Maintaining ProfitabilityMaintaining Profitabilityor improving profitabilityor improving profitability

Phillip Rosebrook, Jr. CR

AgendaAgenda

• State of the industry

• State of your company

• Planning future

• Gross and net margins

• Strategies

Why the Squeeze? Why the Squeeze?

• Industry overview– Consolidation– Pricing pressures from insurance industry– Impact of catastrophe’s on insurance

profitability• Need for underwriting profitability

• Re-insurance

– Overcapacity – except for catastrophe – Centralization of claims management

Pricing Pressures and Margin Pricing Pressures and Margin DeflationDeflation

"A man's got to believe in something. I believe I'll have another drink." W.C. Fields

• Competition and overcapacity• The 10 and 10 problem• Big insurance companies can manipulate pricing

guidelines but for contractors it is collusion• Strategic approach to price reductions• Volume discounts• New contractors, new paradigm• Numbers on a graph in a boardroom – its not personal

Insurance Company ProfitsInsurance Company Profits

• Fortune 500 Averages

• P&C averages

• Where is the difference?

A Natural EvolutionA Natural Evolution

PredictionsPredictions

• Lower margins by up to 5% points• Increasing size of insurance companies • Increasing size and sophistication of

contractors• Rise of TPA’s • Increasing professionalism and size of

franchises• New “non-restoration” companies in the

industry

SolutionsSolutions

• Know your numbers: How do your numbers stack up and what are your margins?– Gross profit – between 35% and 55% – Overhead – between 25% and 40%

• Measure your numbers: Make sure your financials are accurate and timely– Include WIP – see making and managing $– Accuracy

• Job costing • Estimate amounts• Job budgets

Manage Your BusinessManage Your Business

• Create an operating budget, measure every month and stick to it!

“First Say to yourself what you would be, and then do what you have to do.” – Epictetus 50-138 AD

Gross MarginGross Margin

• Efficiency vs. Growth

• Example

PerspectivePerspective

• “You’ve got to be very careful if you don’t know where you are going because you might not get there.”

- Yogi Berra

Dave’s TheoremDave’s Theorem

• A 5% Point increase in gross profit or decrease in overhead will double net profit

• If this is true – then more income can be achieved through increases in efficiency easier than increase in sales

Proving the TheoremProving the Theorem

• Sales $2,000,000

• GM 35%

• Gross Profit $700,000

• Overhead Assumption $600,000

• Net Profit $100,000

Aha!Aha!

• Sales $2,000,000

• Gross Margin 40%

• Gross Profit $800,000

• Overhead Assumption $600,000

• Net Profit $200,000

• Twice the return with a bit of effort

7 ways to increase gross margin7 ways to increase gross margin

• Plan jobs

• Communicate expectations to the customer and the field staff

• Set expectations and measure performance

• Cut travel and material procurement costs

• Improve customer service

• Finish jobs on time

• Increase profitable portions of your work

Changing Work MixChanging Work Mix

• Branding

• Marketing message

• Facilities

• Vision

• Training

Overhead Overhead

• Create a realistic budget and stick to it– Measure variance monthly

• Vehicles• Marketing expense

– Measure carefully – Opportunity costs– Don’t do something because everyone else does, do it

because it works– The future of insurance restoration is through claims

programs, TPA’s, regional and national programs• There is still a future in independent damage restoration – but

more difficult than previous

Cash & OverheadCash & Overhead

• Equipment – – how often do you use it– What is the payback time – What is the opportunity cost

• Staffing

• Increase volume from sales and production management staff

CompensationCompensation

• Define expectations

• Pay incentives for hitting the target

• Make sure the company wins first

• Model the position– Sales and production – 10% revenue– Owner up to 10%– Marketing – total costs under 4%– Office – variable– Production – in COGS

Reality CheckReality Check

“Get your facts first and then you can distort them as much as you please.”

- Mark Twain

• What if you are only making 3% or 4%?– The good news is that you are likely throwing

away 5% right now– This industry is full of waste and inefficiencies– Proactive planning puts money in the bank– Be realistic with your sales and overhead– Envision your success and then achieve your

success

The Good NewsThe Good News

• Know your environment and be ahead of the curve.

• Natural selection and Survival of the fittest

• Good time to sell

• The industry keeps providing better tools to assist with success

• Margins

• Be a master of your destiny

Parting thoughts – Parting thoughts –

• The purpose of Business is to Make Money. You have decisions, flexibility, social outlets and options AFTER you made money – otherwise you have risk and a job.

• You owe it to yourself, your family and your employees.