The national average sales for residential roofing contractors are slightly greater than $3 Million per year. A typical small roofing contractor will have a couple of crews working various projects and frequently sub out jobs. In addition, the owner acts as a project manager and there are one to two estimators depending on the volume of work.
Indirect costs are those costs incurred to get more than one project done i.e. directly benefit the project and are not office related. Indirect costs include project managers, transportation, equipment, supplies and general insurance.
Well developed, accurate and timely estimates are the best tool ensuring profitability in the construction industry. No other internal control mechanism is as valuable to the contractor as the estimate. Good estimating systems in construction provide the management team with the necessary confidence to make long-term decisions benefiting all parties involved with the company. Customers receive a higher quality structure with less warranty requirements, employees get a sense of security with their tenure, and vendors/subcontractors acquire desirable relationships with their contractor assuring delivery of best practices for their respective trades. Simple put, good estimates deliver profits to the contractor.
Roofers depend heavily on labor to accomplish their task. They are also highly susceptible to weather conditions and dangerous conditions. 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.
In the construction industry, remodelers face a different set of criteria than your traditional new home builder. Because of these issues the markup percentage on costs is generally much higher than other forms of construction. If you are a remodeler, you need to understand the impact of these issues and how to properly markup your job to cover all your indirect and overhead costs.
Every construction project has costs beyond the direct costs and the contractor wants to earn a profit. To cover these costs he must have an appropriate markup. The contractor must give consideration to many variables and circumstances to calculate the best markup for a construction project. To determine the best markup percentage on costs, the contractor should consider his indirect costs, overhead, taxes, and final profit desired.
For any company, profit is based on the risk reward concept. With construction, what should be the profit (reward) given the risk? What is a reasonable expectation given the industry and the particular business? There is no single correct answer. The construction industry is divided into several significant branches. This article is focused on the residential contractor.
From the new home builder to the re-modeler, a reasonable profit given the risk should be no less than 9% AND this is net after a reasonable salary to the owner for his management role. This is the take home or actual bottom line profit; the amount after taxes. How do you derive such a figure? How do you determine the markup on the construction project to end up with this profit?
As a construction company owner, you need a profit and loss statement that conveys information in a format that will identify how much you are truly making as a profit. The best format is a construction profit and loss statement identifying contract revenues, direct costs, indirect costs and the overhead expenses. This format most closely matches the estimating style of most small construction companies.
At the end of the day, it is about the profit you make with your company. This format will point out where the problem is located and where the best performance occurs. When I look at a P&L, I want to quickly identify issues and concerns and get them addressed. If you use this format along with the project accounting reports I illustrate in other articles, not only will you quickly discover any problems, but you can actually pin point the underlying issues and get them resolved. This will add thousands of dollars to your bottom line. So as you read this article, remember you are trying to improve that bottom line, this format is absolutely the best tool to achieve that goal.