Why You Should ALWAYS Bill Your Client FIRST

Bill Your Client

It sounds simple, elementary even. What business expects to get paid without billing their client?

Restoration guys, that’s who.

I had a conversation with a client of mine yesterday regarding a couple outstanding mitigation invoices. He asked if I could help him with the insurance adjusters in order to get paid.

One loss was from New Year’s eve! Seeing as it is now mid-way through June, this might be a problem.

Apparently, the adjuster has so far completely ignored my client’s estimate (more on this in a moment) and has written his own “mitigation” items into one bigger estimate for the entire claim. This was a large loss and I think the adjuster was thinking that if he lumped everything together, that his insured would just take this big check and walk away.

At this point, the “mitigation” items in the adjuster’s estimate are $11,000 less than my client’s “estimate.” Ouch. This might be a problem, no?

So I asked him, “How long ago did you bill your client? How long have they been sitting on your bill?”

His answer told me everything I needed to know. He had never billed his client. At this point, six months after services had been rendered, my client was still treating his BILL like it was a negotiable document.

There is no such thing as a mitigation ESTIMATE

When you perform emergency services, you’re providing a needed service. There is no bidding process. There is a need and you’re fulfilling it – usually on a Friday afternoon, right before a big holiday weekend.

As such, there should be very little negotiation when it comes time to collect for those services. Your work authorization should state your fees clearly, and your documentation process should provide ample transparency and audit opportunity.

An emergency services contract is essentially a Time and Material agreement. You agree to provide a set of services according to an agreed upon fee schedule. It’s that simple.

Just because you develop your INVOICE using the Xactimate “estimating” program, does NOT mean that your INVOICE is an ESTIMATE. It’s not. So stop treating it like one.

Costs have been incurred

The problem is that we allow adjusters to widdle our BILLs down because we don’t lock them in with our actual clients. If we don’t invoice our clients, they don’t “incur” the costs of mitigating their loss. And since their insurance policy states that they will be reimbursed for reasonable “costs incurred”, their insurance adjuster is under no obligation repay them (or to pay US).

That means that until our clients have been billed for the services we provided, the adjuster can mess with us as much as he/she wants. We’re allowing a negotiation to occur which should be a transaction.

The longer you go, the harder it gets

What most restoration folks don’t understand is the incredibly complicated machinations that adjusters go through on every claim. It’s actually fairly cumbersome. And adjusters are relentlessly bombarded with new restrictions and guidelines to follow.

One of the things that adjusters must do is set and adjust the reserves. The reserve is an amount of cash, usually a percentage of the total anticipated claim costs, which the insurance company must remove from their general funds (or whatever they call it) and set aside (in “reserve”) to pay the claim.

The reserve number is important because it is one of the ways in which carriers are graded by state and federal regulators. If audits show that a particular carrier is routinely setting aside too little money to pay claims (setting reserves too low), that carrier can receive sanctions. Or worse.

On the other hand, company cash flow can be negatively impacted if reserves are consistently set too high. This pulls real dollars out of the company for the reserve account. This means less money for things like investment and capital expenditures. It also telegraphs to investors the relative health of the company.

Whether it’s too high, or too low, the insurance company is loath to change it once it’s been set. Change is an indication of a problem.

The adjuster is responsible for suggesting a proper reserve amount early on in the claims process, usually within the first couple days. That means that those of us who are able to get clear, defensible estimates to the adjusters quickly, are the ones more likely to get what they want.

With good information about what the total claim will be, backed up by a contractor’s estimate, the adjuster is able to establish a reserve with confidence that he won’t have to adjust it later.

When we start talking about claims that are months old, things get sticky. Past 60 days, the claim has likely already been paid. Often it is closed. If you didn’t get your mitigation invoice in before the adjuster pays it out, you’re likely putting the adjuster in the embarrassing position of having to re-open a claim and adjust the reserves.

The more time that passes before you bill your client, the less likely it is to be paid in full, or on time.

