Have you ever found yourself questioning why your actual profit margin fell short of your target?

It’s essential to identify the exact sources of these discrepancies. Job costing is a crucial accounting methodology for construction businesses, helping track material, labor, and overhead costs specific to each project. Since construction companies often juggle multiple projects simultaneously, expenses can become disorganized, leading to inaccurate billing. By implementing accurate and timely job costing, you can gain better control over your finances and prevent your profits from slipping away.

Four Reasons to Use Job Costing for Your Construction Business

1. Course-Correct Before It’s Too Late
Tracking expenses and allocating costs to each job throughout the project is a best practice. Waiting until the job is closed to do this can lead to unpleasant surprises. By comparing actual costs to budgeted costs for each item as the project progresses, you can identify discrepancies early on. This proactive approach allows you to address any issues immediately, protecting your profit margin and enabling necessary adjustments before it’s too late.

2. Capture Billable Excess Costs
Without real-time job costing, your business might face time overruns, expense leakage, or undetected change orders that remain unbilled. You could go months without realizing you are operating at a loss on a project. By the time these missed expenses are discovered, it’s often too late to bill the customer. Real-time job costing ensures that you are aware of these discrepancies as they occur, allowing you to bill the customer appropriately before the job is completed.

3. Prevent Future Cost Overruns
While ongoing job costing is ideal, it’s crucial to perform job costing at the closure of each project at the very least. Ensuring correct cost allocation and noting any mistakes or corrections helps you drill down into details like underestimated or overestimated line items. This data is invaluable for refining future estimates and improving accuracy. Conducting an in-depth review of every five jobs can reveal patterns in budget shortfalls, cost overruns, and labor productivity, prompting adjustments in bidding and project management to enhance overall business success.

4. Identify Business Improvement Opportunities

Learning from past projects is one of the best ways to enhance your business operations. Proper job costing provides insights that help you make better decisions more quickly. As a business owner, several critical questions arise from effective job costing:

  • Are projects staying within budget?
  • Are there operational inefficiencies?
  • Who are the most and least profitable clients?
  • Which clients need re-pricing or termination?
  • Who are the most productive employees, teams, and departments?
  • When is the right time to hire more staff?
  • How often are we meeting our target margins?
  • Where should I invest my marketing dollars?

By addressing these questions, you can continuously improve your business, ensuring better financial control and increased profitability.