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

    Overhead and profit

    I want to explain what overhead and profit is and why insurance companies pay overhead and profit and why they don’t pay. Disagreements over property settlement claims are not unusual. Insurers often turn down a homeowner’s first submission. One of the most frequent areas of dispute is the overhead and profit portion of your contractor’s bill. Insurers will question whether overhead and profit is to be paid at all on your claim, and whether preliminary payments should be incorporated at all into up-front expenses.

    Contractor expenditures, often stated to as Overhead and Profit is meant to cover the general contractor’s overhead and operating costs, as well as profit. It is normally projected at twenty percent of the total amount of the contractor’s own rebuild or renovation assessment. As the policyholder of homeowner’s insurance, the homeowner is entitled in most cases to recuperate this expense.

    What is Overhead and Profit?

    Overhead and Profit is when you have an insurance claim with an insurance company, and they pay you for building damages. Some claims can be really complicated depends on the kind of house you have but all of them will have something called overhead and profit.

    Overhead and profit are usually not included in the original estimate and overhead and profit also have been big debate between contractors and insurance companies because some homeowners don’t understand it and are accusing contractors of being greedy. Some insurance companies think contractors have been greedy so pretty much everybody’s pointing fingers at the contractors. Just be thankful for what you get attitude.

    To understand overhead and profit you need to understand how contractors calculate materials in the roofing business. It’s about thirty percent of the job cost is materials and about thirty percent of job cost is labor. So, you’re probably thinking well if labor and materials is your major cost and that is thirty percent each it’s a forty percent gross profit margin. You’re right it is, I would say this number up to this point is accurate, it’s about forty percent. From that point it breaks down further. Starting with sales representatives for the company who get about ten percent.

    10% Overhead, 10% Profit

    Overhead and profit are two separate types of costs but are usually combined. Your general contractor will assign a percentage to each cost, typically ten and ten. This means ten percent of the total job estimate will be applied to overhead costs such as required equipment, office rent and utilities, employee salaries and benefits, licenses and advertising; and ten percent will be applied as your contractor’s profit. If you choose to act as your own general contractor, insurance companies tend not to pay Overhead and Profit on all the costs related with the claim.

    It doesn’t really matter where the ten percent 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 gross profit can be more. I mean everything fluctuates. The ten percent is just a margin of error you never know what’s going to go wrong in construction and something always doesn’t go as planned.

    Overhead Expenses

    Now let’s talk about overhead. You’re going to have marketing expenses, you’re going to have warehouse expenses, you have gas and fuel for vehicles, you have insurance expenses, insurance can be very high, and you need all different kinds of it. You have administrative expenses, stuff like QuickBooks, stuff like your CRM, it adds up quick. Then you have office supplies, I cannot even tell you how much money I spend on printing expenses. Then you must train your sales guys, your employees, you buy different online subscriptions to train them or maybe you travel with them on different training and that is another expense.

    Overall this is your overhead and overhead is what kills a lot of businesses. 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 an agreement with all that stuff.

    Insurance Excuses for not Paying

    So now we go back to the insurance company and we’re trying to negotiate with them. The homeowner is not paying us, insurance is paying us. But insurance always has an excuse not to pay. Here are a few excuses what insurance companies use not to pay overhead and profit.

    1 Trade vs 3 Trades (the first excuse)

    Excuse number one, they say well you only have one trade we don’t owe you overhead and profit, we only pay overhead and profit when you have two or three trades. Overhead does not go away if I have just one trade it stays. The number of trades per job has nothing to do with my overhead. I still get billed the same.

    Should I not make profit on the job because I only have one trade. I mean this is my business model I don’t want to have five trades per job.

    If I do a homeowner’s siding and gutters and all that sure that would qualify as multiple trades but that has nothing to do with the profitability of the business or overhead, absolutely nothing, it’s irrelevant. But insurance companies use that excuse all the time.

    It also depends on the insurance company. Some of them say a couple trades or whatever, I’m telling you this even if you have one trade you still have a 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.

    A Job was not Complex Enough (the second excuse)

    Excuse number two, some insurance companies say well this job was not complex enough. They use every excuse in the book not to pay. 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’m in business, I need to make profit otherwise I’m going to be closing the doors. Who is going to be serving those customers?