They’re free to ignore you

“But I sent my “estimate” to the adjuster two months ago,” you might be saying. OK. You sent it to him. But you didn’t send it to your client?

What you effectively did was tell him that he was in charge. By sending the mitigation bill to the adjuster, you are asking him for permission. (More on that here) Never ask for permission.

When you send anything to an adjuster without sending to your client, the adjuster is free to ignore you. You are much better off sending invoices and bids to your client – you know, the person on the insurance policy – and requesting that they send it to their adjuster.

It means a lot more coming from them than it does from you.

Don’t fear the sticker shock

I asked my client why they hadn’t sent the mitigation invoice to the client yet.

“They’d freak out,” he responded, “We’re talking about $22,000 here.”

Yes, that’s a lot of money (to most people who don’t fly around in private jets). And what we do is expensive. And dirty. And profoundly unrewarding sometimes. That’s why we charge what we do.

If you’re afraid to bill your client, because you think they’ll freak out, maybe you should take another look at your billing. If you are invoicing according to set procedures and standard industry pricing, what is there to hide from?

Believe me, I understand. I’ve had my share of jaw-dropping moments after hitting “print” and seeing the final totals of mitigation bills. It’s easy to rack up big numbers when you’re renting out dehumidifiers at a $10,000-a-day clip. And that’s “OK”. Your reaction proves that you’re still living among the rest of us common folk.

I remember the largest mitigation invoice I ever created. I didn’t use Xactimate. I had three crews of forty-five working around the clock in a large warehouse for seven days. I had riding extraction machines and temporary facilities set up.

We were basically pushing water around for a week until a temporary roof could be installed to keep the rain and snow from coming in. My bill was $745,000.

I looked at boss at the time with a “are we really going to bill for this” look on my face. He walked through the spreadsheets with me one more time and said, “Yep, send it off.”

We were paid in fourteen days. I was stunned. And the check came from our client. They then turned and started the process with their insurance company. I didn’t talk to an adjuster once.

Properly set expectations

What I learned, after making a little over $100,000 a day for my company, is that the most important step in the mitigation (and claims) process is setting the groundwork. When we educate our clients on the process, and clearly communicate our intentions and provide transparency, they become our allies.

My company had a clear schedule of fees. Our contract was straightforward and simple. “This is what we’re going to charge. And this is when we expect to get paid.” There was no room for back pedaling or horse-trading. My client new on day four that the meter was running at a very high rate.

They, in turn, were able to do their own internal calculations and decide whether to continue with our services or pull the plug. Once I learned that closing this facility would cost the company close to a million dollars a day, I understood their decision to keep us on till the roof was fixed.

And since I had shown a complete open-book policy throughout the claim, they didn’t have to spend weeks auditing my invoice. They knew the total before I even billed them. (It also didn’t hurt that this was a distribution warehouse for one of the largest car manufacturers in the world.)

Start from a position of strength

For all the reasons above and more, you need to promptly bill your client for the services you’ve rendered. This puts you in a position of strength and moral authority.

It’s tough to argue with a detailed mitigation estimate. (and if you want help with that you should check this out). It is what it is. I like to say that Xactimate writes itself. I’m just putting in what I see, or what was actually done.

When you bill promptly, you are simply following through on your promise to your client. You promised to help them with their problem in exchange for a fee. Shying away from that fee, or prematurely negotiating your bill is a sure sign that you believe you’re charging too much.

And if you’re charging too much, why? Stop it.

But if your fee is fair, by all means, please send it to your client as soon as you can.

NEVER Ask Your Adjuster For Permission on Your Claim

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Adjusters aren’t in a position to determine scope.

Too many times, I’ve seen insureds give away their negotiating leverage by asking their insurance adjuster for permission.

Adjusters aren’t in a position to determine scope. They aren’t in a position to determine cost.

Their job is to determine coverage.

So why do so many folks turn into Oliver and start asking for another bowl of pourage? Because that’s what they’ve been led to believe is the right thing to do.

I don’t buy it.

