How to Use Job Costing to Boost Profitability in Construction and Trade Businesses

How profitable are you on each job? Are your profit margins consistent between jobs? If not, implementing job costing might be the solution you need to track expenses by job and submit accurate bids going forward.

In this article, we’ll cover the basics of job costing and go over five different ways you can use job costing to boost profitability.

What is Job Costing?

Job costing is an accounting method that tracks income and expenses for each project. Unlike a traditional income statement that might display all of your transactions for a set period of time, job costing gives you a financial overview of each project.

With insights into each project, you can easily track expenses, submit timely progress payments, and compare your budgeted costs to the actual costs. Equipped with this information, you can conduct thorough profit analysis to improve bidding and resource allocation going forward.

5 Ways to Use Job Costing to Boost Profitability

While job costing can take some time to set up, the insights you receive are indispensable, especially when trying to improve profitability. Here are five ways to use job costing to boost the profitability in your construction or trade business:

Track Costs by Project

One of the main advantages of using job costing is tracking expenses by project. This helps your team spend in alignment with your budgeted costs. For example, if the budget only has $10,000 allocated to windows, your team will try to find windows in that price range.

Real-Time Tracking

Most construction management software can track job costs in real-time, meaning you don’t have to wait until the project is complete. This gives you the ability to make adjustments while the project is going on. For example, if supply costs unexpectedly increase, maybe you pass those costs down to the customer.

Change Order Management

Change orders can derail your profitability if not handled correctly. If a customer requests extra work, your team should estimate the additional costs and ensure that your invoicing accurately reflects the increase. Your job costing software can track the important details of change orders.

Performance Evaluation

One of the hidden benefits of job costing is its performance evaluation capabilities. By tracking job costs and progress, you can assess the efficiency of your team. Maybe you find that your supplier takes too long to deliver materials or that you could benefit from hiring an additional team member. Increasing productivity and efficiency often translates to increases in profitability.

Accurate Bidding

The prices you bid directly impact your profitability. Submitting a bid that is too low could result in a loss, negatively impacting your profit margins. With job costing, you can review historical information to understand actual costs on different projects. This information helps you accurately bid on future jobs.

Let’s say that your job costing shows that you consistently go over budgeted expenses by 10%. Going forward, you might decide to increase your bid prices by 10% to generate your ideal profit.

Getting Started

Job costing can help your construction or trade business improve your profit margins. To get started, look for a robust job costing software that has all of the features your business needs, like real-time tracking. Otherwise, reach out to our team at BUSINESS today. We can work alongside you to optimize your job costing software to maximize insights and profitability.