Markup is not margin, and the gap is your year.
Residential and commercial · business practice
This is a practitioner page. It is arithmetic you can check, not advice about what to charge — this site has no dataset that would let it tell you that.
Why does a job that priced at twenty percent not show twenty percent at the end of the year?
Markup and margin have different denominators. Marking cost up twenty percent yields a 16.7 percent gross margin, and a business that treats those as one number gives away the gap on every job. Price from your own overhead and volume, not from a competitor's number — you cannot match a bid whose scope you have never read.
The six numbers this page is aboutSection link
Six relationships. All of them derived below, none of them dependent on a market figure this site does not have.
- Markup
- gross profit ÷ costCost × 1.20 is a 20% markup. The denominator is what you spent.
- Gross margin
- gross profit ÷ priceThe same job is a 16.7% margin. The denominator is what you charged.
- Markup → margin
- m ÷ (1 + m)Always smaller than the markup, for every markup above zero.
- Margin → markup
- g ÷ (1 − g)A 20% margin needs a 25% markup: divide cost by 0.80 rather than multiplying by 1.20.
- Markup you actually need
- (overhead + intended profit) ÷ direct job costA property of your year, not of the job. It rises when volume falls.
- Break-even volume
- overhead ÷ markup rateAt a 20% markup, $180,000 of overhead needs $900,000 of direct job cost before the first dollar of profit.
When this arithmetic is the whole answer, and when it is notSection link
The algebra is always true. Whether it is the right thing to be thinking about depends on what you already know.
Best when
- You know last year's fixed overhead as a dollar figure rather than as a feeling.
- Your job costs are recorded actuals, so the cost you are marking up is the cost you incurred.
- You are pricing your own capacity — your crew, your season, your volume — rather than reacting to a number someone showed you.
- You need to justify a price to a customer holding three proposals and a scope checklist.
Think twice if
- Your cost data is estimated rather than actual. A precise multiplier on a wrong cost is precisely wrong, and this arithmetic will make you confident about a number that is not true.
- You are a sole operator. The algebra still holds, but most of your overhead line is your own unpaid time, and treating it as zero is how you end up earning less per hour than the people you hire.
- The price basis is set by someone else's document — an insurance scope, a unit-price schedule, a public bid form. You are still accountable for your own cost, but the pricing structure is not yours to choose.
- You have deliberately chosen a bounded period of contribution pricing, and you have written down the date it ends. That is a real strategy; it is covered below, and it is not the same thing as being confused about margin.
What changes the answer
- The volume you actually produce. Overhead recovery is a dollar amount divided by a year you have not had yet.
- How you classify a cost. Move the foreman's truck from overhead to direct cost and your gross margin changes without a single price changing.
- Your labour burden — federal payroll tax, your state unemployment rate, your workers' compensation class and experience modifier, benefits, and the ratio of productive hours to paid hours.
- Weather and season. A shorter producing year concentrates the same fixed overhead into fewer jobs.
- Whether the competing bid covers the same scope — which, unless you have read it, you do not know.
Two ratios, two denominators, one recurring lossSection link
Nothing in this section needs a source. It is derived from two definitions, and you can check every row of both tables with a calculator.
Take a job. Call the direct cost C — everything you would not have spent if the job had not happened. Call the price P. The gross profit is G = P − C. Two ratios are built from those three quantities, and they answer different questions.
Converting one to the other
Both ratios describe the same G, so each can be written in terms of the other. Substituting P = C + G into the margin definition and dividing top and bottom by C:
Because m and g are both positive when you make money, the denominator (1 + m) is always greater than one and g is always smaller than m. There is no markup above zero at which the two numbers are equal. The gap widens as the markup rises: three points at a 20 percent markup, eleven points at 40 percent, fifty points at 100 percent.
| Markup on cost | Multiply cost by | Gross margin you get | Margin points below the markup |
|---|---|---|---|
| 10% | 1.100 | 9.1% | 0.9 |
| 15% | 1.150 | 13.0% | 2.0 |
| 20% | 1.200 | 16.7% | 3.3 |
| 25% | 1.250 | 20.0% | 5.0 |
| 30% | 1.300 | 23.1% | 6.9 |
| 35% | 1.350 | 25.9% | 9.1 |
| 40% | 1.400 | 28.6% | 11.4 |
| 50% | 1.500 | 33.3% | 16.7 |
| 75% | 1.750 | 42.9% | 32.1 |
| 100% | 2.000 | 50.0% | 50.0 |
Read this table one item at a time
10%
- Multiply cost by
- 1.100
- Gross margin you get
- 9.1%
- Margin points below the markup
- 0.9
15%
- Multiply cost by
- 1.150
- Gross margin you get
- 13.0%
- Margin points below the markup
- 2.0
20%
- Multiply cost by
- 1.200
- Gross margin you get
- 16.7%
- Margin points below the markup
- 3.3
25%
- Multiply cost by
- 1.250
- Gross margin you get
- 20.0%
- Margin points below the markup
- 5.0
30%
- Multiply cost by
- 1.300
- Gross margin you get
- 23.1%
- Margin points below the markup
- 6.9
35%
- Multiply cost by
- 1.350
- Gross margin you get
- 25.9%
- Margin points below the markup
- 9.1
40%
- Multiply cost by
- 1.400
- Gross margin you get
- 28.6%
- Margin points below the markup
- 11.4
50%
- Multiply cost by
- 1.500
- Gross margin you get
- 33.3%
- Margin points below the markup
- 16.7
75%
- Multiply cost by
- 1.750
- Gross margin you get
- 42.9%
- Margin points below the markup
- 32.1
100%
- Multiply cost by
- 2.000
- Gross margin you get
- 50.0%
- Margin points below the markup
- 50.0
Derived, not measured. No row here is a recommendation, a benchmark, or an observation of what anyone charges.