“Mr. McCabe makes very good points. The policyholder is not in a position where he should be “asking” for money from his insurance company. He should be in a position where he can prove that he has a loss and show what it will cost him to restore himself to his pre-loss condition. His questions for his adjuster, if he has any, should be pertaining to his coverage. Adjusters can give “estimates”, but I have never seen an insurance policy that limits the carrier to pay what is “estimated” to be the actual loss.

~Jim Bushart James H. Bushart, Missouri Public Adjuster

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Scoping for Xactimate

Every loss scope has three main components: plenty of photos, a legible sketch and a detailed room-by-room scope. Today we’re going to talk about room scoping.

First, some history.

I’ve been “writing” insurance scopes for nearly 20 years. For the first few years, “writing” meant running from job taking pictures and creating sketches, then sitting down at the end of the day attempting to spew an estimate out of whatever I managed to cram into my head. It’s safe to say it took me a couple years to learn what it takes to create a complete repair estimate.

You can only get a complete repair estimate, whether you’re using Xactimate or another estimating program, from a complete scope. The most common disagreements in property claims are not about pricing, since we’re all pretty much using the same standard database. Most disagreements are about the loss scope; what should have been included – and what should NOT.

Garbage In, Garbage Out

The phrase “garbage in, garbage out” is apropos in this context. If you don’t have good information at the beginning of the estimate process, including a thorough scope, you’re NOT going to have a proper estimate in the end.

I write Xactimate estimates for contractors across the country. My observation is that scoping is a skill that isn’t being taught well in the Restoration industry. My experience tells me that folks are either naturally inclined to create good scopes, or they have to hire someone who is.

Every contractor, especially non-restoration contractors, has his/her own unique thought process when it comes to scoping and estimate creation. Some take copious notes using a yellow notepad, others draw elaborate diagrams with little tiny notations and measurements. Each has found a way to get the information they need in order to generate that all-important estimate at the end of the day.

The problem is that what works for one person, may not work for another. When it is just one person that is charged with the photos, sketching, scoping AND estimating, there is little need for a system. The person IS the system.

Today’s project manager/estimators are some of the smartest people in the industry. Their skill sets have been honed over the years in order to allow them to work magic on claim after claim. Their notes and tick sheets have been equally honed to meet their own individual needs – and are little use to anyone else.

I once scoped a job with an independent adjuster who had previously been a general contractor. To save time and effort, I ran the tape measure while he wrote the sketch. We talked about the anticipated repairs as we walked the property and he scribbled like mad on his notepad.

At the end, I took photos of his sketch and headed back to my office to write my estimate. To my surprise, I couldn’t read his sketch. It was created in such a way that I had no idea what I was looking at. So I called him for some explanation.

“My wife is the only one who seems to be able to read my sketches,” he explained after a good chuckle. You see, he and his wife were an estimating team. They had worked together for so long that they understood each other’s shortcuts and nomenclature. They had their own system that worked for them.

It worked for them, but not for anyone else.

People Cannot Scale

This example illustrates the problem with relying on people as your systems. Whether it’s estimating or building a car the truth is the same: in order to scale you must use systems. Otherwise we’re all open to the proverbial “hit by a bus” scenario when our key employee or partner is no longer available and the whole operation grinds to a halt.

Jack Dennison mentioned this scenario during our interview on The Claim Clinic. He said he sees a lot of companies stuck at $1.5-$2million in revenue because they rely on a sole operator to do it all: scope, document, negotiate settlements and estimate. These companies will never grow to their potential, Jack says, until they implement systems to reduce the workload and eliminate one-person bottlenecks.

All companies, not just restoration contractors, who want to grow will eventually wind up at the conclusion that systems are the growth engines they need. Once there are systems in place, you and your folks can work the system instead of working yourselves to the bone.

Systems allow you to hire the right person and then train them on the process. The reality at most companies these days is that they’ve hired for the right skillset, not the right person. There are a lot of companies whose success depends on the capacity of one or two project managers and estimators who have a skill set that no one else at the company has. This is a recipe for disaster.

