May 1, 2026
Commercial restoration accounts can appear profitable while actually delivering below-average margins when the true costs of maintaining them — dedicated staff, SLA compliance overhead, faster response requirements, net-30/60 terms, and scope concessions — are not allocated to those accounts in the job cost system.
The owner of this DKI member franchise described his three anchor commercial accounts with obvious pride. A large property management company, a regional hotel chain, and a national retail facility management contract. Together they represented approximately $1.4M of the company’s $3.6M annual revenue. They were — he believed — the stable base on which everything else was built.
He wasn’t wrong that they were stable. He was wrong about whether stability was the same as profitability.
The diagnostic for this engagement required building account-level P&Ls rather than job-level P&Ls. Commercial account profitability analysis adds a layer of cost allocation that standard job cost reports don’t capture. Beyond direct job costs, commercial accounts carry account maintenance costs — the overhead required to service the relationship independent of any specific job.
For each of the three anchor accounts, I allocated: the proportion of the dedicated PM’s time spent on account administration and compliance reporting (not job execution — administration); the cost of faster response commitments (on-call premium pay, prepositioned equipment, reserved crew capacity); the carrying cost of net-60 terms (the opportunity cost of waiting 60 days to collect on work completed); and any scope concessions made to retain the accounts (discounted rates, warranty callbacks, unbilled remediation visits).
When these costs were added to direct job costs and compared against account revenue, the three accounts’ apparent profitability collapsed. The property management account was generating an actual margin of approximately 24% — against a company average of 39%. The retail account was at 19%. The hotel chain was at 22%. All three were significantly below the company average. The jobs that felt like the company’s strength were its weakest-margin work.
Service Level Agreements with commercial accounts look like commitments on paper. They’re costs in practice. A 2-hour response guarantee requires maintaining crew availability that can’t be deployed on other jobs during standby windows. A dedicated account PM requirement means a portion of that PM’s compensation is account overhead, not job execution. Quarterly Business Review requirements mean management time spent on compliance reporting that has zero billable value.
None of these costs appear in the job cost report for any specific job. They live in administrative overhead, in on-call labor premiums, in the capacity reservation that shows up as crew underutilization during quiet weeks. They’re real costs distributed invisibly across the accounting system — and they make commercial accounts look more profitable than they are until someone pulls them out and allocates them.
The owner’s first response was disbelief — this is normal. The accounts had been relationship investments. They represented stability and market presence. The idea that they were the company’s worst-margin work required some processing time.
The response strategy was differentiated by account. The retail account — at 19% margin — had no strategic value beyond the revenue volume, which could be replaced with residential and smaller commercial work at higher margins. The recommendation was to exit the contract at renewal. The owner did. The revenue impact was temporary. The margin impact was immediate and positive.
The property management and hotel accounts had genuine strategic value — they generated recurring volume, referral relationships, and market visibility that the revenue analysis couldn’t fully capture. The recommendation was to reprice both at the next contract renewal, building the true SLA compliance costs into the rate structure. Both accounts accepted the repricing. Neither walked. The margin on these accounts moved from the low 20s to the mid-30s after repricing.
One additional complexity in a franchise operation: commercial accounts sometimes carry implicit value for franchise performance metrics, marketing materials, or brand positioning within the DKI network — value that doesn’t appear in the margin analysis. This doesn’t make a 19% margin account acceptable, but it does mean the decision to exit or reprice should account for non-financial dimensions that a pure margin analysis misses. Know what you’re trading away when you exit an account. Just make sure you’ve accurately measured what you’re trading it away from.
Start with direct job margin (revenue minus direct costs across all jobs for the account in the prior 12 months). Then add account maintenance costs: the proportion of dedicated staff time spent on administration and compliance reporting, on-call premium costs allocated to the account’s response requirements, the carrying cost of extended payment terms (net-60 vs standard 30-day collection), and any scope concessions or unbilled remediation. True account margin equals job margin minus account maintenance costs.
SLA compliance overhead (response time guarantees require reserved crew capacity), dedicated PM administration time beyond job execution, QBR and reporting requirements, extended payment terms (net-60 vs standard 30-day collection), scope concessions made to retain the relationship, and warranty or callback commitments. These costs are real but distributed across overhead in ways that make commercial accounts look more profitable than they are in standard job cost analysis.
When the account’s true margin — after full cost allocation including SLA overhead — is more than 10 points below the company average, and there is no strategic value (referral network, market position, brand consideration) that justifies the margin subsidy. Exit at contract renewal when possible. Abrupt exits create market reputation risk. Planned exits with repricing attempts first preserve the relationship while correcting the economics.
Net-60 terms mean you’re financing 60 days of accounts receivable for the account — essentially providing an interest-free loan on every job. At a cost of capital of 8–10%, net-60 terms on $500,000 in annual account billing cost approximately $6,600–$8,200 in carrying cost annually. This isn’t catastrophic alone, but combined with SLA overhead and scope concessions, it contributes to the margin compression that makes commercial accounts underperform their gross billing.
Franchise operations sometimes carry commercial accounts partially for brand and performance metric reasons — accounts that qualify for national program work, that support franchise award submissions, or that provide marketing materials. These non-financial dimensions don’t make a money-losing account acceptable, but they should be factored into the exit or reprice decision. An independent operator has a simpler decision framework: is this account profitable on a fully-allocated basis? If not, reprice or exit.
Mike McCabe is a restoration business consultant and the founder of Profit Detective. He works with restoration operators to find and fix the margin leaks that don’t show up until it’s too late.
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