Deep dive: Job Costing 101
Job Costing 101
What is Job Costing?
Job costing is tracking all of the costs and revenue tied to a unique project, product or service.
Every job you’re tracking can basically be summarized into five buckets:
Revenue: All payments and revenue brought in for that job.
Materials: All materials and parts needed and purchased to complete a specific job.
Direct Labor: All hours that the field crew has spent on the job at their loaded cost (wages plus taxes and benefits).
Subcontractors: Any subcontractor you hired to do any part of it.
Other job costs: permits, fuel, dump fees, etc.
Add those up and subtract it from the job price. That’s your gross profit. Divide it by the price and you have your gross margin.
Here’s an example of what this actually looks like in practice. The numbers in this example are made up to show how it works.
A concrete contractor bids a 1,000 sq ft driveway for a homeowner.
The customer paid on time so it felt like a good job. But the project actually came in 11 points under what it was bid. If overhead runs about 25% of revenue, you were under on that job and didn’t know it.
How to Job Cost (High level)
Assign every job its own project Id: All costs and revenue must be tied to a job or it can’t be tracked.
Build a budget: Break your estimate into the four buckets above: materials, labor hours, subs and other costs.
Tag every cost to a job as it happens: Materials purchases, sub bills and equipment rentals all get assigned to a job. Have the crew track hours by job, not just hours worked.
Compare budget to actual: Check on jobs weekly and do a final review when the job closes. What was the estimate, what did it cost and what’s the gross margin?
Feed it back into pricing: If you’re consistently coming up under on your margin target then that signals a pricing problem.
A few common mistakes I see
Tracking materials and costs but forgetting to add in labor
Not using labor rate paid instead of loaded labor rate
Not assigning jobs its own unique project # so project costs are lumped together
Waiting until the project is finished to review the numbers instead of reviewing them throughout.
What’s Next
This issue is about the “why” and the “what”. In a future issue, I’ll walk you through exactly how to do this in QuickBooks Online.
Until then, pick one job you have open right now and run it through the five steps I listed above. Even a rough budget vs. actual on one job will tell you more than you already know today.
If you don’t know where to start, that’s what this week’s Tool of the Week is for.
Tool you can use: Job Costing Calculator
This week’s tool is one I built to go with the deep dive: a simple and free job costing calculator.
Enter the job price and your product costs (materials, labor and other job costs) and it gives you the gross profit and gross margin on the job.
Here’s how to use it:
Run your estimate through it before you bid. You’ll know where your gross margin is before you send it to the customer.
Run the actual numbers through it when the job closes. Compare the two margins side by side. Even a single job can show you where you are slipping, whether it’s materials, labor hours or the other little items like fuel.
Pick your most recent job and start there.
It only takes a few minutes to fill out and you’ll have a much better idea of where you stand.
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’Til next time, cheers!
Preston