Systems Allow You to Scale

Using a simple, powerful system for scoping will allow you to start plugging in folks who don’t necessarily know everything about estimating, and then relying on the system to gather the right information. Over time, these new people will become adept at working the system and eventually train new hires in the same way.

This also allows for specialization without depending on one person to possess a wide variety of skills. The claims process turns into an assembly line of interchangeable parts, any of which a new person can step into and quickly get up to speed with the basics.

Xactimate Scope Basics

The first thing to understand is that a person doesn’t need to know anything about Xactimate in order to create a complete scope. You don’t need to know any of the THOUSANDS of codes that make up the Xactimate database. You only need to know how to tell a story.

Good Scoping is Good Story Telling

Any decent Xactimate estimator knows that when you say, “Replace the drywall on the North wall,” that the estimate will read something like this:

DRYMASKLF – PF
DRY1/2 – W/4
DRYTEX – W/4
PNTMASKSF – F
PNTSP – W/4 … etc.

Notice that with just a little information, someone who knows what he is doing can create an Xactimate estimate that will fit the bill. Unfortunately, often a good story doesn’t get told. A statement like “fix drywall holes” wouldn’t quite be enough to go on.

So if you can tell a good story, you can probably write a scope with enough description that a professional estimator can take it, along with your pictures and measurements, and create a complete Xactimate estimate without ever stepping foot on site.

Now let’s take it a step further and show you how to systemize your scope taking to reduce your training time and provide a more consistent end product. First, download the Scope Notes form that Claims Delegates uses for their clients: https://gum.co/xm8scope

Good Stories Start With a Good Framework

As you’ll notice, there is not a lot of information on the Scope sheet itself. This was intentional.

My theory is that the more you give someone, the less they think. And thinking is exactly what we want our project managers to be doing. They are our eyes and ears in the field. Each has to be able to think about not only what they can see, but also about the various assemblies and structures that they can’t see.

This is why the worst scope sheets are the ones that attempt to list every possible item that may be needed in a room. I’ve seen “tick sheets” that were multiple pages in length, and with teenie-tiny print just to fit it all in. What’s the point?

The thinking behind these comprehensive lists is that if everything is on there, the folks filling out these things won’t forget anything. The opposite is what happens in reality; things get left out because who can find what they’re looking for in that mess? When you take away the ability to think, you also take away initiative and imagination. Don’t do it.

As a matter of fact, if you have pages and pages of “tick” style scope sheets in your desk or in your truck, stop reading this right now and go throw them in the garbage. Go ahead, I’ll wait….

Now, let’s talk about what our scope takers ACTUALLY need: structure. It is important that when we do things, anything really, we do them the same way every time. Even creative activities have a process and a flow. And the more familiar we are with the process, the more we can achieve “flow.”

We want our folks to be able to get up to speed quickly and maintain a high level of efficiency for as long as possible. We also want to plan for unforeseen circumstances that may interrupt our flow. If we are all using the same system, in the same way, it becomes easier for other people to step into our workflow and pick up where we left off.

It is important that our systems, at every level, are easy to teach and learn, while providing the highest level of quality information throughout our organizations. These structures, or frameworks, become the backbones of our companies’ competitive advantages.

Keep It Simple

Now take a look at the Scope Notes sheet, as well as the example sheets provided. As you read through, you’ll quickly get the picture of what is needed.

The top section is used to keep all the paperwork organized, and to provide the Xactimate writer a way to contact the person who performed the site take-off in case there are questions. The time is used for training and monitoring purposes: if you wrote the Living Room scope starting at 11am, and wrote the Kitchen scope at 11:30, you know that it took a half-hour to write up the Living Room.

This kind of information is incredibly useful for managers and estimators alike. We are able to quickly identify opportunities for growth and training.

The top section also enables a scope to be written by more than one person. Because we’ve never been called to a big emergency water damage while we were knee-deep in a whole-house scope job before. Right?

