Bid Margin Erosion on a Two-Level Roof
A roofer bids a 40-foot by 28-foot main gable at 6:12 and a 20-foot by 16-foot lower roof at 4:12. There are two valleys, eight penetrations, and two layers of tear-off. The estimator uses 18 squares, prices the job at $425 per square, and then adds 18% overhead and 12% profit to the selling price. Actual material cost is $3,200, labor is $2,800, and disposal is $600. The crew later discovers 15% waste from valleys and cuts. The homeowner wants a fixed price and a 10-year workmanship warranty. The roofer has one crew, three working days, and a $2,000 deposit. The roofer's target is a 12% net profit on sales, not on cost, and wants to know whether the bid is too low.
1. Calculate roof area in squares, including pitch, and compare with 18 squares.
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Main footprint = 40 × 28 = 1,120 sq ft; 6:12 pitch multiplier = sqrt(1 + 0.5²) = 1.118; roof area = 1,252 sq ft. Lower footprint = 20 × 16 = 320 sq ft; 4:12 multiplier = sqrt(1 + 0.333²) = 1.054; roof area = 337 sq ft. Total = 1,589 sq ft = 15.89 squares. With 15% waste = 18.27 squares. The 18-square estimate is slightly low even before starter, ridge, and valleys; order at least 19 squares and verify actual field measurements. Two-layer tear-off is 31.8 squares of disposal, not 18.
2. Determine correct selling price for 12% profit on sales given costs, and explain markup vs margin.
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Direct cost = $3,200 + $2,800 + $600 = $6,600. Overhead at 18% of direct cost = $1,188; total cost = $7,788. To earn 12% profit on sales, price = $7,788 / (1 - 0.12) = $8,850. The estimator's method, adding 18% then 12% to cost, gives $6,600 × 1.18 × 1.12 = $8,722.56. Profit is $934.56, or 10.7% of sales, not 12%. The difference is $127.44. Markup divides by cost; margin divides by price. For a target margin, always divide by (1 - margin).
3. Recommend how to handle waste and warranty risk.
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Price 19 squares plus accessories, not 18. Carry a 15% waste factor for the valleys and cuts; add starter, ridge, drip edge, ice barrier, and boots. Use a fixed price with a written decking allowance (for example, first 10 sheets included, additional sheets at $95 each). Include a 10-year workmanship warranty only if the manufacturer's ventilation and installation requirements are met; state exclusions for deck movement and existing defects. Do not absorb the risk by cutting labor. A $2,000 deposit should be applied to materials, with progress payments after tear-off and dry-in.