The table above is the diagnosis. The table below is the one you use, because in practice you decide what margin the business needs and then have to turn it into something you can do to a cost column. The operation is division, not multiplication: to keep 20 percent of the price, divide the cost by 0.80.
| Target gross margin | Divide cost by | Or multiply cost by | Equivalent markup on cost |
|---|---|---|---|
| 10% | 0.90 | 1.111 | 11.1% |
| 15% | 0.85 | 1.176 | 17.6% |
| 20% | 0.80 | 1.250 | 25.0% |
| 25% | 0.75 | 1.333 | 33.3% |
| 30% | 0.70 | 1.429 | 42.9% |
| 35% | 0.65 | 1.538 | 53.8% |
| 40% | 0.60 | 1.667 | 66.7% |
| 45% | 0.55 | 1.818 | 81.8% |
| 50% | 0.50 | 2.000 | 100.0% |
Read this table one item at a time
10%
- Divide cost by
- 0.90
- Or multiply cost by
- 1.111
- Equivalent markup on cost
- 11.1%
15%
- Divide cost by
- 0.85
- Or multiply cost by
- 1.176
- Equivalent markup on cost
- 17.6%
20%
- Divide cost by
- 0.80
- Or multiply cost by
- 1.250
- Equivalent markup on cost
- 25.0%
25%
- Divide cost by
- 0.75
- Or multiply cost by
- 1.333
- Equivalent markup on cost
- 33.3%
30%
- Divide cost by
- 0.70
- Or multiply cost by
- 1.429
- Equivalent markup on cost
- 42.9%
35%
- Divide cost by
- 0.65
- Or multiply cost by
- 1.538
- Equivalent markup on cost
- 53.8%
40%
- Divide cost by
- 0.60
- Or multiply cost by
- 1.667
- Equivalent markup on cost
- 66.7%
45%
- Divide cost by
- 0.55
- Or multiply cost by
- 1.818
- Equivalent markup on cost
- 81.8%
50%
- Divide cost by
- 0.50
- Or multiply cost by
- 2.000
- Equivalent markup on cost
- 100.0%
Read the middle two columns as the same instruction written two ways. Dividing by 0.80 and multiplying by 1.25 are identical operations; multiplying by 1.20 is a different one, and it is the mistake.
What the confusion costs on one job
A $10,000 job priced at cost × 1.20 sells for $12,000 and earns $2,000. The same job priced for a genuine 20 percent margin sells for $10,000 ÷ 0.80 = $12,500 and earns $2,500. The difference is $500 — 4.2 percent of the $12,000 you charged, and 25 percent of the gross profit you believed you had. Run a year of work that way and you have not lost four percent of revenue. You have lost a quarter of your gross profit, which is the part of revenue that pays for everything that is not the job.
What a job has to carry before any of it is profitSection link
The markup you need is not a property of the job. It is a property of the year the job happens in.
Split every dollar the business spends into two piles. The first is direct job cost: money that would not have been spent if the job had not happened — material delivered to that address, burdened labour hours on that roof, the subcontract, the dumpster and the tipping fee, the permit, the equipment hired for that week. The second is fixed overhead: money that goes out whether or not you sell anything — rent, the office, the estimator, the truck that does not produce, general liability, software, whatever licence, registration, or bond your jurisdiction requires of you, the accountant, marketing, and your own salary for the hours you are not producing.
Revenue has to cover both piles and then leave the profit you intended. That single sentence is the whole model, and it rearranges into the markup you need.
A worked year
The figures below are illustrative. They were chosen so the arithmetic is easy to follow, and they are not an observation of any business.