The rest of the Scope Notes follows a simple pattern:

Room Name and Dimensions
Equipment/Sub Trades
Framing / Structure
Floor scope
Walls scope
Ceiling scope

Filling out each section is as simple as asking the question, “What Sub Trades do I anticipate using in this room to return it to pre-loss condition?”

Or, “What wall repairs will be needed to return this room to pre-loss condition?”

Easy right? We move our minds in the same pattern in each room: outside-in and bottom-up. This happens to be the exact way I teach my students/contractors.

Writing scopes in this way also allows the Xactimate writer to show the same flow pattern inside their estimate. I even advocate using the labels – Subs, Floor, Wall, Ceiling – inside each room of the Xactimate estimate. It telegraphs to the adjuster and homeowner that we’ve thought of everything; because if we follow the flow, we HAVE thought of everything.

The Best Way to Eat An Elephant

The most common questions I get from folks who are new to this system are regarding specific items. Like, “what about cabinets?”

I answer that by asking another question, “Where do you put cabinets?” Floor? Wall? It doesn’t matter really. Just as long as you put them in the same place every time.

Insulation? Is it wall, floor or ceiling BAT?

Baseboards? Well fancy pants, do you attach baseboards to the floor or the wall?

It really doesn’t matter which you prefer. The important thing is that you are going through the mental exercise of thinking about each assembly as individual pieces of the whole. By breaking up the room into parts, you are less likely to get caught up trying to think of everything at once.

What’s the best way to eat an elephant? One bite at a time, Grasshopper.

What would you like to learn next?

I’m writing these articles based upon requests for information from my Claims Delegates clients. Is there something you’d like to read about next?

Send a tweet to @TheClaimDoctor or head over to the Facebook page and leave me a note.

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Ten Thousand Percent Return

When was the last time you received a 10,000% return on an investment? Sounds unreal doesn’t it?

Did you know that is exactly what you get when you let Claims Delegates write your Xactimate estimates? Go ahead and do the math: a ONE PERCENT fee means that for every dollar you spend, you get $100 of revenue in return. That’s some serious ROI!

Xactimate Is Revenue

An important concept I touched on in the first part of Mitigation Moneyball is that Xactimate estimates equal Revenue. Think about it; have you ever had a bill that was less than your Xactimate estimate? I hope not. (yes, I understand that there are sometimes discounts given, but that’s a different topic).

That means that your company’s revenue is directly tied to the size of the Xactimate estimates you produce.

With that in mind, you can do two things to improve your revenue numbers:

Increase the size of your Xactimate estimates and
Reduce the costs of developing those estimates.

The good news is that Claims Delegates can help with both!

We’ve been writing estimates in Xactimate for over fifteen years.

We know the inside secrets of squeezing every penny out of the database. We also understand the ins-&-outs of insurance programs and what adjusters are generally willing to pay for – as well as what things will raise red flags.

Would you like to be assured of high margins on every estimate? Better make sure you hire an estimator that understands the system as a whole. HIRE CLAIMS DELEGATES

Lock in your costs before you start

The second thing you can do to improve margins is to LOCK IN YOUR COSTS. Jack Dennison preaches about buying out jobs and making sure your subs work hard for you. How many subs do you know that work for ONE PERCENT?

When you hire Claims Delegates, you’re locking in your estimating costs at ONE PERCENT of revenue. It’s tough to say “no”, right? We’re able to write estimates at a high rate of efficiency because that’s all we do – write Xactimate estimates.

Our writers aren’t out “marketing” to adjusters, managing the on-site operations of job sites, or hanging out by the water cooler talking about their weekends. Our writers are focused on YOUR estimate. What you get is a thorough Xactimate estimate that costs you a fraction of hiring a full-time employee.

What are you waiting for?

Increase your revenues and lock in your costs. Call Claims Delegates today!

888.745.7568

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Mitigation Moneyball: Water Techs and the $1,000 Hour

We all know that water damage mitigation (emergency services) provide the highest levels of profit margins of all our activities as restoration contractors. That’s why the most successful franchises started as (and most stayed) water damage service providers.

