Job Costing 101: Know Your Winners and Losers
Most contractors know their total profit. Few know which jobs made money and which ones bled it. Here's how to finally get job-level clarity.
Here's a question that stops most contractors cold: "Which of your jobs last year actually made money?"
Not "did you make money overall"—that's easy to answer. I mean specifically: which jobs crushed it, which jobs broke even, and which jobs quietly bled cash while you were busy chasing the next bid?
If you can't answer that with confidence, you're not alone. But you're also flying blind. And it's costing you.
Why Job Costing Matters More Than Total Profit
Let's say you did $4 million last year and netted $320,000. That's 8%—not terrible for a trade contractor. But here's what that number hides:
- Maybe 60% of your jobs hit 15%+ margins
- Maybe 25% broke even
- Maybe 15% actually lost money—but you didn't know it until now
Without job-level costing, you can't see this. You're averaging winners and losers together and calling it "profit." Meanwhile, you keep taking the same types of jobs, working with the same problem customers, and wondering why growth doesn't translate to more cash.
"Revenue is vanity, profit is sanity, but cash is king—and job costing tells you where the king lives."
The Three Things You Need to Track Per Job
Job costing doesn't have to be complicated. At minimum, you need three numbers for every job:
1. Direct Labor
What did you actually pay your crews on this job? Not their annual salary divided by some guess—actual hours worked times actual labor burden (wages + taxes + insurance + benefits).
For most contractors, fully burdened labor is 25-35% higher than the hourly wage. A $30/hour tech actually costs you $38-40/hour when you factor everything in. If you're not using burdened rates, your job costs are understated.
2. Materials
What materials went into this specific job? Not "we bought $40K in copper this month"—what copper went to which job?
This requires some discipline. Purchase orders tied to jobs. Inventory tracking if you stock materials. It's not sexy, but it's the difference between knowing and guessing.
3. Subcontractors
Any subs you brought in for this job. Straightforward—just make sure the invoice hits the right job code.
What About Overhead?
Here's where people get twisted up. Your rent, your office staff, your trucks, your insurance—how do you allocate that to individual jobs?
Two schools of thought:
Option A: Don't allocate overhead to jobs. Track direct costs only (labor + materials + subs), calculate your gross margin per job, and make sure your total gross margin covers overhead plus profit. This is simpler and works fine for most contractors under $10M.
Option B: Allocate overhead by labor hours. If Job A took 100 labor hours and Job B took 50, Job A gets twice the overhead allocation. This gives you "fully loaded" job profitability but requires more math.
My recommendation: start with Option A. Get good at tracking direct costs first. You can add overhead allocation later if you want more precision.
The Payoff: Decisions You Can Actually Make
Once you have job costing running, you can answer questions like:
- Which job types are most profitable? Service calls vs. new construction vs. remodels. You might be surprised.
- Which customers are worth keeping? That GC who gives you volume might actually be your worst margin customer.
- Which crews perform best? Same job type, different margins. What's the crew doing differently?
- Where are you leaking money? Callbacks? Change orders you don't bill? Material waste? The data will show you.
This is how you move from "we made money this year" to "we know exactly how to make more money next year."
Getting Started
You don't need fancy software to start job costing. A spreadsheet works. What you need is:
- Job numbers on everything. Every timesheet, every PO, every sub invoice gets a job code.
- Weekly time tracking. Crews log hours by job, not just total hours worked.
- Monthly review. Look at completed jobs. Compare estimated vs. actual. Learn.
The first month will be rough. The second month will be better. By month three, you'll wonder how you ever ran your business without it.
The Bottom Line
Your P&L tells you if you made money. Job costing tells you how you made money—and more importantly, how to make more of it.
Stop averaging your winners and losers. Start knowing which is which.
Want Help Setting Up Job Costing?
Our Financial Health Assessment includes a full review of your job profitability—we'll show you exactly which jobs are making money and which ones are dragging you down.
Related Posts