Suppose direct job cost for the year is $1,000,000, fixed overhead is $180,000, and you intend to earn $100,000. Then k = 1 + 280,000 ÷ 1,000,000 = 1.28. That is a 28 percent markup on cost. Revenue is $1,280,000, gross profit is $280,000, and the gross margin is 280,000 ÷ 1,280,000 = 21.9 percent. Your net margin is 100,000 ÷ 1,280,000 = 7.8 percent.
Now price the identical work as “materials plus labour plus twenty percent.” Revenue is $1,200,000. Gross profit is $200,000. Subtract the same $180,000 of overhead and the year earns $20,000 — 1.7 percent of revenue, against the $100,000 you intended. The work was the same. The crew was the same. The $80,000 was given away at the estimating stage, in a step that took one keystroke.
Why the correct markup moves
Hold overhead and intended profit still and shrink the year. Suppose direct job cost comes in at $700,000 instead of a million. Then k = 1 + 280,000 ÷ 700,000 = 1.40 — a 40 percent markup, a 28.6 percent gross margin. The jobs did not change. The roofs did not get harder. The denominator got smaller, and the same fixed overhead now has fewer jobs to sit on.
This is the part that catches people. A markup is often treated as a company’s standing policy, set once and defended. It is better understood as this year’s answer to a division problem, re-derived whenever the forecast moves materially. If you are going to run one number all year, derive it from a volume you are confident of hitting rather than the one you hope for, because being wrong in the optimistic direction is the expensive way to be wrong.
Break-even, which is further out than it feels
Set profit to zero and the same equation gives the volume at which the business stops losing money: direct job cost must reach O ÷ m.
Eight points of markup moved the break-even point by more than a quarter of a million dollars of revenue. Below that line, every extra job makes the year worse rather than better, which is why a company can be flat out and still short at the end.
Gross margin is not net margin, and the word alone means nothingSection link
Two contractors can both truthfully say they run at twenty percent and mean numbers that differ by the entire overhead line.
A margin is a ratio to revenue, but there are several places you can take the numerator from, and the answer changes at each one. When somebody quotes a margin without saying which line it came off, the number carries no information.
| Line | What belongs here | The ratio taken here |
|---|---|---|
| Revenue | The contract price. On an accrual basis it is recognised as the work is earned, so a deposit is cash in the account rather than revenue; on a cash basis the two coincide and the distinction has to be tracked somewhere else. Which basis your books use is a question for your accountant. | — |
| Direct job cost | Material delivered to the job, burdened labour hours on the job, subcontracts, equipment hire, dumpster and tipping, the permit, job-specific protection. | — |
| Gross profit | Revenue minus direct job cost. What is left to run the company on. | Gross margin = gross profit ÷ revenue |
| Fixed overhead | Rent, office staff, non-producing vehicles, general liability and vehicle insurance, software, any licensing, registration or bond fees your jurisdiction charges you, marketing, accounting, and the owner's salary for hours not spent producing. | Overhead rate = overhead ÷ revenue |
| Operating profit | Gross profit minus fixed overhead. The number people mean when they ask whether the year was any good. | Net (operating) margin = operating profit ÷ revenue |
| Below the line | Interest, taxes, equipment purchases, owner distributions. None of these belongs in a job price. | — |
Read this table one item at a time
Revenue
- What belongs here
- The contract price. On an accrual basis it is recognised as the work is earned, so a deposit is cash in the account rather than revenue; on a cash basis the two coincide and the distinction has to be tracked somewhere else. Which basis your books use is a question for your accountant.
- The ratio taken here
- —
Direct job cost
- What belongs here
- Material delivered to the job, burdened labour hours on the job, subcontracts, equipment hire, dumpster and tipping, the permit, job-specific protection.
- The ratio taken here
- —
Gross profit
- What belongs here
- Revenue minus direct job cost. What is left to run the company on.
- The ratio taken here
- Gross margin = gross profit ÷ revenue
Fixed overhead
- What belongs here
- Rent, office staff, non-producing vehicles, general liability and vehicle insurance, software, any licensing, registration or bond fees your jurisdiction charges you, marketing, accounting, and the owner's salary for hours not spent producing.
- The ratio taken here
- Overhead rate = overhead ÷ revenue
Operating profit
- What belongs here
- Gross profit minus fixed overhead. The number people mean when they ask whether the year was any good.
- The ratio taken here
- Net (operating) margin = operating profit ÷ revenue
Below the line
- What belongs here
- Interest, taxes, equipment purchases, owner distributions. None of these belongs in a job price.
- The ratio taken here
- —
There is no universally correct place to draw the line between direct cost and overhead. A company that puts the foreman's truck in direct cost and one that puts it in overhead will report different gross margins on identical work — and both can be right, provided each is consistent. What is never right is moving the line and then comparing periods across the move.
