For contractors, job costing isn’t a buzzword—it’s the cornerstone of profitable projects. The most effective businesses know how much they spend and how much they make on each project, giving them an accurate view of their profitability.
This arms you with critical information about which projects you should be bidding on and which end up costing you money. Without accurate job costing, you probably have a sense of which projects are the most profitable, but it's ultimately an educated guess.
After working with construction businesses over the years, we've noticed a common theme: a significant gap between perceived costs and actual expenses.
“Back in the day, it was very common to sit down with a Tool Manager who would say, 'We lose $200,000 in tools a year.' Then, you’d speak to the CFO, and he’d say, 'It’s at least twice that,'” Craig McDonald | Align Technologies CTO.
The answer to that problem is job costing, but the challenge with job costing is getting an accurate view of spending with the number of purchases and moving parts on the job site.
The good news? Your job costing doesn't need to be perfect day 1. In fact the most successful contractors that we work with take a very practical approach to job costing. Here are 5 of the most common and effective job costing strategies we've seen work to help contractors improve profits.
When you're just starting out as a small contractor handling one job at a time, job costing might not seem like a pressing need. You might just track everything in your head or via your bank account. But here's the deal: as soon as you start scaling your business—taking on more projects and bringing a few workers on board—job costing either becomes your secret weapon or your Achilles' heel.
Businesses that implement robust job costing systems see a significant improvement in profitability. According to Tonn & Blank, switching from spreadsheets to their new job costing system reduced the time and cost associated with manual job costing equipment via spreadsheets by 80%. Here are some other big benefits of job costing:
If you're not already job costing, then getting started can feel daunting, but it does not need to. You don’t have to dive into the deep end right away. Instead, start with just one of your largest variable costs, which for most contractors are labor, materials, and tools/equipment.
Once you pick one of those categories, start with the biggest line items, such as your heavy machinery or concrete costs.
Once you have that set up and can accurately see how your costs for that item are tracking against what you budgeted, then start building out job costing for your other variable costs.
The goal is progress not perfection — starting early and refining your approach as you grow is how we've seen most of our customers be successful in the long run.
Labor is typically the largest variable cost for contractors, but don't overlook your tools and equipment. Accurately job costing all three of these elements can lead to substantial savings by identifying where you might be misunderstanding or underutilizing resources. Here's how to get started:
By job-costing your labor, tools, and equipment, you can uncover inefficiencies and reduce unnecessary expenses. This not only improves your bottom line but also improves your ability to deliver projects on time and within budget.
According to a 2021 study, bad data causes an estimated $1.8 trillion in construction project losses worldwide. And when it comes to job costing, relying on old-school methods puts you at risk. Here how:
Instead of relying on paper or spreadsheets to track job costs, leverage systems designed specifically for job costing and financial tracking in construction and integrate with your ERP and accounting systems.
Effective systems should make capturing job costs quick and easy for the resources in question (ie your crews, equipment, and tools) and eliminate manual data entry and human error.
And by being digital, these systems create real-time visibility to cost trends, enabling you to actively manage project costs that are in progress and hold your crews accountable.
To truly win at job costing means that you are leveraging the information you collect. You should regularly review job cost reporting to understand:
The best practice is to conduct regular reviews of the data and share it with your team to create visibility to the problems and accountability to fixing them. Part of the problem might be the project was not bid correctly. Job costing data can surface these insights too, improving your bids to ensure more consistent profits.
When looking at the data, look out for patterns and trends that can reveal insights into your project performance. Key areas to focus on include:
By continuously reviewing you job costing data, you will know how to expand and improve your job costing to eventually show all your major variable costs with the right breakdowns, enabling you to make better decisions, and ultimately boost your profitability.
Remember, job costing isn't just about tracking expenses—it's about gaining the insights you need to run a smarter, more efficient, and more profitable construction business.
Effective job costing doesn't happen overnight. It requires commitment, refinement, and a willingness to adapt. But we know it can be done, and we know you can do it, as we've seen hundreds of other contractors do. And the rewards are well worth the effort. You'll not only see a healthier bottom line but also make better-informed decisions that help you get the most bang for your buck.
So, take the leap. Start by tracking a few key costs for all projects starting next month or quarter, expand over time, and watch as your business reaps the benefits of accurate, insightful job costing. And if you're looking for powerful job costing solutions built for construction and a technology partner to help you get up and running, book a demo with us to learn about Align's job costing capabilities.