Roofing Company Profit Margins: Types, Calculation & More

What Are The Different Types of Profit Margins Roofing Companies Should Know?

Keeping track of each type of profit margin can help you pinpoint where you can make adjustments to keep your business healthy.

The different types of profit margins roofing companies can calculate are listed below:

• Gross profit margin: This evaluates revenue after the cost of goods sold (COGS, which are the expenses, labor, and materials related directly to roofing jobs). Gross profit margin will tell you whether or not you need to adjust your pricing strategy or project costs.

• Operating profit margin: This assesses operational efficiency by subtracting operating expenses (such as rent, office supplies, and marketing costs) from gross profit. 

• Pretax profit margin: This calculates your earnings before taxes (EBT) which can vary widely from state to state. It’s especially useful for investors who want to compare your company's profitability to industry benchmarks.

• Net profit margin: This accounts for all expenses, including tax, for a comprehensive overview of profitability. It’s the bottom line that determines whether or not your company can grow.

Each type of profit margin is calculated differently because each one tracks a different outcome. Once you know how to track them all, you’ll also understand how to improve each one.

How Can You Calculate Roofing Profit Margins?

Here’s how to calculate each type of profit margin:

Gross profit margin

The formula to calculate gross profit margin is:

Net sales consist of the total revenue from sales minus any returns, discounts, and allowances. The cost of goods sold is all the costs directly associated with the completion of the project—for roofing companies, this is usually roofing materials plus labor.

Example: Crown Roofing makes $100,000 in net sales in July. Total labor costs were $50,000, and the cost of materials was $20,000 for a total COGS of $70,000. The gross profit margin calculation would look like this:

Gross profit margin = 100,000 - 70,000100,000 x 100 = 30,000100,000 x 100 = 0.3 x 100 = 30

So, the gross profit margin in this example is 30 percent.

Operating profit margin

The formula to calculate the operating profit margin is:

EBIT stands for earnings before interest and tax, also known as operating earnings. It takes into account administrative costs like marketing and sales, rent, and admin expenses. 

Example: Crown Roofing’s total operating expenses were $10,000. Take $100,000 in revenue and subtract $70,000 in COGS; the firm is left with $30,000. Subtract operating expenses, and it’s left with an EBIT of $20,000. Its operating expense calculation would look like this:

Operating profit margin= 100,000 - 70,000 - 10,000100,000 x 100 = 20,000100,000 x 100 =0.2 x 100 = 20

The operating profit margin is 20 percent.

Pretax profit margin

You must now deduct from EBIT any interest on loans. This factors the cost of things like mortgages and borrowed funds into overall profitability.

So, the formula to calculate the pretax profit margin begins like this:

Example: Crown Roofing has an EBIT of $20,000, but it had $5,000 worth of interest expenses in July. Subtracting this from EBIT leaves an EBT of $15,000. The full pretax profit margin calculation is now as follows:

Pretax profit margin =20,000 - 5,000100,000 x 100 = 15,000100,000 x 100 = 0.15 x 100 = 15

The pretax profit margin is 15 percent. 

Net profit margin

The formula to calculate the net profit margin is:

The calculation for net income subtracts from EBT all tax expenses and additional one-time expenses from overall revenue. This might include things like lawsuits, restructuring, and one-time payments for new equipment.

Example: Crown Roofing owes $10,000 in taxes for July. Since its EBT is $15,000, it’s left with $5,000 in net income. The net profit margin calculation would look like this:

Net income = 5,000100,000 = 0.05 x 100 = 5

The net profit margin is 5 percent.

How Can Roofing Businesses Use Profit Margins?

Profit margins help roofing businesses make critical decisions about how to maximize profits. For example, Lori Swanson at Guardian Roofing says the company uses profit margin data to predict the profitability of new divisions.

“When you start a new division, you want to know what your margins are and you want to do your job costing to make sure that early on and when you're starting this division that you're going to be profitable. And ServiceTitan really help with that job costing as well”.

Other uses of profit margins include the following.

• Understand your business trajectory: Track profit margins over time to see clearly whether your business is growing or declining. 

• Optimize pricing: Your profit margins will tell you whether you need to increase the price of your roofing services or cut service costs to keep growing.

• Track operational expenses: Operational profit margins can show you whether you’re spending too much on rent, marketing, or other admin costs.

• Understand seasonal patterns: Roofing companies are often busier in the spring and summer and after extreme weather events. You can track profit margins strategically to understand when to charge a premium for your services to cover overhead during slow seasons.