Cash is not profit, and the confusion runs the other way too
The two errors are symmetrical and both are common. A company that collects large deposits can be insolvent while feeling flush, because the deposits are obligations to perform rather than earnings. A company on net-30 or with retainage held can be profitable and unable to make payroll. Neither situation is a margin problem, and neither is fixed by repricing. Recognising which one you have is the point of separating these lines in the first place.
Why matching the low bid is usually a lossSection link
Not because the other contractor is dishonest — usually because the two proposals are not describing the same work, and you are the only one who can see one of them.
A homeowner shows you a number that is $3,000 under yours. Before that number means anything, it has to be established that both proposals cover the same work. On a re-roof, the places two honest scopes routinely diverge include:
- How many layers come off, and whether tear-off is priced for one layer or for what is actually up there.
- Whether deck replacement is an allowance with a stated quantity, a unit price, or an unpriced “if needed” that becomes a conversation on day two.
- Underlayment type, and the extent of any self-adhered ice barrier.
- Whether edge metal, valley method, pipe boots, and step flashing are new or reused — and whether that is stated at all.
- Ventilation: whether existing exhaust is retained, replaced, or reconfigured, and whether intake is addressed.
- Disposal, permit, protection of the property, and final cleanup.
- The workmanship term, the manufacturer warranty being registered, and who is responsible for registering it.
Any one of those is a real cost difference. Several of them together account for gaps far larger than the gap between two companies’ markup policies. The buyer-facing page on comparing roofing quotes walks a homeowner through exactly this normalisation, and it is worth reading as the test your proposal is about to be put to.
The thing you cannot know
You have not read the competing proposal. You have heard a number, usually second-hand, usually without exclusions, sometimes without the scope pages. Pricing against it means adjusting your own price to match a document you have never seen. That is not competition; it is guessing, and the guess is systematically biased downward because the number you were told is the part of the bid the customer found most memorable.
What you can do instead is make your own scope legible enough that the difference is visible without you having to characterise a competitor at all. Line items, quantities, exclusions in plain language, and unit prices for the unknowns. That is a document the customer can hold next to the other one.
What a discount actually costs
If you do decide to move on price, it is worth knowing the exchange rate. Cutting the price by a fraction d does not reduce cost at all, so the entire cut comes out of gross profit. With gross margin g, the new gross profit is P(g − d) against an original Pg, so the share of gross profit destroyed is d ÷ g. To end up with the same total gross profit you would need g ÷ (g − d) times the volume — an increase of d ÷ (g − d).
| Discount | At a 20% gross margin | At a 25% gross margin | At a 30% gross margin |
|---|---|---|---|
| 5% off the price | 25% of gross profit gone · +33% volume to replace it | 20% gone · +25% volume | 17% gone · +20% volume |
| 10% off the price | 50% gone · +100% volume | 40% gone · +67% volume | 33% gone · +50% volume |
| 15% off the price | 75% gone · +300% volume | 60% gone · +150% volume | 50% gone · +100% volume |
| 20% off the price | 100% gone · no volume replaces it | 80% gone · +400% volume | 67% gone · +200% volume |
Read this table one item at a time
5% off the price
- At a 20% gross margin
- 25% of gross profit gone · +33% volume to replace it
- At a 25% gross margin
- 20% gone · +25% volume
- At a 30% gross margin
- 17% gone · +20% volume
10% off the price
- At a 20% gross margin
- 50% gone · +100% volume
- At a 25% gross margin
- 40% gone · +67% volume
- At a 30% gross margin
- 33% gone · +50% volume
15% off the price
- At a 20% gross margin
- 75% gone · +300% volume
- At a 25% gross margin
- 60% gone · +150% volume
- At a 30% gross margin
- 50% gone · +100% volume
20% off the price
- At a 20% gross margin
- 100% gone · no volume replaces it
- At a 25% gross margin
- 80% gone · +400% volume
- At a 30% gross margin
- 67% gone · +200% volume
Volume figures assume cost per job is unchanged and capacity exists to do the extra work — which, at a 100 or 300 percent increase, it does not. That is the point: past a certain discount there is no volume that recovers the profit, because the work required to do it does not exist.
When matching the low number is the right call
This page’s own advice has conditions under which it is wrong, and they are not edge cases.
Your competitor’s cost may genuinely be lower. An owner who swings a hammer, has no yard, no office salary, and paid-off trucks has a smaller overhead pile and a legitimately lower price for the same scope. Their number is not underpriced. Yours is not overpriced. You are selling different businesses, and the honest response is to be clear about what the difference buys rather than to match a cost structure you do not have.
Contribution pricing is real, and it is bounded. In a genuinely slack period, overhead is being spent whether the crew works or not. A job priced above direct cost but below full recovery still contributes: it adds P − C against overhead you were paying anyway, so the year ends better than it would have with the crew idle. That reasoning is correct for a defined, short period with idle capacity. It becomes a trap the moment it becomes the pricing model, for three reasons: the company gets sized around the discounted revenue, so the overhead grows to match; the customer and their neighbours are now anchored to that price; and there is no longer any slack capacity, so the condition that made the reasoning valid is gone. If you use it, write down the end date.
