Restoration Company Financial Benchmarks: What Gross Margin, AR, and Net Profit Should Look Like at $1M, $3M, and $5M

Why These Numbers Exist

Every few years, the Restoration Industry Association surveys member contractors and publishes the Cost of Doing Business Report — the closest thing the industry has to a standardized financial benchmark. The data isn't perfect (self-reported, not audited, member-biased toward larger/better-managed companies), but it's the most credible industry-specific source available.

The numbers are also consistent with what IBISWorld and similar industry analysts report for the broader damage restoration sector: gross margins in the 48–52% range, net margins in the 12–16% range for well-managed operations. IBISWorld, 2024

This post breaks those aggregate numbers down by revenue tier — $1M, $3M, $5M — because a 50% gross margin benchmark means something very different to a company doing $1M than one doing $5M. The context changes what's healthy and what's concerning.

Gross Margin: What 50% Actually Means

Gross margin is revenue minus direct job costs, expressed as a percentage of revenue. Direct job costs include:

• Direct labor (field crews, lead techs, project managers)
• Materials and supplies consumed on jobs
• Subcontractor costs
• Equipment rental and consumables

The industry average of ~50% means the average restoration company spends 50 cents of every dollar on directly producing the work. RIA Cost of Doing Business Report, 2024

What drives gross margin lower than 50%:

• High subcontractor use without corresponding markup (subcontractors should carry 10–20% margin)
• Labor inefficiency — crews running over budget hours on jobs
• Materials waste or untracked material consumption
• TPA program revenue at lower margins dragging down the blended rate

What drives gross margin higher than 50%:

• Strong direct-labor efficiency (low labor as % of revenue)
• Effective supplement recovery (captures full scope value)
• Good job costing discipline (catches overruns early)
• Service mix favoring higher-margin work (mitigation over contents, for example)

By revenue tier: Gross margin tends to improve slightly as revenue grows, driven by better subcontractor pricing leverage and more consistent labor efficiency. A $1M company at 46% gross margin is performing differently than a $5M company at 46% — the $1M company is at the low end of acceptable; the $5M company may have a structural cost problem.

Overhead: The 38% That Eats the Middle

The RIA CODB puts average overhead at 38% of revenue for insurance restoration contractors. RIA Cost of Doing Business Report, 2024 This is the number that surprises most owners when they see it — overhead takes up more than twice what Xactimate's 10% overhead allowance assumes (more on that in The "10 and 10" Myth).

Where the 38% goes:

| Overhead Category | Typical % of Revenue | Notes | |---|---|---| | Administrative / office labor | 8–12% | Office manager, bookkeeper, estimator overhead | | Owner compensation (above field work) | 5–10% | Varies widely by how owner pays themselves | | Vehicles (non-billable portion) | 3–5% | Insurance, depreciation, fuel overhead | | Equipment (non-billable depreciation) | 3–6% | Drying equipment, tools amortized | | Facilities (rent, utilities) | 2–5% | Warehouse, office | | Insurance (GL, E&O, umbrella) | 2–5% | Varies by state and risk profile | | Marketing and lead generation | 2–5% | Ad spend, referral fees, networking | | Technology and software | 1–3% | QBO, Xactimate, job management platforms | | Total | 26–51% | Median ~38% |

The wide range (26–51%) reflects the difference between a tight single-location mitigation company and a multi-location full-service contractor with significant administrative overhead.

Fixed vs. variable overhead: Most of these categories are fixed or semi-fixed. Facilities cost the same whether revenue is $2M or $3M. Technology costs the same. This is the "fixed cost leverage" that improves net margin as revenue grows — the same overhead percentage takes fewer dollars out of a larger revenue base.

Net Margin: The Number After Everything

Industry median: ~14% RIA Cost of Doing Business Report, 2024

At $1M revenue: $140,000 net profit
At $3M revenue: $420,000 net profit
At $5M revenue: $700,000 net profit

These are the reported numbers. The real picture is more complicated because of how owners structure their own compensation:

• If the owner takes a below-market salary (or no salary) and calls everything "profit," net margin is inflated
• If the owner takes a generous above-market salary, net margin is understated
• Most industry benchmarks normalize to EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than net profit to enable cleaner comparison

EBITDA margin benchmarks: Peak Business Valuation, 2024

| Revenue Range | EBITDA Margin (Normalized) | EBITDA Amount | |---|---|---| | $1M–$2M | 15–20% | $150K–$400K | | $2M–$5M | 18–24% | $360K–$1.2M | | $5M–$10M | 20–27% | $1M–$2.7M |

The EBITDA ranges from Peak Business Valuation reflect their restoration M&A transaction database — these are the numbers that actually support acquisition multiples. Companies hitting the high end of these ranges at their revenue tier typically command EBITDA multiples of 4–6×; the low end is more likely to see 2–3×.

