Busy ≠ profitable. The five numbers below are the difference between knowing your restoration company is profitable and assuming it is because jobs are coming in.
Most restoration owners can answer "are we roughly in the black?" What they can't answer without looking: their gross margin by service line, their WIP balance, their labor efficiency ratio, and what percentage of AR is past 90 days. Those gaps are where the money goes missing.
The Diagnostic Most Owners Skip
Running a $2M restoration company doesn't require a finance degree. But it does require knowing five numbers — not as a quarterly review exercise, but as a working dashboard you can pull at any time.
The owners who grow profitably from $2M to $5M aren't necessarily better at restoration than the ones who stay stuck. They're better at knowing which jobs are profitable, which service lines are dragging their margin, and where their cash is tied up. Those are accounting questions — and the answers live in the books.
This post is a 10-minute self-diagnostic. Work through the five numbers for your own company. The benchmark ranges tell you what healthy looks like.
1. Gross Margin by Service Line
What it is: Revenue minus direct costs (labor, materials, subcontractors, equipment), expressed as a percentage. Calculated per service line — water mitigation separately from fire, mold, contents, reconstruction.Why by service line, not blended: The blended gross margin tells you where you are. The by-service-line breakdown tells you why — and which work you should be pursuing more of.
Industry benchmark ranges RIA Cost of Doing Business Report, 2024:
| Service Line | Target Range | Concerning Below | |---|---|---| | Water mitigation | 48–58% | 43% | | Fire restoration | 45–55% | 40% | | Mold remediation | 50–60% | 45% | | Contents restoration | 40–55% | 35% | | Reconstruction / build-back | 30–45% | 25% |
How to calculate it: In QBO with class tracking set up by service line, run a P&L by class. Revenue minus direct costs for each class = gross profit. Divide by revenue = gross margin percentage. If you don't have class tracking configured, your bookkeeper should be able to add it going forward. It won't be retroactive, but within 2–3 months you'll have service-line data. See QBO Class Tracking for Restoration.
What a difference in service lines looks like: A $3M company with 70% water mitigation and 30% reconstruction running a blended 48% gross margin might find: mitigation at 54%, reconstruction at 33%. If the owner knows this, the next strategic conversation is whether to push toward more mitigation volume. If they don't know it, they're managing by feel.
2. AR Aging by Job Stage
What it is: Your outstanding receivables sorted by how long they've been outstanding — and, for restoration, further sorted by what kind of outstanding they are.Why not just aging days: Standard AR aging (0–30, 30–60, 60–90, 90+) is designed for a business where every invoice is the same type. Restoration AR has three distinct categories that move on different timelines:
- ACV pending — invoice submitted, carrier processing (normal: 30–60 days)
- Supplement pending — supplement submitted or approved, payment outstanding (normal: 45–90 days)
- RCV holdback pending — holdback not yet released by carrier (normal: 60–180 days)
- Genuinely overdue — past the normal window for that payment type, no clear reason
Industry benchmark: AR-to-revenue median is 16.5%; over 20% warrants review; over 25% likely indicates a collection problem. RIA Cost of Doing Business Report, 2024
The number to track: Percentage of your AR balance in the 90+ day bucket. Healthy: under 15% of AR is 90+. Concerning: 20–30% is 90+. Problem: over 30% is 90+.
Why this matters: If your ACV bucket is moving normally but your supplement bucket isn't being tracked, you'll see a growing 90+ balance that isn't actually overdue — it's approved but un-collected because nobody's following up. The supplement tracking gap is the most common reason for elevated AR aging in restoration. RIA Cost of Doing Business Report, 2024
3. WIP Balance
What it is: Work in progress — the total value of jobs you've started but not completed, expressed as a schedule showing over-billing and under-billing positions by job.Why it matters: Without a WIP schedule, your income statement lies. Revenue recognized in QBO typically reflects what's been invoiced, not what's been earned. If you're 70% complete on a $100,000 job and have invoiced $45,000 (which is 45% of scope), your income statement shows $45,000 of revenue on a job where you've earned $70,000. You're understating revenue by $25,000. Multiply that across your open job count and the distortion can be significant.
The reverse is also true: if you've invoiced $80,000 on a $100,000 job but are only 60% complete, you're carrying $20,000 of over-billing — a liability, not revenue.
How to calculate it:
For each open job:
- Estimated contract value (your approved scope)
- Costs incurred to date (from QBO job costing)
- Percentage complete (from field team estimate)
- Revenue earned = % complete × contract value
- Revenue billed = actual ACV invoiced
- Under/over billing = earned minus billed
Benchmark: Most well-run restoration companies run a modest net under-billing position (earned more than billed) — it represents work done but not yet invoiced. A net over-billing position is more concerning because it means you've invoiced beyond what you've completed. See The Complete Guide to Job Costing for Restoration for the full WIP methodology.
4. Labor Efficiency Ratio
What it is: Direct field labor cost divided by revenue, expressed as a percentage. This is your single most controllable gross margin lever.Industry median: 28–32% of revenue RIA Cost of Doing Business Report, 2024
How to calculate it: Pull all direct labor costs from QBO for the period: field crew wages, lead tech wages, and the payroll taxes + workers' comp for those specific employees (not admin or owner). Divide by revenue for the same period.
What healthy and unhealthy look like:
| Labor Efficiency Ratio | Interpretation | |---|---| | Under 26% | Excellent — strong job-level efficiency | | 26–32% | Healthy — industry normal | | 32–36% | Watch — trending above budget hours | | Over 36% | Problem — consistent over-budget labor on jobs |
The most common cause of high labor ratios: Over-staffing crews relative to job scope. Restoration companies often staff for peak season and maintain those crews through slower periods — which drives the labor ratio up when revenue is down. The second most common cause: estimating labor hours at one rate but completing jobs at a higher rate, with no job-level tracking to surface the variance. See How to Read a Job-Level P&L for how to catch this at the job level.