Deliberate loss-leading is a marketing spend. Buying a reference, an entry into a builder’s list, or a first job in a new segment can be worth paying for. The discipline is booking it as marketing rather than as a job that mysteriously underperformed, so it does not corrupt the cost history the rest of your pricing depends on.
Where this site’s interests and yours diverge
It would be dishonest to write this section without saying it plainly. Understanding Roofing is a consumer-education site. Its other pages teach homeowners to normalise scope, demand line items, ask what is excluded, and verify a contractor before signing. That is straightforwardly good for a buyer, and it is good for you only if you are competing on doing the work rather than on leaving things out of the description of it. If your close rate depends on the customer not asking what is in the price, this site is working against you, and it will go on doing so.
The flip side is worth stating too. Everything above is an argument for pricing your actual costs and defending the number. It is not an argument for adding scope a roof does not need in order to reach a number you like — that is the same failure pointed the other way, it damages the customer instead of you, and a buyer following this site’s quote-comparison guidance is reasonably likely to catch it. Charge properly for what the roof needs. That position is defensible to a customer, to an adjuster, and to yourself, and it is the only one this page will help you with.
Why there is no price table on this pageSection link
Every dollar figure on this page is illustrative. It was chosen to make an operation visible, and it is not an observation of any market.
- Units
- Dimensionless ratios, plus illustrative dollar amounts labelled as such.
- Scope included
- Definitions, derived ratios, and the variables that decide a price.
- Not included
- Any unit rate, price per square, market average, regional benchmark, or typical margin. This site has no dataset that would support one, and a published benchmark margin would be actively harmful — it invites you to price toward someone else's cost structure.
- Geography
- None. Price is set by your own cost, your own overhead, your own calendar, and the market you actually sell in.
- Data as of
- Not applicable. Algebra does not age, and the illustrative figures are not measurements of anything that could.
- Confidence
- The arithmetic is exact and checkable to the rounding shown. The illustrative dollar amounts carry no confidence at all, because they are not evidence.
There is a version of this page that publishes a table of typical markups by market and job type. It would get shared, and it would be wrong for almost everyone who used it, because the correct markup is a function of two numbers that are specific to you: your fixed overhead and the volume you will actually produce this year. Neither is knowable from the outside, and neither is stable enough to publish.
The site does publish planning ranges for buyers on the cost hub, with their scope, geography, date, and confidence attached. Those exist to help a homeowner tell a plausible proposal from an implausible one. They are not, and should not be used as, a pricing input for a contractor — a national planning band tells you what published consumer sources say, not what your crew costs on the roof next Tuesday.
Nothing here is accounting, tax, or legal advice. How a cost is classified for your financial statements and how it is treated for tax are separate questions with their own rules, and both belong with your accountant.
What moves these numbers on a real businessSection link
- Labour burden — the wage is not the cost
The wage is the smallest part of what an hour of labour costs you, and the arithmetic has two stages. First the statutory and insurance loads, then the division by productive hours.
On the statutory side, IRS Publication 15 (2026) states that “the rate of social security tax on taxable wages is 6.2% each for the employer and employee” and that “the Medicare tax rate is 1.45% each for the employee and employer” — a 7.65 percent employer share, with the social security half applying only up to the 2026 wage base of $184,500 and the Medicare half uncapped. Federal unemployment tax is 6.0 percent on the first $7,000 of each employee’s wages, reduced to 0.6 percent by the maximum 5.4 percent credit where state unemployment tax was paid in full and on time; employers in credit reduction states get less of that credit and pay more. State unemployment tax and workers’ compensation sit on top of both, at rates set by your state and your own experience.
Then divide. If a person is paid for 2,080 hours a year and 1,700 of those are productive hours on a roof, every paid hour has to be recovered across 0.817 productive hours — a 1.224 multiplier before a single tax is added. Travel, loading, weather days, training, toolbox talks, and callbacks all live in that gap.
Burdened cost per productive hourwage × (1 + statutory + insurance + benefits) × (paid hours ÷ productive hours)- Workers' compensation and other jurisdictional overhead
In most states workers’ compensation is priced per $100 of payroll against a classification code — but the rating basis itself is jurisdictional, not just the rate. Washington’s Department of Labor & Industries states that “in most states, rates are charged as a percentage of payroll,” while “in Washington, rates are charged as an amount per hour.” Which basis applies, and whether you buy from a private carrier or a state fund, is settled where you work rather than nationally.