AR-to-Revenue: The Float You're Carrying

AR-to-revenue ratio is your outstanding receivables balance divided by annual revenue. The industry median is 16.5%. RIA Cost of Doing Business Report, 2024

At $2M annual revenue, 16.5% AR-to-revenue = $330,000 in outstanding AR at any given time. This isn't alarming — insurance restoration has 45–90 day collection cycles by nature. But understanding what normal looks like prevents you from confusing slow-pay carriers with a collection problem.

What the ratio tells you:

| AR-to-Revenue | Interpretation | |---|---| | Under 12% | Fast collection cycle, or AR may be understated | | 12–20% | Normal for insurance restoration | | 20–25% | Elevated — review aging by payer type | | Over 25% | High — likely a collection or staging problem |

AR aging by payer type (normal ranges):

| Payer Type | Normal Collection Window | Concerning If... | |---|---|---| | Direct insurance (no TPA) | 30–75 days | Over 90 days | | TPA programs (Code Blue, Alacrity, etc.) | 45–90 days | Over 120 days | | Retail / homeowner-pay | 15–45 days | Over 60 days |

For the full AR management methodology and what to do with aging outliers, see AR Days Outstanding for Restoration: What's Normal vs. What's a Problem and The Complete Guide to Insurance Billing Accounting.

Full Benchmark Table by Revenue Tier

The table below shows the healthy target range for each benchmark at three revenue tiers. "Healthy range" means the middle 50% of well-run restoration companies at that revenue level — not the top 10%, not the struggling 25%.

Gross Margin by Revenue Tier

| Metric | $1M Company | $3M Company | $5M Company | |---|---|---|---| | Healthy range | 44–52% | 47–54% | 49–56% | | Industry median | ~48% | ~50% | ~52% | | Concerning below | 42% | 44% | 46% | | Excellent above | 54% | 57% | 59% |

Overhead Percentage by Revenue Tier

| Metric | $1M Company | $3M Company | $5M Company | |---|---|---|---| | Healthy range | 35–42% | 33–40% | 30–38% | | Industry median | ~40% | ~38% | ~35% | | Concerning above | 45% | 43% | 40% | | Excellent below | 32% | 30% | 27% |

Net Margin by Revenue Tier

| Metric | $1M Company | $3M Company | $5M Company | |---|---|---|---| | Healthy range | 10–17% | 12–19% | 14–22% | | Industry median | ~13% | ~14% | ~16% | | Concerning below | 8% | 10% | 12% | | Excellent above | 20% | 22% | 25% |

AR-to-Revenue by Revenue Tier

| Metric | $1M Company | $3M Company | $5M Company | |---|---|---|---| | Healthy range | 13–20% | 14–21% | 15–22% | | Industry median | ~16% | ~17% | ~18% | | Concerning above | 23% | 24% | 26% |

Labor Cost as % of Revenue

| Metric | $1M Company | $3M Company | $5M Company | |---|---|---|---| | Healthy range | 26–34% | 27–33% | 28–34% | | Industry median | ~30% | ~30% | ~31% | | Concerning above | 37% | 36% | 37% |

Sources: RIA Cost of Doing Business Report 2024; IBISWorld Industry Report 56172; Peak Business Valuation restoration M&A transaction data 2024. RIA Cost of Doing Business Report, 2024 IBISWorld, 2024 Peak Business Valuation, 2024

Reading Your Own Numbers

To compare your numbers to these benchmarks, you need three things from your books:

1. Gross margin: From your income statement. Revenue minus direct job costs (labor, materials, subcontractors, equipment billable). Divide by revenue. If your bookkeeper isn't separating direct costs from overhead in QBO, you won't be able to calculate this cleanly. See How to Read a Job-Level P&L Like a Restoration Owner.