• Benchmark your performance: If you do a little research on the profit margins of other roofing companies in your area, you can compare your profit margins to theirs to understand your relative performance.

However, understanding what your profit margins are is only the first step. To fix the issues they uncover, you’ll also need to understand what factors can impact them.

What Factors Influence The Profit Margins of Roofing Companies?

Profit margins for roofing companies vary quite a bit because they’re heavily dependent on things like the size of your business, what the weather is like in your area, and how much competition you have.

It also depends on the variety of your service offerings. For example, Guardian roofing recently expanded to gutters and insulation, to combat the economic downturn. This increased the company’s profit margins and helped it remain competitive.

Here are a few major things that can influence your profit margins:

• Cost of living: This will determine how much you spend on rent, materials, and labor. Areas with a high cost of living can increase your cost of goods sold, but there’s usually more room in these markets to raise your prices.

• Location: Roofing companies in areas that experience hurricanes, snow, and other extreme weather events will have more opportunities to charge a premium for high-demand services. That means your location can significantly impact your profit margin.

• Competition: Roofing can be highly competitive, which will influence your ability to charge. This depends partially on your location, but also on what niche services you offer and whether you offer residential or commercial roofing.

• Business size: Smaller roofing companies might be more agile and have fewer operational expenses. However, larger companies might have access to economies of scale that let them secure bigger contracts and volume discounts on materials to offset higher operational costs.

• Material and labor costs: The price of roofing materials like shingles, insulation, and tar can vary greatly depending on supply chains and the global economy. Labor costs can also fluctuate depending on how competitive the hiring market is in your area.

Understanding how all these factors work together can help you be more strategic about improving your profit margins.

How Can You Improve Your Roofing Company’s Profit Margin?

Improving profit margins is about more than just increasing prices. You can make many different adjustments to ensure your business is turning a profit, including evaluating costs, trying new sales tactics, and improving operational efficiency. 

The right roofing software can help you track all these elements to make data-driven decisions on growing your profit margin.

Some key practical ways to improve a roofing company’s profit margins are listed in the image below:

Here’s a detailed breakdown of each one.

1. Evaluate your pricing strategy

With inflation running high, you’re probably paying more for materials than you used to. That means it’s essential to re-examine your pricing strategy regularly to determine if your margins are low.

ServiceTitan’s Pricebook can help roofing contractors protect profits and set prices based on real-time data. Instead of updating your pricebook once a year, this lets you set dynamic pricing based on current prices for labor and materials.

The app delivers regular content updates concerning costs, descriptions, images, and more, so your pricebook stays current as the market changes.

It shows live updates on standard roofing products and regional pricing averages for roofing services, so you can price more confidently. The SmartStart feature will get you started by automatically adding common services so you can get up and running right away.

ServiceTitan Principal Product Manager Eyal Binshtock explains, “You'll have already set your markup, so the costs will automatically adjust to your preferred markup, and update.”

2. Upsell to existing customers

Upselling is a great strategy for increasing average customer lifetime value and gross profit margins. To succeed, your techs and service reps must identify what extra service your customers might need and clearly communicate that extra value.

ServiceTitan’s Pricebook makes this easy with Smart Recommendations. This automatically shows your customer service reps and field technicians potential upsells based on customer data and PDFs that help them describe the value they offer to the customer.

For example, say a homeowner reaches out about new shingles. Upselling them on higher-quality shingles might be an obvious bet, but what about ice and water protectors? Ridge-cap options?

ServiceTitan’s Pricebook makes recommendations more visible so you can tailor upsells more closely to customer needs. With instant estimates at their fingertips, your techs will also be able to quote them right away and close the deal faster.

3. Train your client-facing employees

Acquiring new customers costs more than keeping existing ones. When you add up marketing and admin costs, a revolving door of small contracts can eat away at your operational profit margin.

When customer service is fast, efficient, and friendly, your customers will keep coming back. This opens the door for strategies like referral programs to turn satisfied customers into salespeople.

ServiceTitan’s call booking software helps keep your customer service reps on top of their game. It lets you record every call to help track how you capture jobs and to help you train CSRs on best practices.

CSRs can click on incoming calls in the app to automatically pull up the customer’s name and all their info. They’ll be able to greet all your regulars by name and view all the details about their location and purchase history.

The field service app lets your techs maintain the same efficiency on the job site, with all the same details at their fingertips on mobile. They can book jobs and accept payment right from the app, making sales faster and more efficient no matter where the conversation happens.