Whatever the basis, the price varies by jurisdiction more than most contractors expect. Oregon’s Department of Consumer and Business Services runs a biennial study that puts every state on a common basis; in its 2024 ranking, with rates effective 1 January 2024, index rates ran from $0.50 per $100 of payroll in North Dakota — 45 percent of the study median — to $2.52 in Hawaii, 231 percent of the median. That is roughly a fivefold spread on the same measure.
Licensing, registration, and bonding costs are jurisdictional in the same way, and they sit in fixed overhead rather than in job cost. What is required where you work, what it costs, and who administers it is the subject of licensing, insurance, and bonding, not of this page.
The Oregon index puts every state on one payroll-based measure so they can be ranked; it is a weighted composite of a consistent mix of 50 major risk classifications, weighted by Oregon payroll. It is not a roofing class rate, it is not the rate any employer pays, and in a state that rates on hours worked it is not even the unit you will be billed in. Your own number is your roofing classification, in your state, with your own experience factor — get it from your carrier, your state fund, or your state's rating authority, not from a national figure.- Climate
Fixed overhead does not pause for weather. A season shortened by rain, wind, heat stand-downs, or snow does not reduce the rent, the insurance, or the office payroll — it reduces the direct job cost those have to be recovered across, which raises the markup every remaining job must carry. A company that sets its multiplier from a good year and holds it through a short one is under-recovering all year and will only find out in the accounts.
- Access and site conditions
Steep, cut-up, multi-storey, or access-constrained roofs cost more per square — the 100 square feet every roofing price is quoted in — than the same area on a walkable gable, and the gap is labour hours rather than material. If your takeoff was measured from imagery, it knows the area and nothing about the staging, the protection, the disposal route, or the neighbour fifteen feet away. See estimating and takeoff for the measurement side, and roof measurement for the accuracy limits of each method.
- Employees, subs, and who carries which cost
Whether your crew are employees or subcontractors changes which of these costs you carry directly, but it does not make them disappear — a sub’s price contains their own burden, their own overhead, and their own margin. Worker classification is a legal test with real consequences applied by more than one agency, and it is not settled by what the paperwork is called. This page does not attempt it.
Classification, contract terms, payment schedules, deposits, retainage, and lien rights vary by jurisdiction and by facts. Nothing on this page is a determination about any of them, and none of it is legal advice.
A workmanship warranty is a priced liability, not a marketing lineSection link
The day you offer a ten-year workmanship term you incur an obligation. The question is whether this job's price contains its share of it.
- The workmanship term
A workmanship term is a promise to come back. Going back has a cost: a truck, two people, a half day, and the job you did not start that morning. That cost is incurred later and caused now, by this installation. If it is not in this job’s price it will be taken out of a future job’s gross profit, where it will look like a productivity problem rather than a pricing one.
- Manufacturer system warranties
A system warranty generally comes with conditions attached — specified components, an installer credential, registration, sometimes an inspection. Whichever of those apply to a given product, the components are direct job cost and belong in the takeoff, while the credential and its upkeep are fixed overhead. What actually qualifies is set by the published instructions and the warranty document for that specific product, and those govern — not a general method, and not what worked on the last brand.
- Deriving a callback reserve
If you can see what callbacks cost last year as a share of direct job cost, that percentage is a cost line this year. If you cannot see it, you are not pricing the obligation — you are hoping about it, and the hope is compounding. Common roofing defects is the catalogue of what actually generates the return visits.
Repairability
The commercial asymmetry is worth stating plainly: a defect found at in-progress inspection costs the labour to correct it, and the same defect found by a customer three winters later costs the labour, the trip, the tear-back, the interior damage, and the reputation. The price difference between those two moments is enormous, and it is the strongest financial argument for spending money on quality control — stronger than any appeal to craftsmanship, and it works on people the appeal does not.
What a warranty covers, what voids it, whether it transfers, and whether it is enforceable are set by the document itself and by the law of the jurisdiction. This page makes no claim about any of that and is not legal advice. Warranty and contract language should be reviewed by a lawyer in the state where the work is sold.
Eight questions to put to your own numbersSection link
None of these is answerable from memory. If a question below takes more than a minute to answer from records, that is the finding.
What did fixed overhead actually total last year, and what direct job cost did it sit on top of?
Those two numbers give you the overhead-recovery rate you needed last year. Everything else on this page is downstream of them, and neither can be estimated usefully.
Which cost lines am I calling direct, and did I call them the same thing every month last year?
A gross margin trend built on a shifting classification measures your bookkeeping rather than your work. Pick a line, write it down, and stop moving it.
What is my burdened cost per productive hour, as distinct from per paid hour?
The gap between paid and productive is where travel, loading, weather, training, and callbacks live. Estimating against the paid rate understates labour by the whole of that gap.
When I say twenty percent, is the denominator cost or price — and does everyone who quotes here use the same one?
Two estimators using the same word for different denominators will produce systematically different prices for the same job, and nobody will be able to see why.
