Maximizing Profitability with Job Costing

In an industry where every nail driven and each brick laid carries financial implications, understanding and managing your project costs can mean the difference between profitability and financial strain. Construction and contractor services companies that utilize job costing see a significant difference in not just their profitability, but also in the efficiency and quality of their work.

Our clients at NetProfit Advisers increase their net profits by up to 30% when they take the time to understand their finances better.

In this blog, we’ll dive into everything you need to know about job costing and how doing it can drastically improve your business.

What is Job Costing for Construction Projects?

Job costing is the act of regularly monitoring your actual costs throughout a long-term project so that you can compare it to cost estimates, recognize gaps, improve project profitability and efficiency, and make informed, strategic decisions that keep your project costs on track. It can also be used to inform future bids and help you perfect your pricing and offerings to achieve maximum profitability.

Ideally, you will want to spend time each day updating project costs to keep an accurate, up-to-date account. A daily practice will also save you time down the road as you’ll be able to quickly correct mistakes or fill in missing information while it’s fresh in your head rather than scrambling to track down old receipts and job reports from months or years prior.

Is Job Costing Right for Your Construction Business?

Any construction or contracting company that works on long-term projects can benefit from job costing. This includes trades such as plumbing, electrical, concrete, masonry, general contracting, framing, or any other trade that manages multi-month or multi-year projects.

Companies with short project timelines, such as roofers or landscapers, don’t usually need to spend the time tracking project costs because they can easily calculate at the end of the day or week whether or not their job was profitable.

Benefits of Job Costing

In addition to understanding how much money you are actually spending on each area of a job, job costing provides numerous benefits to your business. It is also essential for any company looking to take on larger contracts and improve their net profits.

Here are just a few of the ways we’ve seen job costing help our clients.

Better Financial Insight
Many construction businesses don’t know if a project was profitable or not until it is over. Regular monitoring and tracking of your costs throughout the project lets you know if your actuals are outweighing estimates before the job ends, enabling you to make strategic pivots throughout the project to keep it profitable.

Flags Problems with The Job
The same way high costs can indicate a need to shift financially, seeing costs that are much lower than expected could be a red flag that something is off on your project. Did your project manager forget to place a material order? Is one of your teams behind schedule? Did a third-party vendor not show up for the job? Comparing current costs to estimated costs can quickly show you where the gap is.

Helps You Win Larger Projects
Large projects or any jobs that involve public works or the government often have bonding requirements. A surety bond is insurance for the project owner, or client, that you will complete a project and fulfill all obligations, including payment to subcontractor and suppliers, according to the terms of the contract. If not, the bonding company will compensate the client for any financial losses incurred.

To secure a surety bond, the bonding company will want to look at your books, including profitability and completion of previous projects. Current financial books enable you to bid on larger projects and improve your chances of securing the contract quickly and easily.

Attracts Investors
Just as bonding companies want to see your financial data before insuring your work, banks, buyers, potential partners, and other investors will also want to see detailed reports on your project financials and profitability. Keeping your numbers up to date will ensure that you aren’t missing crucial data that could cost you a critical loan or lucrative investment opportunity.

It Informs Business Decisions
Job costing lets you quickly see which areas of your project did well and which areas fell flat. Did you underestimate a certain area of the project? Are there opportunities to cut costs somewhere? Did a particular service provide unexpected profits? This information not only helps you assess the health of your current project, but it also enables you to develop more accurate quotes for future projects and maximize your profitability.

Fuels Business Growth
Financial transparency is the first step to growing your construction or contracting business. When you understand the reality of your finances, you can develop data-informed strategies that improve how you operate your business. For example, comparison reports are a powerful tool that lets you see how your business performs year-to-year or project-to-project. From there, you can work with your financial adviser to uncover opportunities to grow and improve.

Investing in an Accounting and Bookkeeping Firm
If you’re ready to shift from a small business mindset and drastically increase your businesses net profits, it could be time to invest in a bookkeeping and accounting firm that knows your business.

At NetProfit Advisers, our team of seasoned financial experts specialize in bookkeeping and accounting services for businesses in the construction and contractor services industry. We can help you unravel your financial information, get your books back in order, and provide you with the tools, education, and advice you need to grow your business and increase your net profits year over year.

Schedule a chat with our team today and make the first step to growing your business!

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