To continue the conversation, read Leighton Healey’s article Don’t Settle for Fool’s Gold Data in 2024.
A LOOK AT INDUSTRY MAKEUP, EMERGING TRENDS, AND RESTORATION INDUSTRY OPPORTUNITIES IN 2023
“Research is creating new knowledge.”
Data is arguably the most vital component of solid decision making. The more we know, the clearer our decisions. Yet, according to a study done at Ohio State, more than half of Americans rely on their gut or intuition when making decisions. While intuition can certainly provide a hunch (or sometimes even a strong feeling for right or wrong decisions), PricewaterhouseCoopers found highly data-driven organizations are three times more likely to report significant improvements in decision-making compared to those who rely less on data. Don’t get me wrong, I certainly see the value in that “gut instinct” – but how much more confident would you feel in a decision if you had data to back it up?
In 2022, C&R and KnowHow came together with an idea: create a comprehensive industry study, create some benchmarks, then rinse and repeat – with some obvious adjustments and additions as needed. This report is the culmination of more than half a year of work by the teams at both companies. It wouldn’t be possible without the support of contractors who participated, and others who helped promote and encourage others to participate.
Pause for a moment before diving into this article and reflect on the last year in your business.
- What is one good thing that has come out of the last 12 months?
- What is one opportunity going into 2024?
- What has been the #1 thing on your mind all year?
Now, take a look at the chart below. Anything look familiar from the thoughts that just passed through your mind?
Again, three top trends emerged in our State of the Industry data. This included some noticeable shifts from last year’s research, indicating some change is happening – largely driven by technology. Check out the top three trends from 2022 and 2023 and notice the differences. Keeping up with technology is new to the top three and retention dropped out. Concern around hiring decreased 15%, while getting paid saw a 15% increase in concern.
The fact that technology made it into the top three is not surprising when you see the study and its results as a whole. When we looked at not just trends, but emerging trends, Artificial Intelligence (AI) handedly stood out in front.
With each passing day, the need for innovative solutions to efficiently and effectively restore properties becomes increasingly evident. Yet while AI is certainly poised to greatly impact the insurance claims industry as a whole, the need for a human element will never disappear. So where is the balance? That, I believe, is the gap where restorers currently stand.
“Data is a crucial asset for any organization, and companies can leverage it to take advantage of the benefits of artificial intelligence-based technologies,” said Garret Gray, President of Protect Insurance Solutions at CoreLogic. “AI can streamline business processes and workflows in the property restoration industry, helping companies achieve more with fewer resources. With intelligent automation, it can help address workforce and operational challenges.”
With the curtain pulled back on the study’s highlights, let’s look at some of the main themes present throughout the 2023 study, and in some cases how this year’s numbers relate to 2022. While I am striving to keep the data more high-level in this article, you can download the full study for free at www.candrmagazine.com/stateoftheindustry. Within that comprehensive report, you will also find lists of action items for your team to read, consider, and potentially act on within your company. There are also discussion questions for management! This article and special issue of C&R are just part of the large State of the Industry body of knowledge created for restorers.
This year’s State of the Industry report saw a 42% increase in the number of respondents from 2022, representing nearly every state in the U.S. and Canadian Province. Of those companies, 64% are independent; 36% are part of a franchise group. It is important to note, in this year’s study, the C&R and KnowHow teams geared questions and the path of the overall survey to better differentiate between independent and franchise contractors.
As many consultants and industry experts will say, we confirmed 42% of restoration companies do between $1 and $5 million in annual revenue, with 10 employees or less.
Fewer than 3% of companies have annual revenues topping $100 million. In fact, less than 13% of restoration companies do more than $20 million. When it comes to overall headcount, 81% of companies have 60 employees or less. Interestingly, however, there was a major shift in projected revenue. In the 2022 study, almost 80% of contractors projected an increase in revenue in 2023; 17% predicted revenue staying the same, and just 3% projected a decrease. In the 2023 study, only 20.5% projected an increase in 2024, while 65% predicted staying the same, and 14.5% predicted a decrease. (The study has already happened, so I went past tense. That’s probably just a personal preference 🙂 And you alternate between saying projected and predicted. Which is fine. Just pointing that out if it matters.)
