Key takeaways
- Company-wide profit can look healthy while individual jobs lose money. Job costing shows which is which.
- Labor is the cost contractors most often undercount. Include payroll taxes and benefits, not just hourly wages.
- Compare actual costs with your estimate during the job, not after it closes, so you can still act.
- Accurate job costs make your next estimates sharper and support the WIP reports lenders and bonding companies ask for.
What job costing is
Job costing is a way of organizing your books so each project has its own profit and loss. Every dollar of revenue and every cost is assigned to the job that created it.
Without it, all your jobs blend together in one company report. A profitable kitchen remodel can hide a commercial job that ran over budget, and you only find out when cash gets tight.
The costs to track on every job
| Category | What to include |
|---|---|
| Labor | Field wages plus employer payroll taxes, workers compensation and benefits for hours spent on the job |
| Materials | Lumber, fixtures, concrete and supplies purchased for the job, including delivery charges |
| Subcontractors | Payments to subs for work on the job, including retainage owed |
| Equipment | Rentals, plus an hourly or daily rate for company-owned equipment used on the job |
| Permits and fees | Permits, inspections, dumpsters, engineering and other job-specific fees |
Overhead such as office rent, insurance and admin salaries is not tied to one job. Many contractors allocate a share of overhead to each job using a rate based on labor hours or direct costs, so the job profit reflects what it truly takes to run the company.
How to set up job costing in your books
- Create a job, project or customer sub-account for every contract in your accounting software.
- Set up cost codes that match how you estimate, such as site work, framing, electrical and finishes.
- Load your original estimate as the job budget so you can compare actual with estimated costs.
- Tag every bill, receipt and credit card charge to a job and cost code when it is entered, not at month end.
- Have crews record time by job, and connect timesheets to payroll so labor flows to the right project.
- Record change orders as they are approved, updating both the contract value and the budget.
QuickBooks Online Plus and Advanced, Xero and dedicated construction platforms all support project tracking. The software matters less than the habit of coding every transaction to a job.
How to read your job cost reports
Review a job profitability report every month for every open job. For each one, compare three things: the contract amount, the estimated cost and the actual cost to date.
- Percent complete. Divide costs to date by total estimated costs to see how far along the job is financially.
- Over and under billing. Compare what you have billed with what you have earned based on percent complete. Billing far ahead or behind affects cash and how lenders view the company.
- Cost category variance. If labor is at 80 percent of budget but the job is only half done, you know where to look.
Those same figures feed a work in progress (WIP) schedule, the report bonding companies and lenders often request to assess open jobs.
Common job costing mistakes
- Coding costs to a general "materials" or "job supplies" account instead of a specific job.
- Leaving out labor burden such as payroll taxes and workers compensation.
- Forgetting to update the budget when change orders are approved.
- Waiting until a job closes to look at costs, when nothing can be changed.
- Buying materials for several jobs on one receipt and never splitting the cost.
Turning job costs into better estimates
After a job closes, compare the final costs with the original estimate by cost code. Patterns appear quickly: maybe framing labor always runs long, or a certain type of job never hits its margin.
Feeding those actuals back into your estimating is how contractors raise margins without simply raising prices. You bid with real numbers instead of rules of thumb.
This guide is general information, not tax or legal advice. Rules and thresholds change, so confirm details for your situation with your CPA. FirstFruits Financial keeps books accurate and tax ready and works alongside your CPA.