For contractors, job costing is n’t a buzzword—it’s the cornerstone of profitable projects. The most profitable companies have an accurate view of their success because they know how much money they spend and how much money they make on each task.

This provides you with important information about the tasks you should be bidding on and which will ultimately cost you money. Without exact job costing, you probably have a sense of which jobs are the most profitable, but it’s finally an educated guess.

We’ve worked with various design companies over the years, and we’ve noticed a clear difference between what we think is true and what it actually costs.

” Back in the day, it was very popular to sit down with a Tool Manager who had state,’ We lose$ 200, 000 in equipment a year.’ Finally, you’d respond to the CFO, and he’d state,’ It’s at least half that,'” Craig McDonald | Align Technologies CTO.

Job costing can be used to solve that issue, but the difficulty with job costing is getting an accurate picture of how much money is spent on the job site given the volume of buying and moving components.

The good news? Your job costing should n’t be flawless on day 1. In reality, the most powerful companies we work with adopt a very realistic approach to job costing. We’ve seen contractors use five of the most popular and effective work costing tactics to increase revenue.

1. Begin job costing as soon as possible

Job costing might not seem like a pressing need when you’re just starting out as a small company handling one task at a time. You may use your bank account or only your head to record everything. But here’s the deal: once you start expanding your business, taking on more tasks and hiring a few employees, job costing either turns into your weakness or your secret weapon.

Businesses that employ effective job costing systems experience significant increases in revenue. Tonn & Blank reported that switching from files to their new job costing system by 80 % reduced the time and expense associated with using spreadsheets to create regular job costs. Another significant advantages of work costing are as follows:

    Stronger decision-making: Job costing provides in-depth knowledge of where your money is going and which jobs are the most successful. This data- powered technique helps you make informed decisions about future projects, asset allocation, and possible areas for cost savings.

  • Operational performance: You can detect problems and places where resources are wasted. This allows you to optimize procedures, optimize resource use, and eventually improve productivity.
  • Win more jobs: With reliable work costing information, you can place bids to get more jobs that you can be certain will bring in money for your company.
  • Better consumer relationship: Transparent and exact work costing builds trust with consumers. Plus, you can make sure that all your invoices are 100 % accurate.

2. Start wide and get more comprehensive

If you’re not currently work costing, finally getting started can feel tough, but it does not need to. You do n’t need to immediately dive into the depths. Instead, begin with just one of your largest changing charges, which for most companies are manpower, materials, and tools/equipment.

When you pick one of those types, start with the biggest collection items, such as your big technology or practical costs.

Once that set up is established and you are able to accurately compare your expenses to what you had budgeted, you can begin creating work costs for your other changing costs.

The key to success in the long run is to start early and refine your technique as you grow, which is not perfection.

3. Job value your work, tools, and equipment

Labor is typically the largest variable cost for contractors, but do n’t overlook your tools and equipment. Using accurate information to identify areas where you might be misunderstanding or undervaluing resources can result in significant savings by properly estimating all three of these factors. Here’s how to get started:

  • Track your most expensive changing prices.
      Begin with your highest- price area, which is usually labor. Track hrs, rates, and output to ensure exact costing. We advise that you concentrate on your tools and equipment after work because the majority of contractors are good at estimating components. Make sure you’re recording work value information for these so you can effectively bill your clients and make sure your tools and equipment are acting as assets that you can use as income rather than as debt that will cost you and weaken job margins.
  • Create value standards that work for your company.
    • Break project costs into categories ( e. g., labor, tools, equipment, and materials ). Then distribute those further into categories based on how you run your business and how you want to lower your job expenses.
  • Develop asset use tracking to ensure precise billing
    • Use automated systems to track usage for assets (especially expensive equipment ) and convert that utilization into accurate client invoicing based on the agreed- upon billing method ( e. g., automated, mixed rate, min/max billing, etc. ).
  • Ponder the total cost of ownership
    • In addition to the purchase price of tools and equipment, consider upgrades, maintenance, and storage prices to get a full picture of their value and set an appropriate invoice price.

