The '10 and 10' Myth: Why Xactimate Overhead and Profit Doesn't Cover Your Actual Costs

The Number Xactimate Built the Industry Around

Walk into any estimating conversation with a carrier adjuster and the phrase "10 and 10" comes up. It's been the restoration industry's default O&P structure for decades: 10% overhead, 10% profit, applied to direct job costs in the Xactimate estimate.

The total — 20% O&P — sounds like margin. And it is margin. Just not as much margin as it appears, because the 10% overhead line rests on an assumption that hasn't been tested against actual restoration company cost structures in a long time.

The assumption: your overhead costs 10% of job revenue to operate.

The reality, per the RIA Cost of Doing Business Report: overhead averages 38% of revenue for insurance restoration contractors. RIA Cost of Doing Business Report, 2024

This is a 28-point gap between what the estimate assumes and what it actually costs to run the business generating those estimates.

The Math: 10% vs. 38%

Here's the structure of a simple Xactimate estimate, showing where the O&P line sits:

| Estimate Component | % of Total Estimate | |---|---| | Direct costs (labor, materials, equipment) | 83.3% | | O&P — 10% overhead on direct costs | 8.3% | | O&P — 10% profit on direct costs | 8.3% | | Total | 100% |

So in a $50,000 estimate, the overhead line is $4,167. Xactimate/Verisk, 2024

Now compare that to actual overhead. The RIA CODB puts overhead at 38% of revenue. On a $50,000 job, actual overhead allocated to that job (at 38% of the revenue it generates) is $19,000 — not $4,167.

The gap: $14,833 on a single $50,000 job. The O&P overhead line covers about 22% of actual overhead incurred.

"But wait," the objection goes, "the O&P line isn't supposed to cover 100% of overhead — it's additive to margin already embedded in direct cost line items."

This is partially true. Xactimate labor and material pricing includes some margin. But the implication that full overhead coverage is embedded in line-item pricing has been challenged by every serious analysis of restoration contractor cost structures. R&R Magazine documented this mismatch in detail, concluding that even with embedded line-item margin, the effective overhead recovery from a typical estimate leaves the average restoration contractor significantly short of true overhead coverage at standard 10/10 O&P. R&R Magazine, 2023

What Overhead Actually Includes

| Overhead Category | % of Revenue (Typical Range) | |---|---| | Administrative / office labor | 8–12% | | Owner compensation (management, not field) | 5–10% | | Vehicles (overhead portion) | 3–5% | | Equipment (depreciation, maintenance) | 3–6% | | Facilities (rent, utilities, storage) | 2–5% | | Insurance (GL, professional, umbrella) | 2–5% | | Marketing and referral programs | 2–5% | | Technology (software, licenses, QBO, Xactimate) | 1–3% | | TPA program fees (where applicable) | 5–15% | | Total | 31–66% |

Note: TPA program fees (Code Blue, Contractor Connection, Alacrity, etc.) typically run 5–15% of job revenue for program-routed work — and are frequently not captured as a named overhead cost in restoration company books, which means overhead is often understated. RIA Cost of Doing Business Report, 2024

The wide range (31–66%) reflects genuine variation across company types. A lean single-location mitigation company with low marketing costs and no TPA fees might run 31–33%. A multi-location full-service contractor with heavy TPA reliance might run 50%+. The 38% median is the center of a real distribution.

The point is not that every company is at 38%. The point is that no company's overhead is 10% — and the estimate default acts as if it is.

The Gap in Dollars at $1M, $3M, $5M

Assuming all revenue is O&P-bearing at 10/10 (a simplification — some work carries no O&P):

| Revenue | O&P Overhead Collected (10%) | Actual Overhead (38%) | Annual Gap | |---|---|---|---| | $1M | $83,300 | $380,000 | –$296,700 | | $3M | $249,900 | $1,140,000 | –$890,100 | | $5M | $416,500 | $1,900,000 | –$1,483,500 |

This makes the gap look catastrophic — but the table is misleading in isolation. O&P is not the only source of gross margin. The direct cost line items in Xactimate carry their own margin (labor rates are typically above job-cost in pricing data, material margins are embedded). The O&P line is additive.

The more accurate framing: the 10% overhead O&P line covers approximately one-quarter of actual overhead. The remaining three-quarters must come from:

1. Margin embedded in labor and material line items
2. Above-10/10 O&P negotiated for specific jobs
3. Supplement recovery
4. Operational efficiency (actual overhead below 38%)

Companies that understand this build their margin models around all four sources. Companies that don't tend to rely on volume as the answer — more jobs at the same margin — and wonder why profitability doesn't improve proportionally.

