Most roofers know their material and crew cost on a job. Fewer know what the office costs per job. Rent, the estimator, the office manager, insurance, software and advertising are paid whether or not a roof sells. If your price only covers direct cost plus a round-number markup, the office is paid out of whatever is left, and sometimes nothing is.
What the Office Costs Per Job
All figures below are illustrative. Use your own P&L. Assume a company that completed 120 jobs last year, each priced like a $13,200 reroof with $9,900 of direct cost (materials, burdened crew labor, disposal, permits).
| Illustrative year | Amount |
|---|---|
| Revenue (120 jobs at $13,200) | $1,584,000 |
| Direct job cost (120 jobs at $9,900) | $1,188,000 |
| Overhead (office pay, rent, insurance, software, advertising, professional fees) | $237,600 |
| Overhead rate on direct cost ($237,600 / $1,188,000) | 20.0% |
| Overhead per job ($9,900 x 20.0%) | $1,980 |
Now price a job. Direct cost is $9,900 and overhead is $1,980, so the job costs $11,880 fully loaded. A 20% markup on direct cost yields $11,880: the job pays for the office and earns nothing. To keep a 10% net profit, the price is $11,880 / 0.90 = $13,200. That is a 33.3% markup on direct cost, or a 25.0% gross margin. The 20% markup felt healthy and produced a profit of zero.
How to Calculate and Apply the Rate
- Pull last year's P&L. Use a full 12 months, reconciled. Seasonality distorts partial years, as covered in the roofing contractor P&L report.
- Sort every expense into direct or overhead. Materials, crew labor and burden, disposal, permits and subcontractors are direct. Office payroll, rent, insurance, software, advertising, accounting and non-job vehicles are overhead. Do not leave job costs in overhead; that overstates the rate.
- Total overhead and direct cost. Here, $237,600 and $1,188,000.
- Divide overhead by direct cost. That is the overhead rate: 20.0%. Some contractors divide by revenue instead (15.0% here). Either works if you use it consistently.
- Add your target net profit. Decide the profit on revenue, such as 10%, before you price.
- Price each job. Direct cost plus overhead, divided by (1 minus target profit). The step from margin to markup is in markup vs. margin.
- Recheck quarterly. Overhead is mostly fixed, so the rate moves with volume. If jobs fall 20% to 96, the same $237,600 spreads over $950,400 of direct cost and the rate rises to 25.0%.
Common Mistakes
- Treating markup as profit. A 20% markup on direct cost in this example covers overhead only.
- Leaving job costs in overhead. Permits, disposal and crew burden belong on the job, which is the point of the true cost of a roofing job.
- Using one rate for every job type. A repair that needs a lot of office time and a reroof that is mostly materials may not carry the same load. Consider separate rates once you have the data.
- Setting the rate once and forgetting it. Hiring an estimator or a slow spring changes the rate.
- Pricing from last year's volume when this year is smaller. Fixed overhead does not shrink with the schedule.