel they deserve it.

  8. What if insurance is not involved, is O and P still proper?
    The problem is that terms that govern O and P are written by the insurance. It is not a right, usually O and P is about complexity of scope and overlapping trades.

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