For project-based businesses, tracking and analyzing the profitability of a job at the project level is critical. If you have a project-based business such as contracting, interior design, architecture, and the like, you know projects can vary widely in scope and complexity. Whether you’re entirely confident or more on the cautious side when engaging with clients on certain types of work and bidding on jobs, variances and unknowns are likely to crop up during projects. Additionally, projecting what it might take in time and costs to complete a job up front can be challenging.
Examples of profit leaks:
- A building contractor who notices framing labor costs are already at 50% of the budget, but the framing labor is only 30% complete. Now is the time to step in and attempt to mitigate this overage.
- An interior designer who notices the cost of the drapes are much higher than anticipated and realizes a customer wasn’t charged for the upgrade.
An architect working with a new client that adds last minute changes to the layout. The architect spends time on the iterations and notices that the updates will create additional costs and require more of his time.
Manage job cost overruns
Job costing and profitability tracking can be a powerful tool when it comes to managing things like job cost overruns. And it can help you reflect when it comes to bidding on and accepting future jobs.
In addition to identifying and mitigating very specific profit leaks and providing solid information for future jobs, project-level job costing and profitability tracking is the proof or reference you need to understand whether the markup you’re charging or profit you’re making on jobs is being realized overall and is ENOUGH to support your business.
When it comes to job costing and profitability tracking, the amount of detail you choose to track is up to you and may be unique to your industry or business. When I work with clients to set up their job costing system, we usually start with their detailed take-off estimate. Then we consider what estimated-cost-versus-actual-cost detail will be the most valuable for managing the job in progress and analyzing the accuracy of their estimated costs after the fact.
Discover tools to streamline day-to-day cost tracking
Consider the practicality of tracking costs to the desired detail level as they come in. For some businesses, cost tracking is as simple as labor and materials. For others, it may be important to track to the individual parts. Some businesses even have a mix of projects and tracking levels depending upon the size of the job.
If you feel overwhelmed by the concept of implementing a job costing and profitability tracking system in your business, there are many tools available to help you streamline day-to-day cost tracking. There are also many professionals available to help get your systems and workflows in place. I have helped hundreds of businesses set up their job costing systems. It’s always less painful than expected, and clients are ALWAYS amazed and empowered by the insights provided by their job costing reports.
This article was produced by the Quickbooks Resource Center and syndicated by MediaFeed.org.
Featured Image Credit: DepositPhotos.com.
