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2018 Metal Roofing Cost of Doing Business Survey

Our second survey of metal roofing activity reveals new results

2018 Codb 12

For the second year, Metal Construction News has conducted a survey of contractors to find out more about the role metal roofing services play within their businesses. For some, metal roofing is the only service they offer, and they call themselves metal roofing contractors. Even though that’s fairly obvious, we were curious about how much of their work was residential or commercial, and how they performed financially.

For other contractors, such as general contractors, metal building contractors and general roofing contractors, the same questions hold true, but the responses are much more nuanced. We had to compare their metal roofing services to the overall roofing offering they handle.

The result of this survey is a broader understanding of the kind of work each contractor performs as well as comparisons between commercial and residential services.

The Study

The audience for the survey came from three contributors who supplied lists totaling nearly 14,000 contractors. The majority of names came from the MCN subscription lists, which is a qualified list of contractors who work in the metal construction industry and is audited by a publishing industry group called BPA Worldwide. The other lists came from partners: the Metal Roofing Alliance and the Metal Building Contractors & Erectors Association.

We used an independent survey company, Readex Research, who worked with us to create the 19-question survey, and conducted the survey by email. The survey ran between February 14 and March 9. Participants also were entered to win a $250 gift card. Of the respondents, we had 166 usable surveys.

Who Are these People?

The percentages of respondents to our survey this year is about the same as it was in 2017. Nearly 40 percent say they are general contractors. (See Figure 1 below.) Another 37 percent call themselves roofing contractors, with more than half saying they are metal roofers (20.6 percent of the total respondents). The other significant group of participants is metal building erectors, who represent 13.1 percent of the total. This group is particularly interesting because the installation of metal roofing is wrapped so closely with the overall project that it’s hard for them to break out direct costs just on the roofing side unless they are stringent in their cost control accounting procedures.

Figure 1

By far the Midwest represented the largest proportion of our participants (39.2 percent). (See Figure 2.) Adding that to the South’s participation at 30.4 percent and you have nearly 70 percent of the respondents from just half the country. This is a significant difference from last year when the representation was nearly equal across the country. For reference, here are the states in each region:

East: N.Y., N.J., Del., Conn., Mass., R.I., Vt., Pa., W.Va., Maine, Md., Washington, D.C.
South: Va., Ky., Tenn., Ark., La., Miss., Ala., Ga., N.C., S.C., Fla., Okla., Texas
Midwest: Minn., Iowa, Mo., Ill., Wis., Mich., Ind., Ohio, Neb., S.D., N.D., Kan.
West: Idaho, Mont., Utah, N.M., Ariz., Colo., Wyo., Calif., Nev., Ore., Wash., Hawaii, Alaska

Figure 2

Most of the survey respondents report they have organized their companies legally as limited liability corporations (LLC) at 37.5 percent. (See Figure 3.) Just about a quarter report they are either a regular corporation (C Corp) or an S corporation. Only 15 percent report they operate as sole proprietorships, which generally are much smaller companies. Compared to last year, the number of companies reporting as LLCs increased and the number indicating sole proprietorship decreased.

Figure 3

In the 2017 survey, only 3.4 percent of respondents indicated they were union shops. That increased this year to 11.3 percent and if you include dual shops it totals nearly 15 percent. (See Figure 4.) The vast majority of companies are unaffiliated with unions, with nearly 60 percent of respondents selecting that option and another 27.5 percent indicating they operate as neither open, union or dual shops.

Figure 4

The survey covered the year 2017 and as we already know from other economic reports it was generally a good year for construction. Our respondents echo that sentiment. Less than 20 percent report decreases in revenue in 2017 compared to 2016. (See Figure 5.) And if you compare this year’s respondents who say revenue remained about last year’s, you see a marked decrease. One other difference in the two surveys is the number who reported significant increases in revenue. Last year that totaled 16.5 percent, while this year 25.9 percent of survey takers said their revenue went up significantly year over year.

