Why job costing matters more than revenue
Ask most business owners how last month went and they will tell you what they invoiced. Ask which jobs made money and the answer is usually a guess. Revenue is easy to see. Profit per job is not, unless you set out to measure it.
What job costing actually is
Job costing compares what you expected a job to cost with what it did cost. The expectation comes from your quote: so many hours of labour, so much in materials, a margin on top. The reality comes from the job itself: hours worked, materials used, and any subcontractors, equipment or commission.
The difference between the two is the variance. A job that was quoted at a 35 per cent margin and delivered at 12 per cent has told you something important about your pricing or your delivery.
Where margin usually goes
- Labour overruns. The most common cause. A job quoted at four hours that takes seven has lost most of its profit.
- Materials not charged. Items taken from stock or bought on the day that never reach the invoice.
- Out-of-date prices. Quotes built on supplier costs that have since gone up.
- Unpriced variations. Extra work agreed on site and never added to the bill.
- Discounts. A 10 per cent discount on a job with a 30 per cent margin gives away a third of the profit.
Start simple
You do not need a complex system to begin. For each job, record the hours worked and the materials used, and compare them with the quote. After a month you will see a pattern. Certain job types will run over consistently. Those are the ones to reprice or to scope more carefully.
Use the results
Job costing is only worth doing if it changes decisions. Raise prices on the work that consistently loses money. Adjust the hours in your quote templates to match what jobs really take. Look at which lead sources bring in profitable work, not just the most work.
The reason most businesses do not do this is that the quote lives in one system and the job in another, so the comparison has to be assembled by hand. In Toolbase, the accepted quote becomes the estimate and costs are recorded on the job, so job costing happens as the work is done. You can see how that fits together on the job profitability page.