By service line: Labor efficiency ratios vary by service line. Water mitigation is typically more labor-efficient than reconstruction (more predictable hours, drying equipment does a lot of the work). If you're seeing a high blended labor ratio, it's worth checking whether reconstruction is the culprit.
5. Overhead Percentage
What it is: Total overhead divided by revenue. Overhead = everything that isn't directly tied to a specific job.Industry median: ~38% RIA Cost of Doing Business Report, 2024
How to calculate it: Take your total operating expenses, subtract direct job costs (labor, materials, subs, equipment rental). What remains is overhead. Divide by revenue.
The categories that most often run high:
Administrative labor: If admin costs (office manager, bookkeeper, dispatcher, estimator overhead) exceed 12% of revenue, you're either over-staffed or under-revenue'd. This ratio should improve as revenue grows.
Owner compensation above field work: If the owner is compensated as an executive at $150K but the company is at $1M, that's 15% of revenue in owner comp. That's not sustainable and isn't reflected in the benchmarks (which assume market-rate owner comp). This is one reason net margin varies so widely at the $1M tier.
Marketing spend efficiency: Marketing at 5–7% of revenue is healthy for a growth-stage company; at 8%+ it should be generating measurable job volume to justify the spend. At 2–3%, you may be under-investing in growth.
Why overhead improves with scale: Most overhead categories are fixed. When revenue goes from $2M to $3M, the office rent, the bookkeeper, the trucks, and the insurance don't automatically increase by 50%. Fixed costs spread across more revenue means a lower overhead percentage — which is one of the main reasons net margins are higher at $5M than at $1M.
The Scorecard: Your Numbers vs. Benchmarks
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One page. Your five numbers vs. industry medians. Download, fill in your numbers, and see where you stand.
Work through these five questions for your own company. If you can't answer two or more without calling your bookkeeper and waiting a day, that's the primary issue — the data should be accessible in under 10 minutes.
Gross margin by service line:
- Water mitigation: ____% (target 48–58%)
- Reconstruction: ____% (target 30–45%)
- Blended: ____% (target 47–52%)
AR aging:
- Total AR balance: $______
- % over 90 days: ____% (target under 15%)
- AR-to-revenue ratio: ____% (target under 20%)
WIP position:
- Total open job value: $______
- Net under-billing: $______ (positive = earned more than billed — healthy)
- Net over-billing: $______ (negative = billed more than earned — watch this)
Labor efficiency:
- Direct labor cost (trailing 12 months): $______
- Revenue (trailing 12 months): $______
- Labor ratio: ____% (target 26–32%)
Overhead:
- Total overhead (non-job costs): $______
- Revenue: $______
- Overhead %: ____% (target 35–40%)
Interpreting your results:
- 5/5 in healthy ranges: You're running a well-managed operation. The growth question is which lever to pull next.
- 3–4 in healthy ranges: Normal. Focus on the metrics outside the range.
- 2 or fewer in healthy ranges: Structural issues worth a closer look with your bookkeeper or a fractional CFO.
For the full benchmark context, see Restoration Company Financial Benchmarks: What the Numbers Should Look Like. For the overhead breakdown in detail, see What Overhead Percentage Is Healthy for a Restoration Company?.
Frequently Asked Questions
How often should I review these five metrics?
Monthly for AR aging, labor efficiency, and overhead — these move fast enough that monthly visibility is valuable. Gross margin by service line is most useful as a quarterly review (monthly can be noisy with job timing). WIP should be reviewed monthly if you have open jobs over $50,000, and at least quarterly otherwise.
What if I can't get these numbers from my current bookkeeper?
That's a data quality issue that's worth addressing. A restoration-specific bookkeeper with QBO class tracking set up correctly should be able to produce all five of these in under 30 minutes. If your current setup can't generate gross margin by service line or a labor efficiency calculation, the books aren't structured for operational decision-making — they're just compliance records.
Is gross margin or net margin more important to track?
Both — but for different purposes. Gross margin tells you how efficiently you're producing the work. Net margin tells you whether the business model is sustainable. If gross margin is strong but net margin is weak, overhead is the problem. If gross margin is weak, you need to go to the job level. See The Four Cost Categories in a Restoration Job P&L.
My books are on cash basis. Can I still calculate these benchmarks?
You can calculate most of them, but gross margin and net margin will be distorted if you have substantial outstanding AR. Cash-basis books recognize revenue when cash is received and expenses when they're paid — which can create significant timing mismatches in restoration, where AR collection lags job completion by 30–90 days. For benchmark comparison purposes, accrual basis is more reliable.
What's the fastest way to improve these five metrics?
The order of impact is typically: (1) improve gross margin by addressing labor efficiency on specific jobs — this requires job-level tracking; (2) reduce 90+ day AR through systematic supplement follow-up; (3) reduce overhead by auditing admin-to-revenue ratios. The WIP position is less a lever and more a gauge — it tells you whether your current revenue recognition is accurate. See The Complete Guide to Bookkeeping for Restoration Companies for the foundational setup.
Related reading: How Restoration Companies Actually Make Money: The 7 Profit Levers · The 10 Hidden Profit Leaks Costing Restoration Companies $50K–$500K · Restoration Company Financial Benchmarks by Revenue Tier · How to Read a Job-Level P&L · AR Days Outstanding: What's Normal vs. What's a Problem