The Dos and Don’ts of Job Costing for Trade Contractors
Eliminate Waste and Make More Money with These Job Costing Strategies
Job costing is the single most important factor in determining a trade contractor’s profitability. It's not company financials, it’s not keeping overhead costs down...it’s job costing!
Whether you’re a speciality contractor aiming for 40% gross profit per project or if you’re in the production business banking on 10%, a majority of your business costs are associated with your job sites. Lowering your job costs will have the greatest impact on increasing company profits, so it’s absolutely essential to have an effective job costing system in place. Ironically, job costing is one of those things that many contractors can’t get a handle on.
Luckily, there are many ways you can improve your job costing system and start making more money! We’ve put together a list of best practices for job costing that will completely change the way you run your business, especially if you implement all of our suggestions.
DO take the time to job cost!
Yes, it seems like a no brainer, but a lot of companies put job costing the back burner when business ramps up and their teams gets busier. But if you don’t know how you’re performing on your jobs, how are you ever going to increase profits?
DON’T limit the eyes on job costing reports to owners or executives.
Many people are involved in determining the outcome of a job, from the estimators who create the bid to the field managers supervising the project. Everyone needs to know what is expected of them and how they are performing in comparison to those expectations. Transparency is key!
DO consistently perform one-on-one meetings with your field managers to review their current jobs.
This really opens up dialogue between office and field staff, which is absolutely crucial to a profitable subcontracting business. It emphasizes the importance of job costing for your field managers, and better equips them to make informed decisions in the field based on budgets rather than just trying to get through a day’s work.
DON’T settle for vague job cost reports performed at the completion of the project.
Trying to job cost at the end of a project or by averaging portions (or phases) makes for unreliable data. Companies do this because they feel data is unreliable when broken down into smaller portions, but the whole point is to identify problem areas and learn how to improve.
We’d suggest breaking it down in increments; for example, if you’re in the residential market it would be broken down by project, phase, lot and task. This will allow you and your staff to narrow down problem areas and focus on reducing costs there.
If you wait until the end of the project, you won't have a chance to improve and could miss out on thousands of dollars of revenue. Plus, field staff learns from this information and estimators can pinpoint areas that consistently go over budget across all jobs and adjust bidding numbers accordingly.
DO explore multiple ways to view and interpret job costing reports - like charts and graphs.
Each department looks at job costing reports trying to extract different information. Your field staff is mainly concerned about whether they’re over or under on budgets. This information is best interpreted visually through graphs, where you can easily spot problem areas without getting lost in number tables.
For your billing department and executive team, tables displaying revenue streams (contracts, options, extras/change orders), summary of costs (labor, material, equipment, and burdens) and the gross profit percentage are best. This allows them to verify that all revenue is accounted for and that percentages of costs are in line with what is to be expected.
Lastly, detailed tables with all costs per unit allows you to dig deeper when problem areas are identified or if a mistake has been made. You can fix mistakes without having to search through all your databases. Trustworthy data is key to job costing, and though keeping track of these details seems daunting, there are software solutions that can help.
This one is a double: DON’T rely on paper time cards to track labor hours and DON’T hold your office staff solely responsible for data input.
Mobile technology has come a long way in recent years, which makes it possible for field staff to easily input their time from job sites. Sloppily written time cards with coffee and dirt stains are a thing of the past. Opt instead to get data straight from the source, rather than wasting hours of time in the office trying to decipher and input labor hours.
Your time clocking software should allow you to select which manager and foremen run each job, so those users are only allowed to enter time against the jobs to which they are assigned. Field managers can keep an eye on the data that’s being inputted in real time to make sure everything is running smoothly and that time is being recorded accurately. Not only is automated entry of labor hours is essential to real-time job costing, but utilizing a mobile time clocking software can help ensure you’re compliant with labor laws, act as a reliable record of labor hours should an audit or lawsuit arise, speed up the process of submitting payroll and free up time for your office staff to focus on other tasks.
If you’re thinking to yourself, “my employees are old school and won’t use new technology,” then consider the fact that 81% of Americans now own smartphones, according to Pew Research Center. Though you may meet resistance initially, realize that your field staff is perfectly capable of learning to use mobile time clocking. It’s the way the construction industry is moving, and the way almost every other industry has been operating for years now.
DO embrace change and upgrade your systems.
First off, if you’re a contractor who has been in business for decades using a pen and paper system, then you deserve a huge round of applause. Sincerely, this is a huge accomplishment and I admire you. However, there is a better way, and embracing tools that will help you run your business will make life ten times easier and less stressful for you and your staff. If you’ve been burned by tech companies of the past, I urge you to give it another shot. Accurate and reliable job costing made possible by technology can truly change the way you do business for the better.
A.C.E. Construction Software is an easy-to-use platform that will help you accomplish all of the above. Created by a subcontractor for subcontractors, real-time job costing is at A.C.E.’s core. From materials purchased for an entire project to man hours used on an individual lot, users can view their job costing in customizable detail. No matter how you filter your data, a visual graph will automatically compare bid numbers to actual costs per task, making it easy to discover which tasks need more attention from field and office staff. The system automatically displays data for each of the three revenue streams (contract, options and extras) and actual costs, giving the user an up-to-the-second report of their gross profit. And you can do it from home, the office, the car, an airplane, on a boat at the river...or wherever you happen to be.
Interested in a FREE demo to see what A.C.E. is all about? Click the calendar below to select a date and time that works for you.