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How to Squeeze More Profits Out of Every Construction Job With Job Costing

Job Costing – The Difference Between Profitable Construction Companies and Those Who Struggle

Unfortunately, in my 25+ years of experience working with construction business owners, one thing has become painfully clear to me. There are two types of construction business owners:

  1. Those who are using job costing reports and using them well and
  2. Those who aren’t (or don’t know how to fully utilize job costing data).

This is incredibly important because I’ve observed that construction business owners who use job costing are taking advantage of the information it provides and are consistently more profitable than the ones who aren’t using job costing data (or those who aren’t using it correctly).

So, if you want to squeeze more profits out of every job, one way to do that is to use job costing.

Why Don’t All Construction Companies Use Job Costing Reporting to Improve Their Profits?

For those of you who are in the business and using job costing, it seems as obvious as 1-2-3: “Of course, I need – and use – job costing. Why wouldn’t every construction business owner do it? I can’t imagine why they wouldn’t!”

Well, here are the top 5 beliefs I’ve found related to why many businesses DON’T adopt job costing:

  1. They think job costing might take too much time (or cost too much).
  2. No one in their company knows how to do job costing.
  3. They think their CPA will help them set up a job costing system.
  4. They don’t think their accounting and/or job costing software is adequate for the task.
  5. They’ve tried it, and the results didn’t seem accurate.

Over the years, I’ve been approached by (and worked with) a number of owners who were beginning to suspect that perhaps they should be using job costing.

Even after discussing the following benefits, not everyone was ready to make a change. But many DID choose to move to “the next level” and transform their company by adopting job costing.

Answers to the “Top 5” (Making the Change to Higher Profits…)

So here are some alternative ways of thinking your way through those Top 5 “it-won’t-work-for-me” beliefs. Please keep these thoughts in mind as you move toward a decision:

  1. They think job costing might take too much time (or cost too much).

Lost wealth and profit vampires: Look at your costs and estimate how much time, effort, and money you’re sacrificing because you can’t see exactly what is happening with job costs, change orders, purchasing, pricing, and profitability. You’ll see that the cost to implement a job monitoring system is only a fraction of what you’re currently losing!…

  1. No one in their company knows how to do job costing.

“If you think education is expensive, try ignorance.”
(Peter Drucker – American management consultant, educator, and author)

With the right training, if you care deeply about your business, you CAN learn job costing essentials! (I’ve trained thousands of non-accountants how to set up and use basic – and even advanced – job costing.)…

  1. They think their CPA will help them set up a job costing system.

Your CPA isn’t a Management Accountant (and doesn’t want to be!) A CPA primarily focuses on performing independent reviews and audits and providing tax guidance and returns. Some even like to help with personal financial planning. But very few are willing (or trained in how) to help companies set up and use internal management accounting systems. So, if you’re waiting for your CPA to help you do this – you may have a long wait……

  1. They don’t think their accounting and/or job costing software is adequate for the task.

Quality software is very accessible. (It’s the least of your costs.) Reliable, powerful, low-cost, off-the-shelf software such as QuickBooks Desktop or Enterprise Solutions is designed for job costing. You can customize those products to meet the specific and unique needs of your business and your industry...

  1. They’ve tried it, and the results didn’t seem accurate.

Learn how to check and understand your numbers. By using a month-end closing procedure, you can access regular, accurate reports. When your information is organized in a logical format, you gain the benefits of instant access to logical, useful reports.

People Also Ask

FAQs (Frequently Asked Questions)

1. How can I increase profitability on every job?

Increasing profitability on every job involves careful planning and estimating, accurate job costing, efficient resource management, and regular performance reviews. When you charge the right markup on costs and identify and address inefficiencies, you can also help boost profits.

2. What role does job costing play in improving profitability?

Job costing plays a crucial role in improving profitability by providing detailed insights into the income and costs associated with each job. This helps to identify areas where you can reduce costs and maximize profits.

3. How can I improve my pricing strategy to increase profits?

Improving your pricing strategy involves analyzing your prior jobs, keeping a close eye on market trends, understanding your current costs, and setting prices that reflect enough gross profit to exceed your other company costs and reflect the value you provide. Regularly reviewing and adjusting prices based on these factors can help increase profits.

4. What are some common mistakes that reduce job profitability?

Common mistakes that reduce job profitability include underestimating costs, poor project management, lack of accurate job costing that leads to underbilling of costs, and generally failing to foresee and control overhead expenses.

5. How can efficient resource management impact job profitability?

Efficient resource management ensures that labor, materials, and equipment are used effectively, reducing waste and minimizing costs. Reducing costs significantly impacts job profitability.

6. Why is regular performance review important for profitability?

Regular performance reviews identify areas where you can improve performance, reduce costs, and gain efficiency. This ongoing process is essential if you want to maintain and increase profitability.

7. How can technology help in increasing job profitability?

Technology, such as project management software and job costing tools, can streamline processes, improve accuracy, and provide real-time data for better decision-making, all of which contribute to increased job profitability.

8. What are the benefits of using project management software for profitability?

The benefit of project management software is that it is designed to help you plan, schedule, and track project progress. It helps ensure that you use resources efficiently and complete projects on time and within budget. Each of these factors contribute to increased profitability.

9. How can I ensure accurate job costing?

To ensure accurate job costing, you will need to regularly enter accurate cost data, use reliable job costing software, and train your team why it’s important to track time and review job costing results.

10. What strategies can I implement to reduce job costs?

Strategies you can implement to reduce job costs include: negotiate better prices with suppliers, take advantage of early payment discounts, improve project planning and team communications, reduce wasted time and materials, and implement efficient work processes.

Additional resources and guides are available on the Build Your Numbers website.

Enhanced Profitability Using PM3 Combined With Job Costing

The construction companies who converted from doubters into “believers” are now “job costing enthusiasts.” They implemented the concepts of PM3: Plan, Measure, Monitor, and Modify into their job cost-management toolkit.

By adding job costing tracking and monitoring, they found that they could, in fact, learn how to control their costs and manage their profitability by squeezing more profits out of every job!

To help you make the transformation, we’ve created affordable workshops and training specific to job costing using software such as QuickBooks® Desktop and Excel. We love teaching and coaching, so if you’re ready to learn, we’re here for you. Learn more about job cost training for QuickBooks

You can sign up for any of our workshops or training tutorials and learn what you need to know 24/7. If you have any questions you’d like answered before moving forward, please send us an email or call, and we’ll be happy to spend more time learning more about you and your business.

We look forward to hearing from you and learning more about how we can help…

BONUS (Self-Assessment):
How proficient are you with your Job Costing & Management Tools? Score yourself…

If you’d like to see where your company stands in the “job costing and management controls” spectrum, just click on the link below to access this (confidential) self-assessment survey:

Self-Assess Your Profitability Management Tools

  1. Simply indicate your company’s current level based on these 25 “best practice” management tools.
  2. You will receive an emailed report that shows the questions, your responses, and your score.
  3. Use the results to discover and prioritize exactly where you’ll be able to use these tools to squeeze more profits from your company.

Use the assessment to find new ways to improve your job costing and the profits you get to earn (and keep) from each of your projects!

A version of this article first appeared in the Builder Partnerships newsletter.

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