Not surprisingly, 61% of companies reported water damage restoration as their main service offering, with reconstruction and mold remediation coming in as second and third in line. More than 75% of respondents are full-service restoration companies, meaning they offer both mitigation and reconstruction, while the remaining 25% provide mitigation only.
An ongoing trend in our industry is the desire by contractors to do more commercial work, and less residential – interestingly, the balance is different between franchise and independent contractors. Reasoning behind this trend generally revolves around commercial jobs bringing in more revenue and removing the “hassle” of running many small, residential jobs. When you compare 2022 to 2023, while there was a small shift in actual work being done, it doesn’t match up to the desired mix we asked about last year.
Third-party administrators (TPAs) did not see a big drop off in contractors doing program work in 2023, despite many in 2022 saying they wanted to do less. Last year, 45% of leaders said they would prefer to do no program work. Yet the data for 2023 shows there was just a 1% increase in the number of contractors doing no program work – accounting for 38.4% of contractors.
“The most promising opportunity for our industry in 2024 lies in understanding and leveraging our indispensability to insurance carriers. To gain more influence and credibility with carriers or TPAs, we must present a united front,” commented ATI President Jeff Moore when asked about the biggest opportunity ahead for our industry.
We also broke down the difference between independent and franchise companies and their TPA usage mix. Here is where the data gets a bit more interesting – nearly half of independent contractors prefer no program work, but only 16% of franchisees reflect the same sentiment.
You can find a deeper dive into TPA usage and the data we collected in the full State of the Industry report – including some rather large gaps between the amount of program work companies want to be doing versus what they actually did in 2023.
TREND #1: Hiring & Retention
Hiring remains difficult. Period. The only silver lining here is that this does appear to be easing up. In fact, if you recall that chart at the very beginning, almost half of restorers reported hiring as their #1 concern in 2022. This year, only 33% named hiring as their top concern (while getting paid surged upward, but we will get to that in a moment).
Adding to the silver lining, technician tenure appears to be on the rise. As you’ll see in this graph, not only are fewer technicians leaving within the first year as compared to 2022, but about 10% more technicians are staying with their companies between three and six years!
Why, you ask?
Well, the data pretty clearly points to a correlation between starting wage and retention for workers sticking around for three to six years. On average, 41% of restoration companies who pay their technicians a lower starting wage of $15-19/hour see workers stay for one to two years before moving to a different company. Yet this number is cut in half by increasing hourly wage to $20-25/hr.
Katie Smith, current Restoration Industry Association President and CEO of PHC Restoration offered some great insight on hiring.
“Enrollment in four-year universities is declining, which means that young people don’t feel as much pressure to achieve a degree, and they are much more inclined to entertain a career in the trades. We have the opportunity to expose Gen Z and beyond to the awesome purpose behind our profession,” she said. “Similar to how most of our customers don’t know about our industry until they need us, young people need to be exposed to the restoration industry before they graduate from high school.”
Smith emphasized we have the opportunity to create career paths and curriculums for young professionals who are “looking for meaningful work and want the opportunity to build a career in the industry from the ground up.”
Want more related to wages? Download the full State of the Industry report from the C&R website. The KnowHow team does a great job of breaking down manager and supervisor wages and tenure as well!
TREND #2: Getting Paid
Interesting data came out of this section. While overall, it appears contractors are getting paid faster, the concern about getting paid rose 15%. Let’s dig in a little bit.
Take a look at the bar graph and the differences in time to get paid year-over-year. This year, more than half of contractors reported getting paid in 30 days or less, compared to about 20% in 2022. However, conversely, the piece of the puzzle where it takes longer than 61 days to get paid jumped from 13% in 2022 to 21% in 2023.