As the industry has matured, little has changed in the ways we perform this portion of our service. Low-wage “techs” respond and deliver services on a 24-hour basis. High-wage “project managers” perform take-offs and write estimates. The most important measure of potential profit is how much equipment can be “rented” for how many days.

Does that sound about right? As long as gross profit margins are maintained north of 60%, what’s the problem?

Part of the problem lies in the “below the line” overhead costs that are seldom accounted for, but which affect ACTUAL profits in a major way. PM salaries & benefits, vehicle maintenance and gas, office staff and all the rest are things that affect your NET in a major way.

The other part is the expectation that 60% GP is a good goal. Why not 70%, or 80%?

I’m going to explain how our current system of metrics is subjective and often flawed.

Let’s Imagine Something Different

Imagine a scenario where a mitigation service provider employs water damage technicians who earn over $100,000 a year, and doesn’t have a single estimator on staff. Imagine a world where an estimator writes millions of dollars worth of Xactimate estimates every year – and doesn’t work for either an insurance company or restoration contractor. He takes home a six-figure income without ever stepping foot on a single job site.

For most folks in the “restoration” industry, these two scenarios probably sound far fetched. Maybe a little crazy. Maybe a little scary. I’m here to tell you that these aren’t just far-fetched possiblilities, they are realities. Today, in the L.A. market, there are national franchise mitigation contractors whos’ water damage techs make six-figure incomes.

These same companies experienced a paradigm shift in their approach to providing emergency services. They changed the way they approached the game, and then they changed the game itself. Their reward is higher profits, lower turnover and the highest quality work they’ve ever performed.

Change is coming to the restoration industry.

It’s happening all around us. It’s happening whether we want it to or not; whether we’re ready or not. Change is the only thing we can ever really rely on. The change I’m talking to you about today will require you to question how you run your business every day. It will challenge your assumptions. It will scare you a little. And it might just revolutionize how you approach your companies when you get home. Today I’m talking about Mitigation Moneyball.

Let’s talk baseball for a minute.

The Royals just won the pennant for the first time in thirty years, right? Right now there’s a lot of sports writers telling us why this Royals team won and where the Mets went wrong. They’re talking about good calls and lucky plays, dominant players and voodoo magic. And yes, there are some things that happened during this series that can only be explained using supernatural forces – as there are every year at the end of October.

And there was something else at work in the Royals’ dugout that played heavily into their post-season success. It’s called sabermetrics, and it all started back in 2001 with the Oakland Athletics and their manager, Billie Beane.

Billy Bean and the 2002 Oakland Athletics

Billy Bean was the General Manager of the Oakland A’s from 1993 to 2013. Coming off a disappointing ’01 season where the team lost in the first round of the playoffs to the Yankees, Beane face the impossible task of rebuilding a team that lost three of its best players to free agency: Jason Giambi (that year’s AL MVP), Johnny Damon & Jason Isringhausen. The team didn’t have the money to recruit replacements of equal talents and those key positions, so they didn’t.

Instead, Beane made several unorthodox free agent hires and trades. Billy also fundamentally changed the Athletic’s approach to offense. He found what he considered “undervalued” players from throughout the league and cobbled together a team that would end up besting their 2001 record. The 2002 A’s also had their record 20-game winning streak as well as winning the same number of games as that year’s New York Yankees. The remarkable part is that they did it all with a salary cap of $41 million, one of the lowest in the entire league.

…while the New York Yankees effectively paid $1.4 million per win, the ’02 A’s paid just $260,000 for each win.

Billy changed the standard priorities of recruiting and measuring success.

Ordinarily, offensive stats like stolen bases, RBI and batting average were used to measure a player’s success or chance of success. Naturally players that had the highest numbers demanded the highest salaries. Those players and their salaries were out of reach for Billy’s Athletics.