2. Overhead percentage: Total overhead (everything that isn't a direct job cost) divided by revenue. Common mistake: including owner's field labor as a direct cost when it's actually overhead. Be honest about how much of the owner's time is strategic vs. billable.

3. Net margin: Revenue minus all costs. Check your P&L and make sure it's on accrual basis — cash basis can distort net margin significantly when you have substantial AR (you're recognizing costs but deferring revenue).

4. AR-to-revenue: Pull your current AR balance from QBO. Divide by your trailing-12-month revenue. If the number is over 20%, pull the AR aging report and look at the 90+ day bucket — that's where collection problems live.

If you can't pull these numbers in 10 minutes from your current QBO setup, that's its own signal. Clean monthly closes and proper chart of accounts structure should make every one of these instantly accessible. See The Complete Guide to Job Costing for Restoration for how to structure QBO to produce these automatically.

What Actually Moves These Numbers

Gross margin levers (biggest impact first):

1. Labor efficiency on jobs — are crews hitting or beating estimated hours?
2. Supplement recovery — are you capturing full scope value?
3. Subcontractor markup discipline — are subs being marked up appropriately?
4. Materials waste and unbilled materials

Overhead levers:

1. Administrative staff-to-revenue ratio — more revenue per admin dollar is the goal
2. Owner comp structure — market-rate salary or equity-extraction-as-salary?
3. Marketing spend efficiency — cost-per-job versus job volume
4. Equipment utilization — are owned assets generating revenue?

Net margin: Net margin is downstream of the first two. If gross margin is healthy and overhead is controlled, net margin takes care of itself. If net margin is low despite healthy gross margin, overhead is the problem. If both gross margin and overhead are off, you have a cost structure problem worth examining line by line.

AR ratio: The main driver is collection process discipline, not collection speed (which is largely controlled by carriers). Companies with systematic AR staging — tracking ACV, RCV, and supplement separately and following up systematically — have lower AR-to-revenue ratios than companies that rely on carriers to initiate payment. See When Supplements Disappear Between Xactimate and QuickBooks.

Frequently Asked Questions

How often is the RIA Cost of Doing Business Report published?

The RIA (Restoration Industry Association) publishes the Cost of Doing Business Report periodically, typically every 2–3 years. The most recent available data covers 2022–2024 survey periods. The benchmarks have been relatively stable over time — gross margin in the 48–52% range and overhead in the 36–40% range have been consistent across multiple report cycles.

Are these benchmarks skewed toward larger companies?

Likely yes, modestly. RIA members tend to skew toward larger, better-managed operations. The median respondent in CODB surveys is typically a $2M–$5M company. The numbers for sub-$1M companies in the database are less representative. Use the $1M-tier benchmarks as directional guidance, not precise targets, for very small operations.

How does revenue mix (TPA vs. direct insurance vs. retail) affect benchmarks?

TPA-heavy companies typically run lower gross margins (TPA program fees reduce the effective margin by 5–15%) but more predictable volume. Direct-insurance companies may run higher gross margins but face more supplement negotiation friction. Retail (homeowner-pay) work often runs the highest gross margins but the shortest collection cycles. If your revenue mix is different from a typical insurance restoration contractor, adjust the benchmarks accordingly.

Can these benchmarks be used to value my restoration company?

Indirectly yes. EBITDA margin is one input to valuation multiples. Peak Business Valuation reports that restoration companies typically sell at 3–6× EBITDA, with the multiple varying based on revenue size, growth rate, customer concentration, and financial documentation quality. A company at the high end of EBITDA margins for its tier commands higher multiples than one at the low end.

What if my gross margin is strong but my net margin is poor?

This points to an overhead problem. Your direct-job economics are solid, but something in overhead is consuming the margin: possibly over-staffed admin, above-market owner compensation classified as salary, high equipment costs, or inefficient marketing spend. The overhead breakdown in What Overhead Percentage Is Healthy for a Restoration Company? gives a category-by-category benchmark.

Related reading: How Restoration Companies Actually Make Money: The 7 Profit Levers · Why Most Restoration Companies Plateau Below 15% Net Margin · Is Your Restoration Company Actually Profitable? 5 Numbers to Know · What Overhead Percentage Is Healthy? · AR Days Outstanding: What's Normal vs. What's a Problem