How Job Costing leads to increased overall profitability
We’ve all been there; you’re talking to a potential customer about a new project. You’re in the home stretch, but it’s time for job costing. You’ve reached an agreement with the project details, and everything is going well until you get to pricing…
…Your mind begins to race, “What if I say a number that is too high and scares them off?” ” What if my price is too low and I end up leaving money on the table?”
These are valid concerns, but they don’t need to be a cause of such anxiety.
If you are like many general contractors or specialty contractors, you are likely not charging enough for your services. Understanding and tracking your costs accurately will change all that for you.
Additionally, contractors that deal in long-term or custom projects tend to face even higher risks to their overall profitability.
Therefore, in order for your estimates to be accurate, and to ensure you are making the profit you desire, you must precisely keep track of all of your expenditures on each project.
What is Job Costing?
Job cost accounting is the process of assigning project costs to a specific job.
Many contractors skip because they are too busy, or they just don’t have good systems and processes in place to track them accurately.
Ideally, you should be using an accounting system that has a job costing component built in.
However, there are lots of low-cost and easy to use options out there for tracking your expenses including good old-fashioned spreadsheets that can be automated for ease of use.
Once you have these reports set up correctly, it will allow you to see exactly where all your money is going with each new project.
Benefits of Accurate Job Costing
With accurate job costing:
- You will have a very clear picture of your profitability per job.
- It helps you in the preparation of more accurate estimates.
- It helps boots your overall profitability.
- Allows you to proactively respond to changes.
- It helps provide data that can boost jobsite productivity
- It helps ensure projects are managed more efficiently.
It’s Time to Stop Guessing at How Much Money You’re Making On Each Job
What Expenses to Track
In order to price your projects more accurately, it’s important to understand the most important factors that go into developing an accurate job cost report
- Equipment Costs – whether owned or rented specifically for the job
- Material Costs – both quantity and cost
- Labor Costs – both hours and dollars
- Subcontractor Costs
- Overhead Costs – Proper allocation of overhead is crucial.
Overhead Costs are Often Overlooked
All too often overhead costs are overlooked or miscalculated. You need to calculate how much it costs you to run your business on a day-to-day basis.
This includes items such as taxes, rent, insurance, marketing expenses, bookkeeping and the salaries of those not directly working on the projects but overseeing them and the administrative staff.
Improve Your Overall Profitability
By committing to keeping accurate job cost records, you will be able to manage your projects more efficiently and be able to confidently price your projects using real numbers rather than estimates based on experience alone, ensuring higher profits in the long-term.
About Susan Giddings Business Consulting and Coaching
At SGC, we help our clients implement strategies that provide them with increased revenue and profitability and a business that actually works FOR them. We work hard to exceed your expectations with innovative solutions and exceptional support.