The Restoration Industry Association’s Advocacy and Government Affairs has been working hard to close the gap here, and help contractors get paid with less pushback. The board, as a whole, agrees documentation is key.
“Documentation always wins when it comes to getting paid,” said Smith. “The best operators are swiftly implementing technology that helps their team document efficiently and thoroughly.”
Sherry Rose, CEO of Stellar Brands – the parent company to Restoration 1, agreed, “Leverage the best technology to create invoices that are bulletproof. You can’t argue with facts no matter how hard you try. There simply is no substitute for professional documentation of the job.”
When it comes to creating estimates and invoices, it’s unlikely the chart here on top software options comes as much of a surprise.
TREND #3: Technology
The discussion around documentation is the perfect segue into technology, since the paper monster hopefully died in your restoration company a long time ago.
We are excited to roll out lists of the top job management software and photo documentation options on the market today. This is an area we expect to see some changes, ebbs, and flows as the rate of technological innovation continues to increase.
With so many software options, it is clear restorers are concerned with property onboarding and adoption. According to contractors, there are just too many options required to complete a job, and they don’t all work together or offer true integrations.
There is a major opportunity for software providers to continue working toward an all-in-one solution, or integrations, that go beyond an open API and offer a truly user-friendly experience.
This is also where the discussion of artificial intelligence enters the equation. If you recall the emerging trends chart at the beginning of this article, the data speaks for itself. Now the question becomes: how can AI help us with data and documentation in safe, effective, and accurate ways, without fully removing the needed empathy and humanity involved in restoring properties?
Some companies, like Paul Davis, are already looking ahead and embracing AI while others are taking a more reserved approach.
“We are currently preparing our data to be in a structure favorable for an internal AI model. At the same time, we are being deliberate about securing our data to protect customer information,” explained Shawn Clark, Paul Davis’ Chief Information Officer. “In 2024, we anticipate conversational AI to be at a point where chatbots assist customers during distress, providing immediate answers and guiding them through the restoration process. We expect the AI to be more empathetic, understanding the customer’s emotional state and providing tailored support.”
Still, only about half of restorers currently say they are totally open to AI. Almost one quarter are on the opposite side of being concerned, or not supporting it at all. This could be part of the reason the industry appears to be very slow to adopt remote monitoring. Almost 82% of restorers are not using these capabilities in 2023, which matches right up with data from 2022.
“By establishing robust data collection and management processes, companies can leverage increasing AI innovations to optimize their business procedures and gather valuable insights to future-proof their operations,” Gray said.
Where Do You Shop?
A quick note here on where restorers all prefer to shop!
If your team shops for most of your equipment and other products at Jon-Don or Aramsco, you’re right in line with more than 50% of restorers. However, those two sources had a combined market share of 65% in 2022, marking a pretty steep decline in 2023. Lowe’s and Amazon remained relatively steady, while Abatix saw its market share go from about 3% to more than 5%, and Home Depot also added about 2%.
What’s Happening with M&A?
The mergers and acquisitions playground is a little less crowded in 2023. While more than 61% of companies reported being approached to sell their company in 2022, 52% reported being approached in 2023. There could be many reasons for this, one being that many of the companies that were considering selling have already done so. Another possibility is many of the big players have already acquired companies in many major U.S. markets, so they don’t need to expand more in those areas.
This doesn’t mean companies aren’t buying though, just that the market has consolidated some and buyers are being more picky. There has also been a new trend emerging of private equity taking interest in individual franchisees, leaving franchisors having to sort through whether or not this is something they support and allow.
Similar to 2022, companies aren’t reporting large changes in market share if a competitor in their market was acquired. About 40% of companies that have been acquired report an increase in overall revenue; 57% have remained steady.
There are four action items from here.
- Read the insights from other industry experts in this edition of C&R.
- Download the full State of the Industry book from www.candrmagazine.com/stateoftheindustry and start using it to help guide your training and strategy meetings. Each chapter is full of action steps and questions to consider!
- Make sure to participate in the 2024 study!
- SHARE this information!