Why 10% Persists

Several factors have driven real overhead higher over time without corresponding movement in O&P defaults:

Technology and compliance costs: Modern restoration operations run Xactimate licenses, job management platforms, documentation tools, QBO subscriptions, and IICRC certification maintenance. These didn't exist at current cost levels when 10/10 became standard.

Certification and training requirements: IICRC WRT, ASD, AMRT certifications require ongoing continuing education costs. These are overhead, not direct job costs.

TPA program fees: The rise of TPA programs (Code Blue, Contractor Connection, Alacrity, Restoration 1, etc.) created a new overhead category — program fees — that didn't exist in earlier industry structures. RIA Cost of Doing Business Report, 2024

Regulatory and insurance complexity: Workers' compensation rates for restoration crews (NCCI code 9519) run 8–18% of wages in most states — significantly higher than many trades. GL and umbrella insurance costs have also increased materially over the past decade.

None of these drove carrier negotiation behavior to move away from 10/10. The result is a persistent mismatch that most restoration owners feel but can't quantify until they look at their actual overhead percentage.

What Restoration Contractors Are Doing About It

The contractors who address the 10/10 gap do it through three levers:

1. Negotiate O&P above 10/10 on complex jobs. Documented overhead data strengthens negotiation. Present your actual overhead percentage (from your books) when requesting above-standard O&P on large-loss or high-complexity jobs. R&R Magazine and the RIA have both published guidance on this approach. The argument: "Our documented overhead is X%. The standard 10% does not reflect our actual cost structure for this type of work. We are requesting Y% overhead." Adjusters who negotiate on data respond better than those who negotiate on assertion.

2. Recover full value through supplements. Supplement revenue is additive to the original estimate. A well-managed supplement process recovers scope that wasn't captured initially — including items that carry O&P. Effective supplement tracking is one of the highest-ROI activities in restoration. See When Supplements Disappear Between Xactimate and QuickBooks.

3. Manage actual overhead below the industry average. The 38% overhead median is an average, not a floor. Companies with efficient administrative structures, high equipment utilization, and controlled marketing spend run overhead below 35% — which changes the math. Every point of overhead reduction is a point of net margin improvement. See What Overhead Percentage Is Healthy for a Restoration Company?.

4. Understand the full margin picture by job. Job-level P&Ls that show gross margin against the Xactimate scope reveal which jobs are generating healthy returns and which aren't. The pattern often shows that large, complex jobs — which generate the most O&P in absolute dollars — are more profitable despite the overhead shortfall than smaller jobs where even minimal overhead eats all the margin. See The Four Cost Categories in a Restoration Job P&L.

Frequently Asked Questions

Does the 10% O&P overhead line apply to every line item in the estimate?

No. O&P in Xactimate applies to selected line items, not the full estimate total. Some items are excluded from O&P calculation (materials purchased by the homeowner, certain specialty items). The percentage shown on the estimate is applied to the O&P-eligible direct costs, not total project cost. This nuance means the "10% of revenue" framing in this post is a simplification — actual O&P collected varies by estimate composition.

Are there standard arguments for negotiating above 10/10?

Yes. The most accepted argument: complexity warrants higher overhead allocation. Large-loss jobs, multi-phase projects, commercial work, and jobs requiring coordination across multiple subcontractors all represent higher management overhead per dollar of scope than standard residential water jobs. Document the complexity and present the O&P request as a project-specific calculation, not a blanket rate increase.

What's the relationship between O&P and supplements?

Supplements typically carry O&P at the same rate as the underlying estimate (standard 10/10 unless negotiated). This means effective supplement recovery increases not just the underlying scope value but also the O&P collected on that scope. Companies with strong supplement tracking capture more O&P in absolute dollars from the same job.

Does every carrier default to 10/10?

No. Different carriers have different baseline O&P policies, and some differentiate by claim type (residential vs. commercial, cat vs. non-cat). Some programs (particularly TPA-routed work) have explicit rate caps that affect what O&P is available. Understanding your specific carrier and TPA program policies is necessary to know what O&P negotiation is even possible on a given job.

Where can I see the full RIA CODB data on overhead?

The RIA Cost of Doing Business Report is available to RIA members through the Restoration Industry Association website. Member access is a significant benefit of RIA membership for this reason — the benchmark data is not widely available outside the member community. Industry publications including R&R Magazine and Restoration & Remediation publish summaries periodically.

Related reading: Restoration Company Financial Benchmarks by Revenue Tier · What Overhead Percentage Is Healthy? · The Complete Guide to Insurance Billing Accounting