What did my last ten jobs actually cost, against what I estimated?
A markup is only as good as the cost it is applied to. Without actuals, the arithmetic on this page will make you precise about a fiction.
What did warranty callbacks cost last year, and which line of this year's price carries them?
If the answer is “no line,” the obligation is being funded out of future gross profit and will read as a productivity problem when it arrives.
If this year comes in thirty percent short of plan, what multiplier does that require?
Overhead recovery is volume-dependent. Knowing the slow-year multiplier in advance is the difference between repricing in March and discovering the problem in December.
Which competitor's scope have I actually read, as opposed to heard a number about?
Almost always the honest answer is none. That is the answer that should end the conversation about matching the price.
Separate these lines before the estimate becomes a price
- Direct job cost, itemised, with labour shown as burdened hours rather than as wages
- Overhead recovery, shown as a rate you can re-derive from last year's overhead and this year's planned volume
- Intended profit, as its own line, so a discount is visibly a decision about profit rather than a rounding
- Contingency, named as contingency, with the condition that releases it
- Deck replacement and other unknowns as a unit price plus an included quantity, not as a lump sum guess
- Exclusions, in the customer's words, so the scope difference against a cheaper bid is legible
What people believe about pricing, and how it actually failsSection link
Common misconceptions
Common belief
A twenty percent markup is a twenty percent margin.
What is actually true
It is a 16.7 percent margin. The gap is 3.3 points of revenue and a quarter of the gross profit. This is the single most expensive arithmetic error in small-contractor pricing, and it is entirely mechanical — it has nothing to do with judgement, market knowledge, or how well you sell.
Common belief
Ten percent for overhead and ten percent for profit gives me ten percent profit.
What is actually true
Applied as a markup on cost, ten and ten is a 20 percent markup and a 16.7 percent margin. Whether ten of those points actually covers your overhead depends on your overhead as a share of your direct job cost, which is a fact about your year and is very unlikely to be exactly ten percent. Ten-and-ten is a shorthand that gets copied from one estimating template to the next. Nothing about it makes the first ten points equal to your overhead, and nothing about it turns the second ten into a margin.
Common belief
Overhead is a percentage.
What is actually true
Overhead is a dollar amount. It becomes a percentage only when you divide it by a volume, and the volume in that division is a forecast. Two identical companies with identical overhead need different markups if one of them is going to have a slower year.
Common belief
If we are busy, we are making money.
What is actually true
Busy measures direct job cost. Profit is direct job cost times the markup rate, minus overhead. At a 20 percent markup, $180,000 of overhead requires $900,000 of direct job cost — $1,080,000 of revenue — before the first dollar of profit. At the 28 percent markup the same business actually needed, the break-even is $642,857 of direct cost and $822,857 of revenue. The pricing error moved break-even up by more than a quarter of a million dollars of revenue, and every week of being busy below that line makes the year worse, not better.
Common belief
I have to match the low bid or I lose the job.
What is actually true
Sometimes you do lose the job, and that is a legitimate outcome. But you cannot match a price whose scope you have not read, and the case below is that the low number is more often a different scope than a different price.
How it actually fails
- Markup applied, margin reported
- The estimating system applies a multiplier to cost; the financial statements report a percentage of revenue. Nobody reconciles them, so the shop believes it is running at the markup rate and the accounts show the margin rate.What you can see: Year-end gross margin lands a few points below what the estimates said, every year, by roughly the same amount — which is the signature of an arithmetic error rather than of execution.
- Overhead recovery pegged to last year's volume
- The overhead-recovery rate was derived from a strong year and never re-derived. Volume falls; the rate does not rise to compensate.What you can see: Individual jobs cost out at the expected gross profit while the company as a whole loses money. Good jobs, bad year.
- The concession that removes half the profit
- A discount is granted at the kitchen table as a percentage of price, but it comes entirely out of gross profit. At a 20 percent gross margin, a 10 percent discount removes half the gross profit; at 15 percent off, three quarters of it.What you can see: Close rate improves and gross margin falls by more than the average discount, because discounts are granted more often on the jobs that were already thin.
- Change orders priced below the base contract
- Extra work is added at cost, or at a lower markup than the base contract, because it feels like a favour and it is already on site.What you can see: Revenue per job grows while gross margin per job falls. The additional work carries no overhead recovery, so it dilutes.
- Reclassification that flatters the gross margin
- A cost is moved between direct and overhead — commonly vehicles, the foreman, or small tools — and the gross margin changes without any change in what was sold or what was spent.What you can see: Gross margin improves in a period with no price increase and no productivity change. Check whether the chart of accounts moved.
Sources and further readingSection link
Understanding Roofing / Published
Scope and limitations
- It cannot tell you what to charge.
- It publishes no rate, no benchmark margin, and no market figure, because this site has no dataset that would support one and a published benchmark would invite you to price toward someone else's cost structure.