By job- costing your labor, tools, and equipment, you can uncover inefficiencies and reduce unnecessary expenses. This increases your ability to complete projects on time and within budget as well as improve your bottom line.

4. Ditch systems that do n’t work

According to a 2021 study, bad data causes an estimated$ 1.8 trillion in construction project losses worldwide. And you run the risk of falling back on outdated methods when it comes to job costing. Here how:

    Paper- based systems: Paper- based systems do n’t provide visibility and therefore lack accountability. By the time information is entered into the systems, it is most likely too late to take any action if a certain cost is exceeding budget because there is no simple way to access and understand it. Paper just does n’t work very well.

  • Spreadsheets: While they might seem convenient, spreadsheets require manual data entry, which usually results in a ton of human error and inaccurate information. Additionally, they are inherently disconnected from the other business systems, such as the one that processes payments for your customers ‘ accounts.
  • Your bank account: Checking your bank account at the end of the month to see how much money is in it can quickly result in trouble. You may be able to tell whether you’re making money at work or whether you’re losing money because the money entering and leaving does n’t happen at the same time. The best contractors use smart systems to assign specific costs to specific projects, giving them a precise understanding of job costs and profits. They also have control over their variable costs.

Use systems developed specifically for job costing and financial tracking in construction to integrate with your ERP and accounting systems instead of relying on paper or spreadsheets to track job costs.

Effective systems should eliminate manual data entry and human error, and enable quick and simple tracking of job costs for the resources involved ( such as your crews, tools, and equipment ).

These digital systems give you real-time access to cost trends, allowing you to actively control project costs that are being worked on and hold your crews accountable.

5. Review the data and inform your team about the findings.

To truly succeed in job costing, it is necessary to make the most of the information you gather. To understand: Job cost reporting, you should regularly review it.

  1. Which projects are most profitable?
  2. What kinds of projects do you frequently lose money on?
  3. For your active projects, are your costs exceeding budgets? Which ones?
  4. Which costs regularly run over budget? Do you need to fix a tool loss issue? Do you need to change the terms of your upcoming bids and project budgets?

The best way to regularly review the data and share it with your team to give them visibility into the issues and give them credit for their resolution is to conduct regular reviews of it. The fact that the project was not bid correctly may be a part of the issue. Job costing data can reveal these insights as well, helping you to increase your bids and maintain consistent profits.

Look out for patterns and trends in the data when you’re examining it to learn about how well your project is performing. Key areas to focus on include:

    Costs vs. budgets. Compare the estimated costs to actual costs to find out if there are any discrepancies.

  • Cost Codes. Make sure you are breaking down project costs into specific categories such as labor, materials, equipment, and overhead.
  • Project Timelines. Look at how your crews are performing more or less quickly than they should.

You will learn how to increase and improve your job costing as you continue to review your job costing data, eventually displaying all of your main variable costs with the appropriate breakdowns, enabling you to make wiser decisions and ultimately increase your profitability.

Remember, job costing is n’t just about tracking expenses—it’s about gaining the insights you need to run a smarter, more efficient, and more profitable construction business.

Get a Job Costing Right Now!

Effective job costing does n’t happen overnight. It requires commitment, refinement, and a willingness to adapt. However, we are aware that it can be done and that you can do it, just like we have seen hundreds of other contractors do. And the rewards are well worth the work. You’ll see a better-informed bottom line as well as better-informed decisions that help you get the most value for your money.

So, take the leap. Start by tracking a few important costs for all projects starting the following month or quarter, expand over time, and watch as accurate, insightful job costing is gained for your company. And if you’re looking for powerful job costing tools designed for construction and a technology partner to help you get up and running, schedule a demo with us to find out about Align’s job costing capabilities.