We were also surprised by the gross profit changes between 2016 and 2017. Of those reporting revenue or gross profits increased somewhat, 38 percent revenue went up while 44.6 percent reported increases in gross profits. That would indicate that while companies are growing, more importantly they are improving their profit picture.

Figure 5

What Is a Metal Roofer?

If you look at the Standard Industry Classification (SIC) codes used by the U.S. Census Bureau, you will not be able to find a classification for a metal roofing contractor. You can find roofing contractors and whether they are commercial or residential. You can also find sheet metal companies. Because of that, we have to rely on self-reporting when we called a contractor a “Metal Roofing Contractor.” The 20.6 percent of our respondents who indicated they are metal roofing contractors are easy to report on. But it’s understanding the metal roofing installation from the other group that requires finesse.

We like to use the example of the self-identified roofing contractor who does $15 million in annual revenue, of which $2 million is in metal roofing. When compared to a self-identified metal roofing contractor who does less than $1 million in revenue, you begin to understand the difficulty of wrapping our arms around the industry. This is especially important for manufacturers and suppliers of metal roofing who want to determine the best place to target their sales efforts. In fact, going a step further, companies looking to invest in this industry can struggle to evaluate a reasonable return on that investment because of this uncertainty.

For our survey, we require that respondents report having earned revenue on a metal roofing project in 2017 to qualify. So, while the number of total respondents to the survey was substantially higher, only 166 qualified. From that group, we are able to compare and contrast.

By looking at the types of projects contractors who do metal roofing complete, we can get a better picture of the breakdown of the industry and where the activity is. In Figure 6, we have charted contractors who did at least one project by each market segment. Of our respondents, nearly 85 percent did at least one metal roofing project in the commercial segment, but just over 50 percent did a non-metal roof.

That indicates there is substantial overlap of metal and non-metal roofs among contractors doing commercial roofing projects, and is nearly identical to the reporting from last year. A number of things changed from one year’s survey to the next, including regional representation, overall participation and where we procured the lists of prospects. But the consistency in this reporting would strongly indicate that these numbers hold true across the industry.

We saw the same kind of consistency in the residential market. 63.3 percent of respondents said they did residential metal roofing, and 47.5 percent said non-metal roofing. While the overlap is greater among contractors in the residential market, its steadiness year-over-year suggests that these numbers are industry wide.

  The difference between commercial and residential isn’t surprising. Contractors serving the residential market are more likely to offer other services. What we can’t fully understand from our survey, though, is whether these companies self-identify as commercial or residential contractors. Industry standard would suggest they do concentrate in one area or the other, but we also know that some companies cross over from commercial to residential. Our survey doesn’t indicate how widespread that phenomenon is.

Figure 6

Last year, we reported from the survey that the mean number of projects completed each segment showed even more overlap. Companies doing any kind of project were just as likely to do a non-metal roof as a metal roof. But the respondents to this year showed a significant change in that reporting. Among our respondents doing new commercial roofing work, more did metal roofing than non-metal roofing by a significant margin. (See Figure 7.) The mean number of new commercial metal roofing projects among survey takers in 2017 was 6.9 compared to only 4 non-metal.

In fact, across the board, our respondents reported doing more projects of all types this year than reported last year. That may be an indication of an increase in construction activity or just a variance in the types of respondents. Larger companies may have participated at a higher rate than they did last year. The exception to that is the residential retrofit project. Last year, respondents reported they did a mean of 6.3 residential retrofit projects in 2016. This year, the respondents reported doing only 5.3 residential retrofit projects in 2017. Given all variances already described from year to year, this would indicate a change in participation, not activity.

Looking at commercial retrofit activity, our respondents did slightly more non-metal roofing than metal roofing.

The new residential market activity also changed significantly from last year’s survey. Overall, the number of projects reported increased for new residential metal roofing, but stayed the same for non-metal residential roofing. That made the differences between the metal and non-metal more noticeable. It should be noted, though, that the residential roofing market is predominantly a retrofit market and that is even more noticeable in the metal roofing industry.

