Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!
Within the residential construction industry is a subset referred to as ‘Trades’. Within this group exists one particular trade that has its own set of business dynamics. Roofers depend heavily on labor to accomplish their task. They are also highly susceptible to weather conditions and dangerous situations. There are a multitude of issues they face. If properly managed, an owner of a roofing company can make a good living and profit. Experience is absolutely the best ally for the roofer.
This article will introduce the overall financial dynamic and explain some of the factors affecting business operations. I’ll explain the materials issue, the labor variable, weather and the overall danger of this form of business. I’ll end summing up using a couple of examples and how they impact the operation giving consideration to the variables previously explained.
Let’s get started.
Overall Financial Dynamic
Unlike the traditional construction trades, roofers quote their overall price with three units of measurement. The first is the number of squares (a 10’ by 10’ section which equals 100 square feet) of surface area on a roof. The second is a flat rate for the installation of that square which includes the materials (shingles, shakes, rubber membranes, tiles, and slate). The third unit is the additional material needed for the roof. These additional materials include flashing, drip guards, pipe covers, vents, ridge vents, and tubes of caulk.
Most of the jobs involve asphalt shingles and are performed at existing homes, not new construction. In a new home the price per square is generally about $35 cheaper per square. For existing homes the additional $35/square covers the removal (tear off) of the old shingles and debris removal from the site i.e. the landfill fee to dispose of the shingles. Sometimes, to reduce costs to the homeowner, a roofer will agree to perform a layover which means they’ll just put the new shingles over the old ones. From communicating with several roofers I’ve learned that they dislike this type of work as it makes it more difficult to layout the roof and they have to deal with the existing nails. Also, a layover voids any warranty the shingle manufacturer provides.
To alleviate this issue, many roofers will not adjust their price to the homeowner because they want to take away any inducement for this style of roofing. Also, all of them explained to me that the homeowner just complains about the roof due to the look after the layover job. So basically you can’t win and the roofer just says ‘No’ to a layover job.
In a typical square of work the following is a breakdown of the cost variables involved:
- Cost of one square of shingles which is three bundles – $85.00 to $105.00 depending on the style, brand and quality
- Cost of labor, tools to remove old shingles, load into a container/trailer, transfer to landfill and dump fee – $27 – $31
- Cost of labor, employment taxes, labor benefits to install new shingles – $42 – $55
- Cost of nails, felt material, chalk line, starter strips, cap nails – $14 – $18
- Equipment usage – $2 – $5 depending on the roof pitch
- Insurance – $8 – $11
- Taxes (sales tax, local revenue, permits, certificates) $7 – $9
- Other (fuel, water, ropes, safety gear) $3 – $5
At the low end of the cost spectrum a single square of work will cost around $188 and at the high end around $239. In 90% of all cases it will cost at least $190 a square to fully install the shingles. Now let’s look at some variables for this operation. Most roofs are relatively a low pitch. So the pricing structure is based on the traditional 5/12th’s pitch roof which is the most common pitch. If the roof pitch is lower such as a 3/12th’s the price is never adjusted. Basically the low threshold starts at the 5/12th’s pitch.
As the pitch increases the safety factor kicks in and the crew must use some form of safety line system to eliminate the risk of falling off the roof. Up to a 7/12th’s pitch the most common safety system used is a simple rope line over the other side of the house anchored and the roofer uses a chest harness system to slow decent and ultimately stop a free fall for more than 7 feet of travel. As the pitch continues to get stronger, many roofers use walk boards and a combination of safety lines and walk boards to prevent slipping. The problem is that the cost to keep the system moving adds more time to install each square of shingles. Thus, the price structure usually adapts as follows:
- Every single 1” gain in elevation over run e.g. from 5/12th’s to 6/12th’s (1/2) the price increases $10 per square.
- Each additional 1” gain in elevation over run after 7/12th’s the price increases an additional $12 per square.
If the roof has a pitch of 9/12th’s (3/4th’s), the price is 4 units of gain at $10 each or $40 per square PLUS 2 units of gain over 7/12th’s at $12 each for a total of $64 more per square of shingles.
