1.5 Labor Production Rates, Overhead, Profit, and Roofing Bid Pricing

Labor Production Rates, Overhead, Profit, and Roofing Bid Pricing

Quick Answer: A roofing bid is built in four moves: quantify the work (squares and linear feet), price the material, price the labor at a fully burdened rate driven by realistic production rates, then add job overhead, recover general overhead, and apply profit as a margin, not a markup. The single equation to remember is $\text{Price} = \text{Total Cost} \div (1 - \text{desired margin})$. Multiplying cost by one plus the margin is the classic underpricing error: a 20 percent markup on cost returns only about a 16.7 percent margin.

Estimating is 22 percent of the C-39 trade exam together with planning, and it is also tested on the Law and Business exam under bidding and cost control. Questions are computational, and the arithmetic is unforgiving.

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1. Production Rates: Converting Squares into Crew Hours

A production rate is squares (or linear feet) a defined crew completes in a defined time under defined conditions. Published rates are starting points; every contractor calibrates them against their own job-cost history.

The Factors That Actually Move the Number

• Slope. Above roughly 6:12 crews slow markedly; above 8:12 staging, roof jacks, and continuous fall protection can cut production by a third or more.
• Height and access. Second and third stories add ladder and hoist cycles to every bundle and every bag of debris.
• Layers. Tear-off hours scale close to linearly with the number of existing layers.
• Geometry. Valleys, hips, dormers, chimneys, skylights, and equipment curbs consume detail labor that a squares-only estimate never sees. Count them separately in linear feet and each.
• Weather. Heat-illness procedures at 95°F and above, and short winter daylight, both shrink the productive day.

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2. Fully Burdened Labor Cost

The wage is never the cost. Burden the wage with everything the employer pays on top of it.

$\text{Burdened Rate} = \text{Base Wage} \times (1 + \text{Burden \%})$

The components a California roofing contractor must burden into the rate:

• Employer FICA (Social Security and Medicare)
• Federal unemployment tax (FUTA) and California unemployment tax (UI)
• California Employment Training Tax (ETT)
• Workers' compensation premium — the dominant burden item in roofing. Roofing carries one of the highest classification rates in California construction, and it is charged per $100 of payroll, then adjusted by the employer's experience modification.
• General liability premium allocated to payroll
• Any benefits: health, vacation, holiday, training

Worked Example

A journey-level roofer at a $32.00 base wage, with a workers' compensation rate of $28.00 per $100 of payroll, statutory payroll taxes of about 10 percent, general liability allocated at 3 percent, and no benefits:

$\text{Workers' comp} = 32.00 \times 0.28 = 8.96$ $\text{Payroll taxes} = 32.00 \times 0.10 = 3.20$ $\text{General liability} = 32.00 \times 0.03 = 0.96$ $\text{Burdened rate} = 32.00 + 8.96 + 3.20 + 0.96 = \mathbf{45.12 \text{ per hour}}$

That is a burden of about 41 percent. Bidding this crew at $32.00 loses $13.12 every hour the crew is on the roof. Note that the comp rate and experience modification are specific to the employer and the year — never carry a stale number into a new bid.

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3. Job Overhead vs. General Overhead

Job (direct) overhead is caused by the specific project and is charged to it: permit fees, plan check, dumpsters and dump fees, crane or conveyor rental, portable toilet, temporary protection materials, fuel and truck time, job-specific supervision, and any required bonds for that project.

General (indirect) overhead is the cost of being in business whether or not that job exists: office rent and utilities, office staff, owner's salary, accounting and legal, CSLB renewal, vehicle insurance, advertising, software, and training. It is recovered as a percentage applied across all work.

$\text{General Overhead Rate} = \frac{\text{Annual General Overhead}}{\text{Annual Revenue}} \times 100$

A contractor with $180,000 of annual general overhead on $1,200,000 of revenue carries a 15 percent general overhead rate. Every bid must recover 15 percent of its price toward that pool before a dollar of profit exists.

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4. Markup Is Not Margin

This distinction is tested directly on the Law and Business exam and it is the most common pricing error in the trade.

• Markup is a percentage added to cost.
• Margin is a percentage of the selling price.

$\text{Margin \%} = \frac{\text{Price} - \text{Cost}}{\text{Price}} \times 100 \qquad \text{Markup \%} = \frac{\text{Price} - \text{Cost}}{\text{Cost}} \times 100$

On a $10,000 cost marked up 20 percent, the price is $12,000 and the gross profit is $2,000 — which is $2{,}000 / 12{,}000 = 16.7$ percent margin, not 20 percent. To actually earn a 20 percent margin:

$\text{Price} = \frac{10{,}000}{1 - 0.20} = \frac{10{,}000}{0.80} = \mathbf{12{,}500}$

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5. Building the Complete Bid

A residential tile reroof, worked end to end:

1. Material, delivered and taxed: $14,200
2. Labor: 380 crew-hours at a $45.12 burdened rate = $17,145.60
3. Job overhead: permit $410, dump fees $960, crane $1,150, portable toilet $180, fuel and truck $340 = $3,040
4. Total direct cost = $14,200 + $17,145.60 + $3,040 = $34,385.60
5. General overhead at 15 percent of price and profit at 10 percent of price = 25 percent of price, so the cost is 75 percent of the price:

$\text{Price} = \frac{34{,}385.60}{1 - 0.25} = \frac{34{,}385.60}{0.75} = \mathbf{45{,}847.47}$

Bid it at $45,850. Note what the equation does: it treats overhead and profit as slices of the price, which is the only way the percentages come out true when the invoice is paid.

Two Guardrails

• Contingency is not profit. If the deck condition is unknown, either exclude deck repair and price it as a documented unit-price change order, or carry an explicit contingency line — never hide it in the profit percentage.
• Never price to beat a competitor you have not seen. A bid that is 30 percent under the field usually means a scope difference, not an efficiency advantage.