Figure 7

We also looked at the types of companies doing the roofing activity. (See Figure 8.) The table tilts heavily toward metal roofing contractors, especially in the residential retrofit market. Metal roofing contractors completed 17.2 residential retrofit projects in 2017. They also completed more new residential metal roofing projects than any other type of contractor.

If you look at the mean number of projects completed by companies self-identifying as roofing contractors, you will see that the leading type of project our respondents did in 2017 was residential retrofit. The other types all fell to about the same level. This gets to the heart of the idea of what a metal roofing contractor is. These companies, who don’t indicate they are metal roofing contractors, still complete a significant number of metal roofs. Manufacturers and suppliers interested in reaching the metal roofing market and are only focusing on the self-identified metal roofing contractors are missing a significant portion of the market.

Figure 8

When you look at contractors who did metal roofing projects in 2017, and ask them how many non-metal roofs they installed, you are not surprised to see that companies that identify as roofing contractors did a lot of non-metal roofs. (See Figure 9.) Clearly, roofing contractors see metal roofing as only a portion of their overall services.

Figure 9

Where Does the Money Come From?

How does this activity breakdown into revenue for companies?

More than 55 percent of the revenue derived by our respondents for roofing projects comes from the commercial market. (See Figure 10.) A third comes from residential and the remainder comes from other projects, such as industrial. This matches almost identically the results from last year’s survey. While not an indicator of the proportion of the market, this does show that companies who say they do metal roofing are getting most of their revenue from commercial work. For some companies that may be all their revenue, but other companies are clearly providing metal roofing installation services across markets.

Figure 10

You can see a further refinement of this thought in Figure 11. Roofing contractors get roughly equal amount of revenue from commercial and residential projects. Metal roofing contractors clearly get more revenue from commercial projects with very little coming from either residential or other. Even general contractors derive most of their revenue from commercial. Part of this may be the number of projects they do in each market (see Figure 7 for the mean number of projects) or the size of the projects they install. Commercial projects are larger and more expensive than residential projects. 

Figure 11

How Big Are the Projects?

The mean size of a commercial metal roofing project is 21,500 square feet, according to our respondents. (See Figure 12.) When you break that down into the relative sizes, more than 40 percent are smaller than 10,000 square feet. Add in the next cohort, and we can say that nearly three-quarters of commercial projects are smaller than 25,000 square feet.

Figure 12

The same kind of ratios hold true with residential metal roofing projects where the mean size is 2,510 square feet, but the very small projects—less than 1,500 square feet—are not as prevalent. (See Figure 13.) The major cohorts on residential are between 1,500 and 4,000 square feet, which represent about 70 percent of the total market. Remarkably, though, 10 percent of the residential metal roofing projects are larger than 4,000 square feet. Those are big houses.

Figure 13

Looking at project sizes across the country (see Figure 14), we saw considerable variation among metal roofing projects in the commercial market. The national mean for a metal roofing project is 21,500 square feet, which was up from the 18,500 square feet reported last year. But in the South that figure is considerably lower at 17,7000 square feet. The largest projects occur in the Midwest, with a mean of 26,3400 square feet, which is the region where the largest projects were reported last year.

Figure 14

On the residential side (see Figure 15), the variation is far less noticeable. One reason for the difference is that the average size home is relatively constant across the country, although metal roofing projects on homes in the East (2,280 square feet) tend to be much smaller than the other regions.

Figure 15

How Big Are the Companies?

We asked respondents to report their revenue for all roofing projects and for metal roofing projects for 2017. The metal roofing revenue is a subset of the all roofing revenue, although these numbers can give us an idea of the amount of metal roofing activity among all roofers.

The mean revenue for all roofing projects among our respondents was $2.36 million in 2017. Of that total, $834,000 was for metal roofing projects. (See Figure 16.) Those revenue numbers closely mirror reporting from last year’s study and put metal roofing revenue at 35.3 percent of the total revenue.