    Roofing Doesn’t Count? (the third excuse)

    Excuse number three, they say roofing doesn’t really count because it’s already included, it’s only one trade, you’re only doing roofing. Xactimate, a claims residential estimating solution designed for insurance adjusters which allows users to receive and send assignments for estimates and valuations to adjusters, contractors and staff does not even include Overhead and Profit for roofers.

    Who is Greedy?

    Now who is greedy here. Is the contractor still greedy you think? We have three parties involved, we have the insurance company, we have homeowner, and we have a contract again everybody’s pointing finger at the contractor.


    Insurance companies often go to the homeowner and say well if your roofing contractor is not going to do it without overhead and profit, we have a roofing contractor who will. There’s a lot of roofing businesses out there who will take the job, but they probably won’t be in business for long. I want to have my business five years from now. I owe it to my clients; I don’t want to put my business in jeopardy.

    What I see in the industry is the greedy insurance companies that don’t care about the roofing industry.

    By not taking care of the roofing contractors they are also not taking care of the homeowners. They are doing a big disservice to the homeowner as well because when a contractor is not profitable, when his overhead is not met, he’s going to be out of business. Insurance companies are just contributing to the failure of the industry because in seven years ninety percent of the contractors are out of business.

    What’s happening is when you are shorting the roofing contractor all that money now the homeowner is getting screwed as well because that contractor is going to go out of business.


    In all fairness homeowners can be greedy too. I have seen it happen all the time and not many people are talking about it. Homeowners look at the paperwork and they just judge you unfairly they don’t understand the numbers at all. Some homeowners look at the numbers and say I already paid you enough. I’m just going to pocket this twenty percent and they literally tell their contractors you got enough just be happy for what you got. I don’t believe I owe you.

    Legally they must pay but morally when people see those checks in their names because the insurance company pays the homeowner something triggers, and they suddenly have a case of amnesia that they must write a check to the contractor. Some homeowners decided to keep the money. I personally have had clients tell me, I’m sorry I spent the money.

    Okay I get it; you think my bill is a lot of money. But, if you want, I’m going to show you some of my bills that I paid, and you will be blown away. This is the hard part; this is the reason overhead and profit exist. It was not borne out of contractor greed; it was born out of necessity and sometime homeowners are taking advantage of it.


    I’m not going to defend contractors because contractors also contribute to greed. A lot of times a greedy contractor will supplement for items they didn’t use or things they didn’t do. My message to contractors is if you’re sending supplemental bills to the insurance company make sure to show that to the homeowner as well. Make sure you can back up every item, every single time.

    It’s not for the homeowner to find out or the insurance company to say hey you didn’t do this. It your job and it’s your responsibility. I have met way too many roofing contractors who are screwing insurance companies and homeowners and charging for stuff they didn’t do. Don’t make us look bad. So, yes contractors can be greedy.

    For me the only contractors who should not be charging overhead are paper contractors working out of their house who don’t have sales guys. You keep your commissions, you keep your overhead, you are making twenty, thirty percent profit margins, I mean don’t be greedy.

    But, if you did good work and you are a contractor who takes care of his employees, who takes care of his business, who is going to stick around and wants to keep marketing and keep branding and keep you growing. Then for sure you need to invoice for overhead and profit just to stay in business.

    About Steve Patrick

    I want to make sure to give big props to a guy named Steve Patrick. He’s one of the veterans on this topic. He actually wrote a book about overhead and profit, “Win the Claim Game by Leveling the Playingfield.” So, check him out online or on Facebook. His book is considered one of the best resources for the contractor who’s trying to understand overhead and profit. If you are fighting 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.

    Message to the Homeowners

    If you are looking at the paperwork and you think it’s a lot of money, don’t let the numbers fool you. If you had a good experience with your contractor, if you’re happy with the work, if the contractor did everything they said they would, then be on your contractors side. Your contractor deserves to get paid.

    You’ve been paying premiums to the insurance company so tell them to pay your contractor. Let your contractor be profitable, be successful, and he will be around to take care of all your future needs for years to come. You don’t want your contractor to be in jeopardy or to be out of business.

    Well that’s my message for you guys, I would like to hear from you. What do you think about this topic? Do you agree or disagree? You’re not going to offend me with a negative comment. I read all my comments and personally reply to them.

    Also, if you would like to learn more about the roofing industry sign up for one of my great roofing business classes. Until next time, thank you for reading.

    Dmitry Lipinskiy
    Host of Roofing Insights YouTube channel, Founder of Roofing Business School

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