Instead, Beane started looking at other statistics like on-base percentage and slugging percentage. The key was that the team who got on base more, scored more. And there are many different ways to get on base besides simply hitting home runs. Also, the players with the best on-base percentages were cheaper to acquire than those with the most hits.

Billy Beane, and sabermetrics, transformed the game of baseball as we know it.

They did it using math and statistics, and doing more than their share of ignoring the critics. The Boston Red Sox implemented “moneyball” analysis and finally shed the curse of the Bambino in 2004 when they won the World Series.

Now let’s take a look at our own industry.

In what ways are we playing the same old game by the same old rules? When it comes to water damage mitigation, there are several opportunities that we can all start to take the “moneyball” approach to buying more runs, so we can get more wins.

As Billie discovered, in order to win more games, you have to score more points than your opponents. In order to score more points, you have to develop “a more perfect understanding” of where runs come from. Once your develop a more perfect understanding of where your “runs” come from, you’ll start to play the mitigation game in a completely different way.

“Your goal should NOT be to buy players. Your goal should be to buy wins. In order to buy wins, you need to buy runs.”

“Runs” Equal Revenue: When is revenue generated?

Revenue is income before expenses. Income is the net of what you bill and what you ultimately collect. How nice would it be if there were no difference between those two numbers? How do you determine what your bill is going to be?

In the insurance repair industry, the answer has a great deal to do with the software we use to generate the majority of our billings: Xactimate. Everything we do in restoration is filtered through Xactimate; from EMS bills to restoration estimates. It is the lens through which we view the world. It’s just he nature of our industry that we have to format things the way insurance carriers want it.

And if we ever hope to COLLECT it, we’d better BILL it using Xactimate. This means that ultimately there is a direct correlation between what we put into Xactimate and revenue.

Xactimate Equals Revenue

Any discussion about revenue needs to begin with where our Xactimate estimates come from.

On the surface, we tend to give all the credit to our estimators. You know, those keyboard wizards who sit down at their computers and conjure thousands of dollars of estimates and invoices every day. Are they ones responsible for the hundreds of thousands of dollars of revenue we need to keep our businesses running?

Writing in Xactimate is most definitely NOT a straightforward task. It takes years to become truly profficient at it. And even then, we’re all learning new things every day.

That is a big reason our estimators are among the highes paid people on our staffs. The estimates they write, and their ability to catch and document all the little details have a direct effect on revenue. How many people track the revenue at the point it is generated: in Xactimate?

If Xactimate estimates equal revenue, then the estimator who generates estimates at the highest volume also generates the most revenue. I call it Revenue Per Hour (RPH).

Do you know how much revenue your estimator is generating? We all have a fairly clear picture of revenues on an annual or even monthly basis, but what about hourly? Who tracks these things? I do.

I write Xactimate estimates for a living. Full time. As you can imagine, I’m not the most popular guy with the estimator/Project Manager crowd. The way I make a living is a very real threat to the way they make theirs.

In order to know their RPH you’d first have to find a way to track their time. No small task since their usually on salary, right? Then you’d have to separate the time they spend actually estimating from the time they spend on other activities like email, phone calls and driving. No easy task, I know. There are ways to track estimator’s time without acting like “Big Brother”.

Xactimate has several time-stamped functions that could be used to estimate the amount of time it takes to create an estimate. And for estimates started and finished in one sitting, it would be a fairly straightforward proposition to divide the total estimate by the time it took to generate and arrive at a rough RPH. I could go deeper into this analysis, but I won’t because this is MITIGATION Moneyball. So I’ll give you the short version.

As I mentioned, I write Xactimate estimates full-time for contractors across the country. Figuring my RPH was a simple proposition of dividing my time on a given project by it’s estimate total. Currently my Revenue Per Hour that I generate for my clients is $10,800. I’ve run this tally several times over the past couple years and it always comes out right about $10k.

The magical thing is that when I run my cost vs revenue analysis, it always ends up between 1.5-2%. Meaning Claims Delegates, or more accurately, the money my clients spend with Claims Delegates has an average ROI of over 7,300% (73X).

