Roofing distributors looking to create win-win situations for themselves and their customers should examine new technology, communicate pricing changes and help contractors become more appealing to private equity firms, according to a new survey from software company ServiceTitan.

Released this week, ServiceTitan’s first “Exteriors Contractor Market Report” polled more than 1,000 exterior service contractors from a variety of geographical regions, business growth stages, and revenue levels to determine how contractors aim to grow their business. The majority of respondents listed roofing as their primary trade.

For the purposes of the survey, an “exterior business” was defined as roofing, gutters, siding, solar, windows, skylights, decks, doors, and insulation companies with more than $1 million in sales revenue and primarily serving residential customers (70%-plus).

The survey examined revenue and profit expectations, identified challenges facing contractors and explores trends that can help them achieve their goals.

State of the Industry

According to the survey, 77% of respondents said roofing will be the trade that is most likely to drive the majority of their annual revenue in 2024. They support this in saying roofing requires expertise, homeowners hire companies based on good reviews, and there is a growing demand for repairs to avoid future roof replacements.

The survey data shows most contractors' goals are to acquire new customers (66%) and grow revenue (65%). Half of respondents experienced revenue growth in 2023 and 51% expect revenue to remain the same or increase by up to 5% this year. Another 27% expect it to grow by 6% or more.

The biggest roadblock stopping contractors from being more optimistic is labor, with 57% saying workforce shortages may prevent them from achieving growth and success. To overcome these and other challenges, contractors look to streamline labor costs (64%), reduce turnover (38%) and increase technology use (27%).

“The residential service industry is undergoing rapid change, and businesses that lean into the current digital transformation are at a major advantage to accelerate revenue growth compared to their competition,” said Chris Petros, general manager of residential markets at ServiceTitan.

ServiceTitan-2024-Exteriors-Survey-Risks-Graph.jpgGraphs courtesy of ServiceTitan

Turning to Technology

ServiceTitan’s survey shows that contractors are continuing to recognize the importance of technology. About a third of respondents say technology is a long-term investment that can streamline their operations, with 30% seeing digital transformation and an online presence as a growth opportunity, while 29% plan on implementing tech-based solutions to increase profit.

Contractors are using technology to optimize business processes by minimizing time-consuming back-office work, and providing prompt customer service. Specifically, they turn to it for estimating (31%), project management (30%), and asset management (30%).

“Our industry's evolution hinges on technology,” said Matt Swanson, co-owner and co-founder at Washington-based Guardian Roofing. “Monitoring customer feedback in real-time is essential for any home improvement company trying to stay competitive in this market. Embracing such systems is crucial for staying ahead in the industry.”

Distributors can play a role in technology adoption by offering their own technology solutions to streamline deliveries and material orders. Contractors are also leaning on distributors as a primary source of information about the technology available to them.

When it comes to learning about the industry and networking, manufacturers and suppliers are near the top of the list. According to survey respondents, 29% of them rely on association websites, followed closely by supplier and manufacturer websites at 28%.

Among the emerging tech trends to inform contractors about is artificial intelligence. Survey results indicate just over 50% of contractors don’t see it as something that can or will impact their business. Of those that do, 25% say it will impact their marketing efforts. Scheduling and dispatching were the next two areas where contractors believe AI could affect business (24% and 21%, respectively).

It’s important for distributors to understand how AI can not only affect their customers but their own operations. It’s something Chris Arrington, senior vice president and chief credit officer at SRS Distribution, says is vital for the industry.

“[AI] is not going to be ‘you get to choose to have it,’ it’s going to be a need unless you can, in the next five years, soak up all the labor from all the other competitors and from different industries,” he said, later adding, “We want to use AI to pinpoint stuff, not only to make the supply houses successful, but if we get that information early and arm it with our talent, and they're trained for it? We can help make our customers more successful, too.”

Supply Chain 

Just below labor shortages, increases to material pricing and labor/overhead costs tie for the second biggest hurdle in achieving business goals, with 56% of respondents selecting them. The survey suggests that contractors desiring supply chain optimization can seek alternative suppliers for better rates or quality, or improve inventory management to reduce waste and storage costs.

The survey also suggests negotiating better terms with suppliers. Distributors can shine in this aspect by being open and transparent when communicating with their customers about material costs. Ensuring on-time deliveries will also help distributors stand out among their competition, thereby making their contractors more attractive compared to those who have to delay jobs.

Increasing Opportunities

While roofing distributors might not have the answer for labor woes, they can help with other opportunities their customers are pursuing.ServiceTitan-2024-Exteriors-Survey-Services-Graph.jpg

About 32% of revenue for roofing contractors comes from residential replacement jobs. Given the current economic conditions, homeowners are prioritizing “timely repairs” to prevent the need for full roof replacements. This means distributors could prioritize the supplies contractors need to make repairs in a judicious manner.

Contractors looking ahead at this year and 2025 are eyeing renovation and remodeling services as a business opportunity, with 47% considering it as a business venture. This is followed by adding a new location (34%) and diversifying into new services (32%).

For new services, roofing restoration is the most appealing to respondents, with 28% saying they’d like to pursue it. Solar is next at 26%, followed by siding at 20% and windows at 13%.

With this in mind, contractors will be looking to distributors to provide restoration- and solar-specific materials and supplies.

“Increasingly, residential contractors report engaging in a hybrid of maintenance work and repairs. This approach helps businesses navigate a challenging economy, while ensuring consistent revenue and long-term customer relationships,” the survey says.

Roofing and Private Equity

In recent years, private equity and acquisition activity has boomed in the roofing industry, with the survey observing similarities to what the HVAC industry experienced 10 years ago.

What does private equity in roofing have to do with roofing distribution? Simply put, private equity helps distributors’ customers do better business. The survey notes that private equity provides investor capital to contractors, increasing their financial security to potentially expand their business and become more competitive.

If distributors can help contractors bolster their reputations, marketing capabilities and ability to scale, contractors can then sell for high exit multiples. In other words, making a contractor more appealing for private equity can be a win-win.

The survey notes that as acquisitions increase in roofing, technology emerges as a must-have for private equity engagement. Roofing distributors looking to help contractors interested in mergers and acquisitions can do everything from help implement digital tools to improve scalable workflows.

“We’re also seeing increasing interest from private equity groups, in addition to acquisitions by contractors looking to expand into multiple trades and new locations,” said Petros. “I believe this trend of consolidation in the industry, coupled with new technology solutions that are adding value to exterior trades businesses, has the potential to increase revenue growth for the residential trades market substantially.”