A Financial Advisor’s Perspective, Ken Riewerts
Many roofing business owners know their revenue, how many squares they installed last month, and what materials cost on their last job. But when asked about their true overhead, the answer is often less clear. Understanding overhead is one of the most important financial skills a roofing contractor can develop, yet it’s frequently overlooked.
From a financial advisor’s perspective, accurately determining overhead is essential for pricing jobs correctly, maintaining healthy margins, and building a sustainable company. Without a clear understanding of your overhead expenses, even a busy roofing business can struggle to remain profitable.
Let’s break down why overhead matters and how roofing owners can calculate it effectively.
What Is Overhead?
Overhead refers to the operating costs required to run your business that are not directly tied to installing a roof. These are expenses that exist regardless of how many jobs you complete.
In a roofing company, overhead typically includes:
- Office rent or building expenses
- Administrative salaries
- Marketing and advertising costs
- Insurance premiums
- Vehicles and fuel
- Equipment payments or leases
- Software and technology tools
- Legal and accounting services
- Utilities and office supplies
Unlike materials and labor, these costs don’t change with each project. However, they must still be covered by the revenue your jobs generate.
Many roofing owners underestimate overhead because these expenses are spread across different categories and paid throughout the year. But when added together, they represent a significant portion of the business’s financial structure.
Why Accurate Overhead Matters
Misunderstanding overhead often leads to pricing mistakes. If your overhead is higher than you realize, you may be bidding jobs too low to cover your true operating costs.
For example, if your company generates $2 million in annual revenue but has $400,000 in overhead expenses, your overhead percentage is 20%. That means before accounting for profit, your jobs must generate enough margin to cover 20%.
If your pricing model doesn’t include overhead properly, your business may appear busy and successful while losing money.
Understanding overhead ensures that every project contributes to sustaining and growing the company.
Calculate Your Total Annual Overhead
The first step in determining true overhead is calculating your total annual operating expenses.
Review your financial statements and identify every expense that is not directly tied to job production. These are your overhead costs. Common examples include:
- Office staff salaries
- Marketing budgets
- Business insurance
- Truck payments and fuel
- Technology subscriptions
- Accounting and legal fees
Once you’ve collected these expenses, add them together to determine your total annual overhead.
Many roofing companies are surprised by this number. Expenses that seem small individually can add up quickly when viewed collectively.
Determine Your Overhead Percentage
Once you know your total overhead expenses, compare them to your annual revenue.
The formula is straightforward:
Overhead ÷ Total Revenue = Overhead Percentage
For example:
$400,000 overhead ÷ $2,000,000 revenue = 20% overhead
This percentage is critical because it helps determine how your jobs should be priced.
Every project your company completes must contribute enough gross profit to cover this overhead percentage before the business earns a true profit.
Separate Overhead from Job Costs
One common mistake roofing company make is blending overhead costs with direct job costs. Materials, subcontractor labor, and installation crews should be treated separately from overhead.
Direct job costs fluctuate depending on the project, while overhead remains relatively consistent. Keeping these categories separate helps owners evaluate job profitability more accurately.
For example, if your material and labor costs consume 60% of job revenue and your overhead is 20%, that leaves 20% available for profit and growth. Without separating these numbers, it becomes difficult to evaluate whether your pricing supports the business.
Monitor Overhead as Your Business Grows
Overhead doesn’t stay static. As roofing companies grow, expenses such as marketing, office staff, vehicles, and technology often increase. While growth can create opportunities, it can also quietly raise overhead percentages if not managed carefully.
Regularly reviewing overhead helps ensure that expansion remains profitable. Growth should improve financial strength, not create unnecessary operational weight.
Use Overhead to Guide Strategic Decisions
Understanding overhead allows roofing owners to make smarter financial decisions. Whether hiring new staff, expanding marketing efforts, or investing in equipment, knowing how these choices affect overhead provides valuable perspective.
For instance, adding a new office employee may increase administrative efficiency, but it also increases overhead. Owners should evaluate whether expected revenue growth justifies that expense.
Financial clarity leads to more confidence and strategic decision-making.
Final Thoughts
Determining true overhead in a roofing business is one of the most important financial exercises an owner can perform. It provides insight into pricing, profitability, and long-term sustainability.
When roofing business owners understand their overhead, they gain the ability to price jobs accurately, manage growth responsibly, and build stronger financial foundations. In an industry where margins can fluctuate quickly, clarity around overhead isn’t just helpful, it’s essential for long-term success.
