Construction job costing is a pricing method that looks at the detailed costs of each project to determine a fair price. It allows you to take your next big project and accurately calculate costs.
Understanding the cost of completing a job is crucial when figuring out estimates, projecting your future costs, and ultimately invoicing your clients. You’ll need to understand how much will be needed in terms of material, as well as the labour involved in the project. Cloud construction software can help with this – and is essential for any construction company working on a project basis.
How do you Calculate Job Costing?
The formula to calculate job costing is:
“Direct Materials + Direct Labor + Applied Overheads = Job Cost“
Materials are calculated by summing all the project’s raw materials (for example, steel, concrete, lumber, etc.) as well as material-related costs such as delivery fees. Labour costs consist of each worker’s daily or hourly rate, multiplied by the length of the job.
The trickier part of this formula is calculating overheads. Overheads include a variety of indirect costs that aren’t easy to recognize or calculate such as asset depreciation. To make this simpler, you can apply a standard percentage to all your jobs. Your accountant will be able to help with this.
Why is Job Costing Important?
The construction industry is competitive, and the accounting side of things can be very complicated, especially when your business is running multiple projects at the same time. Having accounting software for construction companies helps, but is only half of the battle. Projects are likely to have changes made mid-way through as well. This can be very difficult to keep on top of and manage, and often can leave construction business owners short-handed.
To combat this, many construction business owners are moving to the job costing method and here’s why:
- Allows you to accurately bid similar projects in the future.
- Improves budgeting.
- Helps manage cash flow.
- Enables projection of profit margins.
How Can I Make Sure I am Job Costing Accurately?
Though vital to your construction business, job costing can be complicated. We’ve put together some tips to ensure you are job costing efficiently and accurately.
- Implement automated time tracking. This reduces time and errors.
- Include overhead costs. Don’t forget all the other costs of running your business like your accountant, lawyer, and things like depreciation.
- Factor in insurance to your labour costs, and any other labour-related costs.
- Use the best construction job costing software. Any accounting software for construction should be able to facilitate this, but QuickBooks is by far the best in the market.
- Break down your costs as much as you can. This is made easy using construction accounting software.
- Track the job whilst it’s in progress. This will help you keep on top of everything in real-time. Having cloud construction software helps with this as you can access it on the go.
Ensure you also monitor your billing closely. Many expenses can be claimed back on invoices to your customers, so keeping track of these will mean you don’t lose out on any income!
Job costing is easiest when all your data is in one place. Find an accounting data conversion specialist if you need help with this as accounting data conversions can get tricky very quickly.
How do I get started with construction job costing?
Now that you have seen the importance of job costing, you may want to get started with this method for your own construction company.
The first step is finding a great accounting software that can help you facilitate this. So, what is the best construction job costing software? QuickBooks for contractors is a great option and will make your life a lot easier. It has a super clean interface and can help you keep on top of profitability, control costs, and track labour by the project.
If you are new to QuickBooks for contractors or need help moving accounting data from your existing CRM or system to QuickBooks, SaaS Direct’s accounting data migration specialists can help, along with other support services like QuickBooks education & training and integrating QuickBooks with leading construction industry apps like Knowify and others.
QuickBooks has a great video explaining job costing and why it is essential:
Once you’re all set up on your accounting software, ensure you add a cost category to each transaction during the reconciliation stage. Most bookkeepers are familiar with this and should be able to help you with it.
Keep this up to date as often as possible and improve job costing by leveraging the best of accounting & construction tech.
SaaS Direct is a multi-award-winning official QuickBooks Service Provider (QSP) in the US and Canada. A leader in data conversions with 25+ years of experience with clients across North America, Asia-Pacific, Europe & the Middle East. We move data error-free with zero downtime across 88+ major accounting systems and ERP. Talk to us regarding your data conversion needs for a session of expert advice.