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What the job actually cost: job costing without a finance department

Most trade businesses know whether the year was good. Very few can say which jobs made it good. That distinction matters more than it sounds, because the jobs that lose money usually look exactly like the jobs that make it — same customers, same kind of work, same feeling on the day.

The comparison is small

Job costing sounds like something with a finance department attached. What it is, at the size most firms operate at, is one comparison: what you priced against what it took. Hours priced against hours worked. Materials allowed against materials bought. Variations agreed against variations invoiced.

That comparison only exists if both halves are recorded in the same place. Which is why job costing is really a by-product of recording work as it happens, rather than a separate exercise somebody has to sit down and do.

What it tells you within a season

• Which kinds of work you routinely underprice. There is almost always one, and it is rarely the one people guess.
• Which customers cost more than they pay — usually through access, decisions and revisits rather than the work itself.
• Whether your variations are being invoiced. The gap between agreed and billed is a number, and it is often large.
• Whether your hourly rate is holding up in practice.

That last one closes a loop: the rate was worked out from an assumption about billable hours, and this is the only place that assumption gets tested. See working out your hourly rate.

The trap of averages

A firm with a healthy average margin can be carrying a category of work that loses money on every job. The average hides it, and the loss-making category is often the one being pushed hardest, because it is easy to sell — which is precisely why it is priced too low. Look at the spread, not the middle.

Materials on the wrong line

The most common distortion is materials absorbed into a labour figure, or bought for one job and used on another. Both make the costing meaningless without making it obviously wrong. Recording materials against the job at the point of use — see materials ordered from site — fixes the costing as a side effect.

Do it monthly, not annually

A year-end review tells you about work you can no longer reprice. A monthly look at the ten biggest jobs takes twenty minutes and lands while you can still act on it — by changing the estimate, changing the rate, or deciding not to quote for that kind of work again.