How to Avoid the Biggest Pricing Mistake in Roofing!

This famous phrase, that should cover it in roof pricing, it's costing you big money. I'm Adam Sand, CEO of the roofing business partner. Today you'll discover the four pricing pillars that turn guesswork into guaranteed profits. Trust me, this rebuilds your business.

One of the biggest problems I see in roofing this is in like smaller roofing companies, usually when they don't have a lot of overhead and so they can play a little more risky is they'll say that should cover it. That's like the biggest mistake. I remember so many times in meeting roofers that they would say, oh, 512, that's 500 a square, that should cover it. Oh yeah. I don't know exactly how many sticks of drip edge it's going to be. But like I know that if I budget it out at 500 a square, that should cover it. That should cover it is very dangerous language when it comes to how to price your roofing services. And the best analogy that I can give is I'd start to think about it kind of like a lemonade stand, right? It's like, it's just every business is very similar. If you have a lemonade stand, right? You need to know your material, your labor, your sales, your marketing, your overhead. So your ingredients are like your material, right? Like so your lemons and your sugar and stuff like that. That's like your shingles and your nails and your drip edge, right? And then your labor is like your in house labor, your subcontractors. But then you also have your cost of sales. Like what are you paying the salesperson to do the sales stuff? You have to account for that and the pricing of your roofing services. And then this is one that a lot of people miss is cost of disposal. Then what is the cost of your marketing? If you walk up to a homeowner and the price would maybe be 21,000, but you say 30,000 because you know that's high and that should cover it. So it's like if you get it for 30k then take it. But then if, if you don't get it, what is the impact of your cost of marketing? When you give people the fu price and then there was a delivery of materials because this starts to become levers that you can pull on to say, oh well, if we can self stock our own material, then we don't have to pay for delivery for certain things. How much money do we save? And then there was the administrative costs, right? What does it cost to just administrate the business? Because there's direct costs directly related to the job, and then there's the indirect cost, the things that aren't related to it. And then knowing the cost for each component. So you don't bundle this in. It's not part of your waste factor. You gotta be able to provide the right solution to your customer. There's multiple different roofing options. And so you wanna know your input costs first, and then from there have a system for pricing markups and margin. If you know you have to make a 40% margin, and you don't know the difference between markup and margin, but there is a difference. Markup is what you add to a price, and the margin is what you make because you marked it up. So they're two different things. Markup is an action and mar is an outcome. That 40% margin that you need to make is actually a 67% markup. And so if you take $100 and multiply it by 1.67, you charge $167. But then when you look at your gross profit margin, you made $67, which is a 40% margin. If you're not aware of the differences of that, I've met people who say, no, I make a 40% margin. I'm like, okay, what do you multiply your cost by? I go multiply by 1.4. Like, that's not a 40% margin. That's the reason you have no profit. So if there four elements of price, and the first one is cost, you have to know that. And if that felt like the basics, that's good that you're there. But then the next step is market. This is why we conduct a secret shop. I remember there was a period where we got like, five customers inside of Pittsburgh, Pennsylvania. I would say in the conversation, like, what's the number one challenge that you have? And they say, oh, well, my sales guys say, we're the highest price. We're the highest price in the market. And I'm like, how is it that we have five customers within 30 minutes of each other all telling us that they're the highest price in the market? Like, they can't all be the highest price in the market. They would tell me their salespeople say that, like, okay, your salesperson's job is to go into the house and sell the customer on the value of your services being excess of the price that they pay. That's how capitalism works. People only pay when they feel like they're receiving more value from the thing they buy than they receive from keeping the money so they choose to exchange the money for the thing that you're going to offer to do for them. That's every single transaction ever. And so if your homeowner is going into this conversation, their job is to sell you on the fact that you're not worth the money. It's their job to tell you that you're too high of a price. It's their job to lie and tell you that someone else is offering to them for less because that's the only way they know how to negotiate. So how do you know this to be an empirical fact, more so than just an opinion from weak salespeople? Like, that's the question I asked, and they didn't have good answers. So what we did was we took those five companies and we said, okay, we're going to create this fake roofing scenario. We're going to secret shop them right against each other on these five Airbnbs. And then we took the data from that. And so then we would measure the steps that they went through in their sales process. And we would have a secret shop calculator that we would use, which is this spreadsheet sheet that essentially we put the five houses on as tabs along the bottom. And then we would identify it as like an easy, moderate or difficult what type of house. It was like the complexity. So we kind of created some organization to it. And then we would say, okay, like what would we price this roof at? And then we'd say, okay, were they on time for their appointment? Did they get on the roof? Right. Did they take and share photos? What was their price and brand for the offers that they had? And then we would compare that to see, like, well, were they actually the most expensive? And turns out they were the most expensive on the out of town house, but they were the cheape on really complicated inner city house. Like, we would find out where they were the highest and where they were the lowest and where were the middle of the road. And we were able to then be able to say, your salespeople are wrong. And it's not that they're lying to you, it's just that the homeowner is doing a better job of selling them than they are of doing selling the homeowner. Which brings us to the next point of what are the elements of price, which is the ability to sell. We have this video on YouTube now, but it's like the ability to sell like a doctor, which really just comes down to can you convey value in excess of price? The last thing is the supply versus Demand curve. Like there's a supply and demand of the market and the number of leads. This is something that exists as well. What is the cost to get leads? That's changing. So along here you want to make sure if you have a great market with tons of leads and a pretty good sales process that puts out a lot of jobs, but you don't have many crews, your calendar goes out. So in theory, you're not meeting demand. You could also have a situation where you have a great market, tons of leads, but a poor sales process, and you're trickling jobs into your crews. You don't have enough work to keep your crews busy, so then they go seek other work. So if you end up in this situation where you've got a great market, lots of leads, a good sales process, you have a good close rate, but you don't have enough crews. Well, the one. There's the action of going to get more crews, but then how effective that action is is going to depend on your contract terms and your rate sheet price. You might find that if you have enough crews to do the work because you pay a little more, you might not have as big of a problem finding the labor to do the work. Your ability to attract and retain crews is huge. Because if you have lots of crews and not work, it's the same problem. The crews are probably still going to get the work, but they're going to get it from a different funnel, they're going to get it from a different roofer because someone else is going to sell the jobs that you can sell. That concludes the four different elements of price and how it impacts your business.