Now how much do roofers charge for a square of shingles which includes tear off, new felt, and new shingles for a 5/12th’s pitch roof? In general, most roofers will charge around $270 per square. Therefore the business owner makes around $60 per square of work for a house. If you are installing 22 squares of shingles, the owner should clear around $1,320. From this he has to pay for some other expenses including:
- Liability Insurance, Disability Insurance
- Equipment Purchases
- Professional Fees (Legal, Accounting)
- Income Taxes
- Self-Employment Taxes
- Franchise, State License, Contractor’s License
- Safety Equipment, Training
In general, a good roofing business will clear around $25 per square after all the above expenses are paid. This is the owner’s actual take home pay. So for that 22 square roof (a typical job/house) he’ll take home around $550 which isn’t bad money but there are a lot of variables that modify this value greatly. The first and most obvious is weather.
Nothing is more dangerous to a roofer than poor weather. There are extremes involved in this industry, when the temperature rises above 95 degrees Fahrenheit or goes below freezing; it is nearly impossible and highly unproductive to continue working. Also, rain, thunderstorms and lightning increase the danger involved. Just like a mobile food vendor or any outdoor business operation, the roofer needs to make his money when the conditions are perfect.
In a typical calendar year, a roofer will have around 130 productive days in which to make his money. Assuming the value per house as illustrated above, a good roofing operation will generate around $100,000 take home pay per year. There are more variables that do affect the owner and the most dangerous is lack of experience with the crew.
The biggest risk overall is falling. Not just for the owner but for one of the crew. This is highly noted in the insurance industry as worker’s compensation insurance has one of the highest rates per $100 of payroll for roofers. I’ve seen it as low as 12% and as high as 23% per $100 of payroll for this particular trade. Notice in the cost break out above I stated that insurance is between $8 and $11 per square because the labor rate is around $50 per square. This high insurance rate is a direct reflection of the industry using cheap and inexperienced labor.
To reduce the insurance costs a roofing business should purchase the best and most effective forms of safety equipment and teach the crew members how to properly use and test the equipment. In addition, the absolute best tool is the owner. He should inspect and test the crews regularly to insure that they use the equipment. There is nothing more depressing than having a crew member fall and permanently injure himself. Roofs are a real challenge and I can’t emphasize this more than any other aspect of operating a roofing business.
Besides, when you use safety equipment and have this as the mindset for the workers, it makes it easier on everyone concerned and the homeowners love this professional conduct. They too don’t want to have on their conscience an accident at their home.
I’m going to illustrate two different examples for you and walk you through the financial outcome. My first one is a basic one story A-Frame home with a 5/12th’s pitch, no valley or hips involved. A simple straight forward job is illustrated:
This particular home is located in a neighborhood whereby the houses sit on ½ acre lots and the houses range in value from $165,000 to $220,000 in value. Most of the homes are right at 1600 square feet and for this example the house needs 19 squares of shingles. In addition, other materials include two square roof vents, 6 different collars, some flashing for the chimney and ridge vent. The additional materials cost right at $237 with sales tax.
It is springtime and the roofer agrees to the do the job on a Saturday and charges $262 per square for the work. So his invoice will look like this:
19 Squares @ $262 each $4,978
Other Materials 237
Total Invoice $5,215
As a part of the arrangement, he has a 5 yard container (open dumpster style) dropped off in the driveway on Wednesday afternoon. The container is right at the edge of the roof line making it easy to toss the shingles inside. The cost for the 5 yard container for 5 days and the associated dumping fee is $285.
On Friday the core pallet of materials arrives. To avoid any issues, the roofer orders 20 square of shingles per the style and color selected by the homeowner. He knows that he can return the unused bundles. Total cost for the shingles, starter strips, and felt is $1,770. The other materials he picks up directly from the supplier as he knows that if this stuff is on the job site without him there, it disappears. The other materials such as nails, caulk, flashing, vents, caps, etc. ran $587.
On Saturday morning at 7, six guys along with the owner show up on the job site and begin setting up. He uses four main ladders, a lift ladder for the bundles of shingles, two gas sourced air compressors and several guns. It takes about 1.5 hours to remove the shingles and an additional hour to get the new material up onto the roof and the roof papered (felt paper down, in modern times a synthetic membrane is used). He lays out his chalk lines and gets the starter strips in position. Of the seven guys, five stay on the roof and begin the laying and nailing of the shingles per the pattern.