That means that as long as I maintain an RPH of at least $10k, I provide a 73 times return on my clients’ money. Compare that to a 10-11X return of an in-house estimator who at best can hope to achieve an RPH of $800. Why so low? Because they so often have to spend their time on non-revenue producing tasks. Having a generalist PM/Estimator on staff puts a real dent in your salary cap. The time has come to look for a new recruit.

Cost Per Run – What’s your salary cap?

RPH is an important statistic to know and track, but it’s only half the equation. The other half has to do with what it costs to generate revenues, i.e. salaries and overhead. It’s important to know your Cost Per Win or ROI.

The ’02 Athletics ended the season with an identical record to the New York Yankees. They won the same number of games. Can you guess the difference? Each one of the Yankee’s wins cost the ball club $1.4million. Billy’s A’s bought their wins at a much lower price: $225k. Through a more perfect understanding of where runs come from, the Athletics were able to produce wins and 1/6th the cost of the Yankees.

Let’s see if we can come to a “more perfect understanding” of the mitigation game. There are plenty of opportunities in our organizations to shave our salary caps.

If the goal of our game is more profit, that means that we either need to increase Revenue or cut Costs. Costs (expenses) are our Salary Cap. Our cap can only get so large before we start losing – money that is.

Most of our companies are centered around the project manager & estimator – who also is usually the same person. They are the quaterbacks of our teams. PMs call the plays and score the touchdowns.

Project managers are the face of our companies. They are the liaisons to adjusters and homeowners. Pm’s get to go to all the “marketing” events and golf tournaments. I was a PM. I got real comfortable as a PM and made a great living.

Project managers are also generally the highest paid people on the payroll, second only to owners. Along with a company car and phone, their compensation packages often include expense accounts and production bonuses or commissions. It is not uncommon to have a senior estimator who’s total compensation exceeds $100,000. I’ve worked with PM’s who took home over $200k.

We pay them high salaries and bonuses because our view is that they generate and control the majority of our revenues; but do they really? I believe that because we don’t yet have a “more perfect understanding” of where Revenue comes from, and where our salary caps are limited, we likely have more Johnny Damons on our staff that we’re comfortable admitting. All-Stars that don’t produce the kinds of ROI that they should.

We see their names on every contract and estimate. We talk to them about their monthly “sales” goals, and have grown to associate their success with the successes of our teams.

PMs versus Techs

If the PM is the QB, then the Water Tech is part of the offensive line. Without linesmen, the quarterback wouldn’t stand a chance. The offensive line is in constant battle, pushing forward. They protect the pocket. They block rushers. They create openings and influence direction for the star players to run and pass through.

As such, I believe that our offensive line, our water techs, are the most important part of the team. The unfortunate reality is that the only time we notice the line is when they mess something up. A missed tackle, or an off sides. Otherwise, they’re all but invisible.

Our current view of water techs also means that they are the lowest paid people on our staff. Overworked and underpaid is their reality. This also leads to the incredibly high turnover rate among techs in our industry. It’s amazing how many techs will jump ship for a dollar an hour.

If you want to play Mitigation Moneyball, and win, you’re going to have to reverse your current thinking. Our paradigm is due for a shift. As Kevin Dooley told me once,

“If the majority of your people are on the front line, you have to become a front-line minded company.”

Re-Frame ROI: Turn Costs into Revenue Streams

We can take a page out of the insurance carrier handbook on this one. What started happening in the mid-90’s in claims departments across the country? The paradigm shifted. Instead of seeing claims departments as cost centers, insurance companies started using the claims process to drive profits.

Instead of seeing techs as expenses to be cut and controlled, we should frame them as revenue generators in much the same way we view Xactimate estimators. Instead of “rewarding” PM’s for “sales”, we should properly incentive-ize our techs to generate more revenue.

TO BE CONTINUED…

(I’ll write faster if you send me a tweet! @TheClaimDoctor )

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