Why Roofing Contractors Don’t Make More Money
The number one reason roofing contractors fail is that they don’t know their numbers and don’t stay on top of their costs.
After 41 years of consulting for contractors and also having multiple roofing contractors under retainer, I believe I can speak with some authority on the profitability of roofing contractors. In fact, over a third of the roofing contractors we have on retainer make over 500k a year in profit. And by the way, many of these contractors, when starting with us, were under 500k in sales and 50k in profit. They’re all local family run businesses we’ve consistently worked with and helped develop long-term business goals.
As I have said throughout the years, the number one reason contractors fail is that they don’t know their numbers and don’t stay on top of their costs. This still holds true. Contracting is unforgiving and seasonal, numbers can change quickly.
Arbitrary percentages and pricing practices heavily contribute to poor profitability. Who said you had 10 percent overhead? I didn’t. In fact, I don’t know that I’ve ever known a subcontractor with a true 10 percent overhead. Or how did you arrive at that magical, so much a square, number for pricing? The only way to truly know your numbers is to take all of your overhead, including owner’s salary, and compare it to either your total cost or as we prefer, installation costs. We like to relate overhead to labor or subs if you sub everything out as this represents your production capacity. The more of your capacity a job takes, the more overhead it takes. You can only do so much total volume.
An even better way of calculating overhead for roofers is to include weather into consideration. How many production days did you work last year and what’s your overhead per day? This measures a realistic number for your indirect costs. None of the above numbers are that difficult to calculate, but you must be interested enough to do so. Herein lies the problem. If you aren’t interested in looking at and analyzing business numbers, maybe you shouldn’t own a business. As an owner, you strategize prices and production, not the accountant. The accountant is merely a scorekeeper. Only by using real numbers can owners realistically make the right decisions.
Being too reliant on new construction is also a profit killer. Currently, the market is hot but margins are still tight and many jobs are poorly run. Collecting change orders and retention is also a challenge. Even if new construction is well run and perfect, which is never the case, there are other challenges — schedule being the number one nightmare. When the general contractor (GC) wants the roof on a structure, the pressure is on to go do it as it’s part of the critical path. The problem is that you cannot control the GC’s schedule. No matter how hard you try, at times you don’t have enough work and other times way too much. With reroof, you can somewhat set your own schedule. New construction appeals to a lot of contractors as it is immediate. Bid the technical components, play the law of averages, win a few jobs and have instant gratification. When it’s good, it’s ok good but when it’s bad, it’s awful bad. Building a customer base and selling requires patience and a time commitment.
Not charging enough for repairs is another roofing culprit. I talked with a roofing contractor the other day who charges $150 for small repairs and he also physically estimates each and every repair prior to sending a crew. How can you make money with $150? No matter how hard you try, it costs $50 minimum amount of time to run a sales call and more likely $100 per call. If you win 50 percent of these bids, you’re spending $100 to $200 in sales cost to do the $150 repair. If people will pay you $150 to make a repair, they’ll probably pay $300. Again, figure out your cost and raise your prices. Include travel, set up time and sales expense.
Have you ever lost a job to another contractor? Sure, you have. Have you ever lost a job to another contractor and then found out they weren’t bidding on the same thing? It’s your, not the customer’s, responsibility to establish the difference between you and your competition. One problem is that too many roofing contractors do a poor job of selling a roofing system. Many consumers mistakenly think they’re merely buying shingles and some unsophisticated commercial roofing buyers think they’re purchasing a flat rubber type sheet good. As roofers, you realize roofs fail for multiple reasons many of which are systems related, such as flashing, curbing, chimneys, around AC units, etc. Don’t assume your customer understands these components and how to accurately do a cost benefit for the life of the roof. Sell roof systems, not shingles and sheets of product.
Financial rewards don’t increase in direct proportion to abilities. A little better is all that’s needed to make a lot more. Ian Kinsler is a Detroit Tigers second baseman with a lifetime batting average of .274 who made $14 million in 2016. Nick Castellanos is the Tigers’ third baseman with a lifetime average of .261 who made $536k in 2016. One might argue Kinsler has a better agent and batting coach but who knows? A consultant’s job is to make you a little better and being a little better generates big returns. Are you as good as you can be or are your riding the volume high? Measure your bottom line, lifestyle and stress level rather than your sales volume. In a hot economy, the goal is to be a little better, strategize and capitalize on the market, not just ride the tidal wave.