Lately, I’ve been hearing this term “job costing” being thrown around. Which has me wondering, what is this “job costing” nonsense? Is this something I need to learn about?
Job costing is the tracking of expenses incurred on a job versus the revenue produced by the job. It is a very important metric for savvy business owners to keep a finger on the pulse of their financial health, therefore is something that should definitely be considered. It is important to note that job costing isn’t right for all types of businesses. It is most applicable in project intensive industries that contract on a per-project basis; such as construction, engineering, graphic design, etc. Job costing makes little sense for customer intensive industries such as a barber shop which has a large volume of customers and does a small volume of business with each of those customers.
Whoa there! Did we lose anyone in the accountonese? Let’s break it down for the people who prefer counting money over counting beans.
Job costing is a series of processes that accounting-type-folks use to track (allocate) the labor and equipment hours and material costs associated with a specific job so that those costs can be compared to the cost estimates and to the actual money (revenues) paid for the job. It sounds simple enough, right? Well, there’s a little more to it than that. I’m going to track not only the costs associated with building a house, but more specifically the costs associated with each phase of building the house. I want to know how much we spent on the foundation, the plumbing, the windows/doors. I want to know how many units of labor, equipment and materials were required for each of these phases. At this point I’m beginning to think “That seems like a lot of work, why would I want to do job costing?”
First and foremost, job costing gives me more control over the almighty profit margin. The knowledge I gain by job costing allows me to quickly and proactively identify areas that need project management changes BEFORE they become profit devouring budget overruns. While that alone seems reason enough, my WIP calculations are now easier and I am better able to manage my project budgets. But that’s not all, there are even more benefits; the job costing data from past projects allows me to perfect my estimating processes, allowing me to be more competitive and WIN more of the jobs I bid. This of course leads to more growth, with better profit margins and total project control. Job costing is starting to sound great. Who wouldn’t want to make more money? Where do I sign up?
The good news is that technology makes job costing not only possible, but relatively easy considering the amount of processes that need to occur when we allocate. By using QuickBooks categories such as Customer, Class and Items, we can set up a system of job costing that gives us everything we need to harvest useful data. If job costing sounds like something you might be interested in, contact your bookkeeper to discuss setting it up.
My Staff Your Staff has specialists in A&E job costing and construction job costing, if you or your bookkeeper would like some additional assistance give us a call, we can help!