Job costing for contractors: what each job really made

Why job costing matters

Your profit and loss statement tells you how the month went. It does not tell you which jobs made the money and which ones quietly lost it. Job costing does. When you know what each job type really earns, you can raise prices on the losers, sell more of the winners, and stop guessing.

The goal is not accounting perfection. It is a number per job that is close enough to make decisions with.

The costs to count on every job

• Materials: parts and supplies at what you actually paid, including anything pulled from truck stock.
• Labor: every hour on the job, including drive time and the supply-house run, at your burdened labor rate, not the tech's wage.
• Job-specific fees: permits, dump or disposal fees, equipment rental.
• Subcontractors: any sub you paid for part of the job.
• Return trips: callbacks and second visits belong to the original job.
• Financing or card fees, if you absorb them.

Burdened labor, briefly

A tech paid $32 an hour costs you more than $32 an hour. Add payroll taxes, workers' comp, benefits, paid time off and any tools or phone you provide. Your accountant can help you work out your real figure. The example below uses $48 an hour as a made-up burdened rate.

A worked example

Example only, with made-up numbers. Harbor Line Plumbing replaces a 50-gallon gas water heater and charges $2,400.

Now say the tech has to come back for a leaking union: two more hours and no new parts. That adds $96 of labor and $120 of overhead. Net profit drops to $634, about 26 percent. One callback took about a quarter of the net profit, which is why return trips must be charged to the original job, not lost in the general numbers.

Adding overhead the simple way

Overhead is everything you pay whether or not a truck rolls: rent, office staff, insurance, software, marketing, the owner's salary. The simplest way to spread it is per billable hour:

1. Add up a year of overhead.
2. Estimate the billable hours your techs will sell in that year.
3. Divide. That is your overhead per billable hour.

Example: $360,000 of overhead over 6,000 billable hours is $60 per hour. Every job then carries $60 for each hour it used. If your billable hours drop in the slow season, each hour has to carry more, which is one more reason to keep the board full.

Gross margin vs net profit

Gross margin is price minus direct costs, divided by price. It shows whether the job itself is priced right. Net profit takes overhead out too and shows whether the business is earning. Keep both. A job with good gross margin but poor net profit usually takes too many hours. Mixing up margin and markup is a separate trap, covered in markup vs margin.

Common job costing mistakes

• Using wage instead of burdened rate. Every job looks better than it is.
• Leaving out drive time. It is labor you paid for.
• Not tracking truck stock used. Parts pulled from the van are real costs even if no receipt came with them.
• Costing only big jobs. Small jobs are where losses hide, because you do so many of them.
• Booking callbacks as a new job at zero. Charge the time to the original job.
• Checking once a year. Review job costs monthly so you can fix prices while it matters.

Turning costs into better prices

Once you have a few months of costed jobs, sort them by job type and look at average net profit. The job types that come in below your target are the ones to reprice or rework. Plug the real costs into the job pricing and markup calculator to see what price hits your target margin, then update your flat-rate price book.

How SWITCHBOARD handles job costing

In SWITCHBOARD, time is clocked from the job and parts come from your Price Book, so each job shows its margin after labor, parts and drive time without a separate spreadsheet. Estimates show live margin against your target and flag missing costs instead of guessing them.