May 1, 2026
Restoration pricing should be built from actual cost-per-job-type (fully loaded labor, materials, equipment, subcontractors, overhead allocation) plus a target gross margin percentage that varies by service type based on complexity, risk, and market rate. Water mitigation commands higher margins than reconstruction; specialty services (mold, biohazard) command premium rates over standard mitigation.
Restoration is not one business. It’s five or six businesses operating under the same roof, each with different cost structures, different risk profiles, and different market rate dynamics. Operating all of these services from a single blended margin number obscures the fact that some of your services are highly profitable and others may be margin-negative.
Target gross margin: 60–75%. The high margin reflects equipment revenue leverage — equipment bills daily with near-zero variable cost. Most common pricing error: under-billing equipment (below published daily rates) or missing daily monitoring visits as billable line items. At 60% target margin, if direct labor + antimicrobial = $4,000, minimum price = $4,000 ÷ 0.40 = $10,000.
Target gross margin: 45–60%. More labor-intensive than water mitigation with significant specialty equipment cost. Most common pricing error: missing HVAC cleaning scope, under-billing content manipulation, and not supplementing for concealed structural damage from firefighting water.
Target gross margin: 50–65%. Higher than most services because specialty compliance requirements create a price premium. Most common pricing error: under-estimating containment time, failing to include disposal costs, and not issuing change orders for scope discovered during demo.
Target gross margin: 30–45%. Lowest in the restoration portfolio because subcontractor costs dominate. Most common pricing error: accepting TPA-negotiated O&P reductions without understanding whether the resulting margin covers actual GC overhead cost. Many restoration companies lose money on reconstruction when O&P is eliminated.
Target gross margin: 65–75%. Premium pricing justified by high barrier to entry and relatively low competition. Most common pricing error: underpricing relative to actual disposal cost and compliance overhead.
Target gross margin: 40–55%. The premium over standard reconstruction reflects coordination overhead and 24/7 response requirement. Most common pricing error: not including coordination overhead. Large loss project management is a significant cost that standard Xactimate line items don’t fully capture.
O&P is a Xactimate line item that covers a general contractor’s overhead costs and profit margin on reconstruction work. Standard O&P is typically 10% overhead + 10% profit. Many TPA programs negotiate reductions or eliminations of O&P, which directly reduces reconstruction margin.
Compare your actual gross margin (from job cost reports) to your target gross margin for that service type over a 12-month period. If actuals are consistently below target, you have either a pricing problem or a cost control problem.
No service should be priced below 25% gross margin after proper cost allocation. Below this threshold, overhead absorption becomes extremely difficult, and the service is generating revenue without generating meaningful contribution to net profit.
Mike McCabe is The Profit Detective — a 36-year restoration industry veteran who has built pricing frameworks for restoration companies across every service type and market condition.
Most engagements pay for themselves within the first week.