Figure 16

By region, that revenue showed considerable variance, especially for all the roofing projects. (See Figure 17.) Companies in the Midwest had a mean revenue of $2.9 million for all roofing projects with $912,000 coming from metal roofing. That ratio of metal roofing revenue to total revenue closely matches the national average at 31.4 percent.

The Midwest was the outlier in the regions, with the others having roughly the same total revenue numbers. The East, though, had a much lower metal roofing revenue mean compared to the other regions. As mentioned, the project size was also smaller, which could account for some of that. But if total revenue was in line with the other regions, the smaller metal roofing revenue cannot be accounted for by project size. The ratio for the East of metal roofing revenue to total revenue was 23.7 percent, compared to 36.6 percent for the West and 44.8 percent for South. Clearly, while the South didn’t report as much roofing activity as regions, contractors there were far more likely to do metal roofing projects.

Figure 17

For the most part, roofing contractors tend to specialize in commercial or residential roofing, although many will take on projects in the other market segment. We looked at companies that reported getting more than 50 percent of their revenues from one segment or the other, and called them “primarily commercial” and “primarily residential” contractors.

When you analyze the size of those companies (see Figure 18), you can see that the mean revenue for commercial roofing projects for companies doing primarily commercial was much higher than residential projects for companies doing primarily residential. Although, companies doing primarily residential had a much greater proportion of metal roofing work than primarily commercial: 40 percent for primarily residential and 33.1 percent for primarily commercial.

Figure 18

The final element of company size we investigated was comparing roofing revenue by contractor type. (See Figure 19.) To no one’s surprise, the mean revenue from roofing projects ran higher for roofing contractors, whether metal or all roofing, than it was for either general contractors or metal building contractors.

For metal roofing projects, the mean revenue was highest for metal roofing contractors, and it was a much larger percentage (65.6 percent) of all roofing than any other contractor types. 

Figure 19

How Many People?

Of course, revenue is only one measurement of the size of a company. Many people look at number of employees as a good measure. That will also allow analysts to determine other metrics such as revenue per employee. Our data is not sufficient to get to those benchmarks in part because the metrics for a general contractor will be different than those for a metal roofing contractor or roofing contractor. However, it’s still illustrative to compare numbers.

Our first comparison is field, office and sales staff for both full time and part time. (See Figure 20.) Among our respondents, the mean number of full-time field employees came in at 14.9, 5 for office staff and 2.1 for sales. That’s a total of nearly 22 full-time employees, and it closely matches the reporting from last year’s survey.

Part-time employees across all categories totaled a mean of 2.4 employees, which was well below the 3.2 reported last year. It could be contractors are more willing to take on a full-time employee in an expanding market, which would reduce the number of part-timers. Looking at the percentage of part time to full time, you can see that for field, 16.1 percent of employees were part time, which was equal to last year. For office it was 12 percent, and for sales it was 14.3 percent, both of which were roughly equal to last year’s survey numbers.

Figure 20

In our survey, roofing contractors employed the most full-time employees (25) with general contractors (14.2) employing the second most. The general contractor field number is a considerable decrease from last year’s survey. That was surprising considering that across the board, general contracting revenue and other metrics closely matched last year’s survey. It’s speculative, but it could be that general contractors are relying more on trade contractors and doing less self-install work, although that does seem to be against reported industry trends from other sources. (See Figure 21.)

As a percentage of employees, general contractors employed far more office staff (44.7 percent) than the other contractor types. In fact, because of the reduction in field staff reported this year, that percentage has taken a huge increase, up from 27.8 percent reported last year. 

Figure 21

Where Does the Money Go?

Of particular interest in our survey was identifying some financial information that we could then start benchmarking performance against. Respondents were generous in sharing this information, but it should be taken with a bit of caution. The more detailed our request, the lower the response rate. We also made one big change from last year. Instead of asking for specific dollar amounts for such accounting categories as direct construction costs, we asked for a percentage of revenue. This may have caused some confusion and one respondent noted he just wasn’t able to finagle these numbers out of his accounting system.