4. Improve inventory management

Proper inventory management is a crucial part of a healthy profit margin. Keep too much on hand, and you’ll risk eventual markdowns on old stock you’re trying to eliminate. Not enough, and you’ll delay jobs—and maybe lose out on the sale to another roofing company.

ServiceTitan’s inventory software lets you maintain inventory across all your warehouses and trucks in one centralized workflow. You’ll be able to track purchases, vendor returns, transfers, and adjustments seamlessly and spend less time on admin work.

You can set minimum inventory requirements and automatically trigger replenishment based on real-time info on what you have in each location and each vehicle. Techs can scan barcodes to adjust inventory in seconds instead of making manual adjustments.

More efficient inventory management helps your business stay agile when supply chain issues threaten to cut into profits. With instant access to all your stock information, you’ll be able to make informed decisions that protect the gross profit margin on every job.

5. Negotiate with suppliers

Do you have a supplier you purchase from all the time? Chances are, you might be able to negotiate bulk purchase deals, exclusivity rights, or discounts with them that can help cut down on your cost of goods sold.

Keep in mind that cheaper isn’t always better when it comes to suppliers. Your suppliers can have an indirect impact on your bottom line if they send you the wrong product, have a complex warranty process, or fail to deliver on time.

Instead, seek out long-term relationships with suppliers you trust. A solid relationship with a fast, efficient supplier can benefit you on roofing jobs where you need an unusual item or a fast delivery.

6. Track your business performance

Your roofing business depends on more than just skilled roofers—you’ll also need a streamlined process to optimize your business's day-to-day operations, from customer service and invoicing to project management.

ServiceTitan’s field reporting software can help you get insights about what works and what doesn’t. The reporting dashboard is customizable, so you can track the metrics that matter the most to your bottom line.

That includes revenue trends, transactions by business unit, conversion rates, and satisfaction scores for a complete picture of where your revenue comes from.

The app also lets you monitor techs in the field with a technician scorecard, with roofing insights like revenue, completed jobs, and satisfaction scores for each team member.

Matt Swanson of Guardian Roofing notes that most people tend to want to track metrics on leads, but tracking customer satisfaction is just as important: “Most people [want] to learn how to get more leads and how quickly they can get to a sale,” Matt said. “And I get it, it's super important. But what about how to get the work done and how to make your customer happy?”

7. Cut unnecessary costs

Roofing businesses can run into cash flow issues when they have a lot of unnecessary overhead expenses. Our 2024 Exterior Trades Report found that 56 percent of exterior contractors found operating expenses to be one of the biggest challenges to staying competitive.

With inflation and an unpredictable post-pandemic economy, overhead costs can grow much more quickly than they have in the past.

Unnecessary costs can be hidden everywhere, from high utilities, to unnecessary warehouse locations, to vehicle maintenance and office supplies. They can also be hidden in vendor pricing that increases all of a sudden, cutting into the profit you make on roofing jobs.

To mitigate this, make sure you have a high-level overview of your net profit margins, then drill down into operational and gross profit margins to see where you might be able to cut spending.

8. Increase revenue streams

Growing your roofing company can boost profit margins as you access new economies of scale. As Lance Bachmann from LB Capital Group points out, start with technology.

“Technology is your friend,” he says. “If you want to scale a great business, bring technology into it, and you'll see your business [grow].”

If you’re already doing your best work, ServiceTitan’s data-driven marketing tools can help you reach new customers and track the ROI of every campaign.

The app includes heat maps that tell you what areas generate the most revenue so you can target Google and social media ads toward the areas that will bring in more lucrative roofing projects.

With Marketing Pro, you can access PPC ad tools and email marketing features that can boost your digital presence on Google. 

You can also use the app to manage your online reputation by automating requests for new reviews and tracking each one so you can stay responsive and attuned to every customer you serve.

As you grow, you’ll have more opportunities to find business niches that let you set a premium price on the high-quality services you do best.

Over to you

Tracking each type of profit margin carefully can give you deeper insight into what you’re succeeding at and where you can improve.

Many business owners have a rough idea of their profit margins, but end up surprised by how they’re actually performing when they look at the numbers.

Getting familiar with those numbers can keep you one step ahead of the game, no matter what cards you’re dealt.

ServiceTitan is an all-in-one app that helps roofing companies optimize their entire operation from project management to field services. Streamline operations, automate pricebooks, maximize profitability, and get more roofing business customers with ServiceTitan.