Run the Numbers: One Restoration Job, Costed Three Ways

Take one ordinary water mitigation job. Revenue: $12,000. Direct costs: $5,400. Ask most owners what that job made and they will do the subtraction the industry has always done — $6,600, a 55% gross margin — and move on.

Now count the same job honestly. The company carries $85,000 a month in overhead — rent, admin salaries, insurance, vehicles, software — across roughly 25 jobs a month. That job didn’t just consume its direct costs. It consumed a share of everything. Count it three ways and watch the answer change.

Way One: Per-Job Equal Allocation

$85,000 ÷ 25 jobs = $3,400 of overhead per job. The $12,000 job: $6,600 gross profit minus $3,400 = $3,200 of actual contribution — a 27% net margin, not 55%. Simple, and fair enough for a company that needs any allocation model rather than none. But run the same arithmetic on a $4,000 emergency service job at 58% gross margin: $2,320 gross profit minus $3,400 overhead = −$1,080. That job loses money on a fully-allocated basis, and the P&L will never tell you which one did it.

Way Two: Revenue-Proportional Allocation

$85,000 ÷ $250,000 in monthly revenue = a 34% overhead rate. Now allocation scales with the job: the $12,000 job carries $4,080 of overhead; the $4,000 job carries $1,360. The big job’s contribution is thinner than Way One suggested; the small job survives. This is the best starting point for most restoration companies — it matches how overhead actually behaves better than an equal split, and it requires nothing you don’t already have.

Way Three: Labor-Hour Allocation

$85,000 ÷ 2,800 field labor hours a month = $30.36 of overhead riding on every labor hour. The most accurate of the three for companies where field time drives most overhead consumption — and the most demanding, because it requires labor hours tracked accurately by job.

What the Three Answers Are For

The point of allocation is not accounting purity. It is the decision that follows. When fully-loaded margins are laid out by job type, some service lines turn out to be profitable under every method and some under none. For the ones under none, the choices are exactly three: reprice them to cover allocation, reduce how many you take, or restructure the overhead that makes them uneconomic. Two reference points while you work: restoration overhead typically runs 25–35% of revenue — above 40%, overhead is growing faster than the business. And owner salary goes into overhead at market replacement rate, not at what the owner actually pays themselves; the difference is return on equity, a separate thing.

The complete method — including the five implementation steps for wiring allocation into your monthly job cost reports — is in Overhead Allocation in Restoration: How to Stop Guessing at Your Real Costs.

Related reading

• Overhead Allocation in Restoration
• WIP Management for Restoration Companies
• Overhead Control in Restoration

Mike McCabe is The Profit Detective — a 36-year restoration industry veteran and Fractional Operations Manager at Floodlight Consulting Group.