The most complete information falls within the area of direct construction costs. Even with direct costs, there are considerable variances in how contractors measure that, especially from one type of contractor, such as a general contractor doing primarily commercial work, to a residential metal roofing company. The biggest variances can come in how the labor is burdened. Some companies place items such as medical insurance in overhead, while others put it as a part of the labor cost and therefore a direct cost.

Even with those caveats, though, we can identify some benchmarks and comparisons within the direct costs of metal construction.

Comparing mean direct construction costs for materials, labor and other direct costs between all roofing and metal roofing (see Figure 22), it’s apparent that the numbers are nearly identical. Last year, there was a great variance with labor and materials for metal roofing projects.

Figure 22

When we look specifically at metal roofing costs by contractor type (see Figure 23), we noticed that the numbers are remarkably similar, regardless whether it’s a general contractor, metal building contractor or roofing contractor. And, regardless of the project (see Figure 24), the direct construction costs come in nearly the same with little difference.

All three of these direct construction cost comparisons are significantly different than they were last year, which can probably be accounted for the use of percentages rather than actual dollar reporting. 

Figure 23

Figure 24

How Do Projects Get Sold?

Every job is sold. Someone, a company owner or salesperson, has to take action to get the work into the pipeline, and that requires a system to support it. He or she has to close the sale. There isn’t a contracting firm in the world that can sustain its business without a good sales program, and that program depends on the person to make the point-of-contact pitch. Who is doing that sales program can be considerably different depending on the type of business. A general contractor doing primarily commercial work is likely to have a salesperson who is highly technical and has deep construction knowledge. A residential roofing contractor focusing on the retrofit market may have a team of salespeople who have little technical knowledge but are highly trained and adept salespeople.

Salespeople are compensated can help identify what kind of salespeople we have in the industry. Our initial thought was that for the most part, salespeople in the construction industry, especially that part serving the roofing market, would most likely be all commission or a significant part.

Our survey suggests that 31.6 percent of our respondents compensate salespeople by salary only, which is a much smaller percentage than responded in last year’s survey. (See Figure 25.) Only 13.2 percent of salespeople are commission only. That is roughly equivalent to last year’s numbers. The big change over last year is the number of respondents who report they offer a combination of salary and commission. For the 55.3 percent that is a combination of salary and commission, we don’t have enough information to determine what part of their compensation comes from commission.

Figure 25

This year, we also looked at the responses sorted by contractor type, and the shift to a reliance on a combination of salary and commission was even more pronounced. Across the board, each type of contractor reporting its use of both compensation methods increased with the exception of roofing contractors. For those companies, there was a major shift away from both to salary only. A quick look at the chart (see Figure 26) shows that that group is the outlier from the other types of contractors.

In fact, metal building contractors is the only group that saw an increase in the reliance of commissioned compensation. Compare that to last year when they were least likely.

Figure 26

Last year, we were surprised to see little relative difference between primarily residential and primarily commercial contractors in terms of how they compensate sales employees. It’s generally an article of faith that salespeople in the residential market, especially, survive by their commission.

The numbers this year paint a slightly different picture. (See Figure 27.) In fact, what we learn is that the move from salary only to a combination of commission and salary exists almost entirely among commercial contractors. Residential contractors still rely more heavily on a commission-based compensation program than commercial, but not as highly as we anticipated. Only 29 percent of commercial companies are salary only and only 8 percent are commission only. The big growth, as stated, is in the use of both. Commercial contractors moved from 36 percent of companies last year to 62 percent this year. Even residential contractors increased their reliance on both compensation programs from 36 percent to 42 percent.

Figure 27

Conclusion

After two years of doing this survey, we think we’re closer to a better understanding of the market and how individual companies work within it. The hardest obstacle to overcome in getting more information is probably contractors understanding more about what goes on inside their own companies. In the parlance of the industry, we ask, “Do they know their numbers?” Among smaller companies, without the accounting infrastructure or sophisticated job costing programs, it’s very difficult to get that kind of information.