- It cannot tell you what your overhead is.
- Every worked example uses illustrative figures chosen to make an operation visible; none of them is an observation of any business.
- It cannot tell you your labour burden.
- The federal payroll figures below are current for 2026 and change annually; state unemployment rates, workers' compensation class rates, and experience factors are specific to you and come from your carrier, your state fund, or your state's rating authority — as does the answer to which basis your state rates on, payroll dollars or worker hours.
- It cannot compare your bid to a competitor's, because neither you nor this site has read theirs.
- The argument here is about what you can and cannot know, not about what any particular competitor did.
- It is not accounting, tax, or legal advice, and it makes no determination about worker classification, contract terms, payment schedules, retainage, lien rights, or warranty enforceability.
- Those vary by jurisdiction and by facts and belong with a qualified professional in your state.
- It publishes no OSHA compliance determination.
- Whether a standard applies to a given employer depends on the work, the employment relationship, and whether the state operates its own OSHA-approved plan.
Publication 15 (2026), Employer's Tax Guide (Circular E)
Internal Revenue Service / 2026 edition
That the social security tax rate on taxable wages is 6.2% each for employer and employee, that the Medicare rate is 1.45% each — a 7.65% employer share — and that the 2026 social security wage base limit is $184,500.
Federal payroll tax only. Rates and the social security wage base change annually, and this publication is superseded each tax year. It says nothing about state unemployment tax, workers' compensation, or any state payroll obligation, and it is not tax advice for any employer.
Tax Topic 759 — Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
Internal Revenue Service
That the FUTA tax rate is 6.0% on the first $7,000 paid to each employee in the year, that employers who paid state unemployment tax in full and on time may receive a credit of up to 5.4%, that the resulting rate after credit is 0.6%, and that employers in credit reduction states receive a reduced credit and owe more.
Describes the federal unemployment tax only. The state unemployment tax that generates the credit, and its own rate and wage base, are set by each state. Credit reduction status changes from year to year and must be checked for the current year.
Workers' compensation premium rate ranking by state
Oregon Department of Consumer and Business Services (state agency) / 2024 study; rates effective 1 January 2024
That workers' compensation index rates per $100 of payroll ranged from $0.50 in North Dakota (45% of the study median) to $2.52 in Hawaii (231% of the median), with Oregon at $0.89 (82% of the median).
The index rate is a weighted composite, not a roofing class rate and not a premium any employer pays. The full study PDF did not extract as readable text when fetched, so only the figures published on this agency summary page are cited; the detailed tables inside the report were not read.
About the study — workers' compensation cost
Oregon Department of Consumer and Business Services (state agency)
That the index rate is a weighted average using “a consistent mix of 50 major risk classifications, across all states,” that “the weights used in the average are the most recent available Oregon payrolls for each class; thus the mix varies slightly from study to study,” and that Oregon has run the study in even-numbered years since 1986.
A methodology summary, not the study itself. It does not name the 50 classifications or publish the weights.
29 CFR 1926.501 — Duty to have fall protection (Part 1926, Subpart M)
U.S. Occupational Safety and Health Administration
Paragraph (b)(13), that each employee engaged in residential construction activities 6 feet or more above lower levels shall be protected by guardrail systems, safety net system, or personal fall arrest system unless another provision of paragraph (b) provides an alternative measure; and paragraph (b)(1), the same 6-foot trigger at unprotected sides and edges.
Federal standard text. Applicability depends on the work, the employment relationship, and whether the state operates its own OSHA-approved plan; a state plan must be at least as effective and may be more stringent. Nothing cited here is a compliance determination for any employer.
Fall Protection in Residential Construction — guidance
U.S. Occupational Safety and Health Administration
That “falls are the leading cause of death for workers engaged in residential construction,” and that a written fall protection plan is an alternative only where the employer can demonstrate that the required protection is infeasible or presents a greater hazard.
Guidance, which the page itself says creates no new legal obligations beyond the existing standards. It is not a determination about any employer or any job.
State Plans
U.S. Occupational Safety and Health Administration
That State Plans are “OSHA-approved workplace safety and health programs operated by individual states or U.S. territories” that “must be at least as effective as OSHA in protecting workers and in preventing work-related injuries, illnesses and deaths.”
Identifies which jurisdictions run their own plan and the standard they must meet. It does not tell you what any particular state plan requires, which is on that state's own agency site.
Final rates — workers' compensation rate notice
Washington State Department of Labor & Industries (state agency)
That the rating basis for workers' compensation is jurisdictional: “In most states, rates are charged as a percentage of payroll,” while “in Washington, rates are charged as an amount per hour.”
Washington only. It describes how Washington expresses its rates; it does not price any employer's premium, does not say how any other state rates workers' compensation, and does not cover self-insured employers.