Job costing for small businesses: know your profit on every job
A business can be busy and still lose money, one job at a time. Job costing shows which jobs pay, which do not, and why, while there is still time to change the next quote.
By Ayush Jain, Founder, grewray
Ask most service business owners which of last year's jobs made the most money and you will get a confident answer. Ask them to prove it and things get vaguer. Profit is usually measured once a year, for the whole business, by an accountant, long after anything could be done about it.
Job costing brings that measurement down to the level where decisions are made: each job. It sounds like accounting, but it is really just recording where the time and money went, against the job it went on.
What job costing actually means
For every job, you track two numbers and compare them:
- What it earned: everything invoiced for it.
- What it cost: the direct costs of doing it, which means labor, materials, subcontractors, equipment hire and anything else you would not have spent without this job.
The difference is the job's gross profit. Divide it by what the job earned and you have its margin. Compare margins across jobs and patterns appear quickly.
The costs people forget
Materials are easy to remember, because they come with a receipt. The costs that quietly eat margin are the ones without paperwork.
- Your own time. If you work on the job, your hours are a cost, priced at your hourly rate. Leave them out and every job looks profitable.
- The extra visits. The return trip for a forgotten part, the snag visit, the second survey.
- Travel. Time and fuel to reach a job across town is a cost of that job.
- Waste and returns. Offcuts, breakages and the materials you bought twice.
- Rework. Anything done again, for any reason.
- Payment costs. Card fees, and the cost of waiting for a slow payer.
You do not need to track every screw. You need to catch the costs that differ from one job to the next.
Record costs as they happen
Job costing fails when it is left for later. A receipt reconstructed from memory at month end is a guess. The habit that makes it work is small: record each cost against the job the moment it happens.
- Time: note the hours on the job each day.
- Materials: photograph the receipt and tag it to the job before you leave the store.
- Subcontractors: attach their invoice to the job when it arrives.
Done on the spot, this takes seconds. Done in a batch, it takes an evening and is still wrong.
Read the numbers while the job is running
The real value of job costing is not the post-mortem. It is seeing, halfway through a job, that costs are running ahead of the quote, while there is still time to act: to raise a change order for the extra scope, to rethink how the rest of the job is done, or at the very least to talk to the client before the final invoice rather than after it.
A useful check at each milestone: compare the share of the budget spent with the share of the work done. If a job is half done and three quarters of its cost is spent, you know now, not at the end.
A simple job cost sheet
Here is what a costed job looks like when it is done, with invented figures for a small bathroom refit.
| Line | Quoted | Actual |
|---|---|---|
| Labor, 38 hours at $55 | $2,090 | $2,420 (44 hours) |
| Materials | $1,850 | $1,960 |
| Plumber, subcontracted | $600 | $600 |
| Skip hire | $180 | $180 |
| Extra visit for a missing part | Not quoted | $110 |
| Total cost | $4,720 | $5,270 |
| Invoiced | $6,200 | $6,200 |
| Gross profit | $1,480 (23.9%) | $930 (15.0%) |
The job was still profitable, but more than a third of the expected profit disappeared into six extra hours, some extra materials and one extra visit. Seen on one job, it is a bad week. Seen across ten similar jobs, it is a pricing problem you can fix.
Where overheads belong
Job costing tracks direct costs: the ones a job causes. Overheads, like rent, insurance, the office and software, are not charged to any single job. Instead, your gross profit from all jobs together has to cover them, with a net profit left over. That is why a job with a positive gross profit can still be a job that does not pay its way: its margin may be too thin to carry its share of the overheads. Your hourly rate and your break-even point are where overheads enter the picture; the break-even calculator shows how much work a month they need.
What the patterns tell you
After a few months of costed jobs, sort them by margin. The questions to ask:
| Pattern | What it usually means | What to do |
|---|---|---|
| One kind of job always runs over | The estimate is wrong, not the job | Change how you price it |
| Small jobs earn less than large ones | Fixed costs per job are not priced in | Set a minimum charge |
| One client's jobs earn less | Extra visits or slow payment | Change their terms |
| Materials margin is thin | Markup is too low, or waste is high | Review markup and ordering |
Every one of these is invisible in a single yearly profit figure, and obvious once each job has its own number.
Start small
You do not need to cost every job perfectly from day one. Start with three habits for a month: record your hours on each job, tag every material receipt to its job, and note every extra visit. At the end of the month, compare five finished jobs against their quotes. That alone usually reveals the one or two changes worth making, and the habit of recording costs as they happen sticks once you have seen what it shows.
Use it to price better
Job costing and pricing feed each other. Your hourly rate says what an hour must earn; job costing tells you how many hours a job really takes. Feed the second into the first and your quotes get more accurate every month. Our article on how to price your services covers the rate, and the profit margin calculator checks any single job.
How grewray helps
In grewray, a job carries everything that happened on it: its stages, visits, notes and files, and its money. Expenses are captured on your phone with the receipt and tagged to the job, invoices are raised from the job, and the job shows what you quoted, invoiced and spent side by side. Profit becomes a number you read while the work is still going, not one you discover afterwards. Expenses then sync with QuickBooks Online, Xero or Zoho Books, so your accountant sees the same figures.