On the ground is one grounds man and his job is to take materials up as requested and clean up the yard and get the shingles moved around in the container so they all fit. By lunchtime the roof is a little less than halfway done but the ridge vents have not been installed. After lunch the owner and his roofing crew are all setting and nailing shingles in 3 distinct sets of two. One guy moves the shingle in place while the other nails it in place. The owner begins setting the ridge vent and as the guys get close to the peak, two of them break off and begin working the shingles that lay up to the ridge vents. By 4 PM the work is done, the tools are put away and the job is complete. On Monday the trash company will haul out the 5 yard container.
As agreed, the homeowner inspects the roof and pays the roofer. Each of the roofers have a preset commission and the owner pays in cash 75% of the gross earnings for the roof and holds back the balance to pay the employee’s share of taxes with the payroll documentation during the following week.
Here is the job profit and loss report:
Contracted Amount Earned $5,215
Other Materials (587)
Grounds Man $90
2 Senior Roofers 440
2 Junior Roofers 330
1 Apprentice 125
Sub Total Labor (985)
Labor Matching Taxes (129)
Insurance @ 20.7% of Labor (204)
Fuel, Water, Towels, Supplies (48)
Permit/Revenue Tax/Inspection Fee (93)
Equipment Fee $3.70/Sq (70)
Job Margin $944
From this job margin, the owner uses about $130 for overhead costs mostly transportation and communications. Before taxes the owner has $814. Taxes are about 37% so the owner takes home $513 from this job. Altogether the owner spent about 8 hours of pre and post work taking the measurements, interacting with the customer, arranging deliveries and returning unused materials. For 16 hours of work, he nets $32 an hour after taxes. Not bad.
For my second example the roof is for a high end home needing specialized materials. The cost per square for the custom shingles (materials) is over $170 per square which is twice the price of your basic asphalt shingles. In addition the house is much more complicated with several valleys and hips along with dormers and a copula.
Because of the complexity of this job, the roof will need 47 squares of shingles plus three square of poly membrane to complete the job. Furthermore, there are several different pitches involved and most of the pitches are above the 7/12th’s standard as explained above. The following is his contracted agreement amount:
13 Square Custom Shingles with $10 Premium @ $373/ea $4,849
19 Square Custom Shingles with $32 Premium @ $395/ea 7,505
9 Square Custom Shingles with $57 Premium @ $420/ea 3,780
6 Square Custom Shingles with $211 Premium @$574/ea 3,444
3 Square Membrane Roof @491/ea 1,473
Custom Labor for Cupola/Membrane Install/Dormers 2,100
Additional Mts. (Ridge vents, pipe covers, vents, other 1,104
Labor for Customized Flashing 2,000
Equipment Rental/Scaffolding 1,800
Copper Flashing 771
Total Invoice $28,826
The key concern with this job is the pitch of the roof and the setting up of safety equipment along with scaffolding for the cupola. The roofer estimated four days of work and assumed it would take an extra day for weather issues. In addition he rented a lift system to address some pitch issues for a section of the roof. His job profit and loss report is illustrated here:
Contracted Amount Earned $28,826
Other Materials (1,104)
Grounds Men (2) $680
5 Senior Roofers 4,100
3 Junior Roofers 1,740
4 Apprentices 1,760
Sub Total Labor (8,280)
Labor Matching Taxes (944)
Insurance @ 23.1% of Labor (1,913)
Dumpster (30 Yard) (685)
Fuel, Water, Towels, Supplies (348)
Permit/Revenue Tax/Inspection Fee (271)
Landscaping Repairs (682)
Equipment (Rental/Fees) (1,205)
Job Margin $3,998
From the job margin, the owner used $740 for overhead costs and netted $3,258 as his profit. He paid taxes at 34.7% and his take home from the job was $2,127. He worked a total of 53 hours to do this job which includes his measuring time, job estimate, ordering materials and interacting with the customer. This roofer netted $40 an hour for his work. This is $40 an hour after taxes.
By the way, these are actual numbers I pulled from two different roofing contractors for jobs done in the latter part of 2009. I’m sure the prices are different now but the ratios are pretty close. You are not going to get wealthy doing this for a living but overall you will do well if you adhere to pricing the jobs well.
I remember one roofer taught me something I’ll never forget. ‘You’ll never lose money on the job you didn’t get’. Basically it is OK to charge more; this is dangerous work so be aggressive in how much you charge to end up making a reasonable profit. Act on Knowledge.