The Power of Job Costing

The Power of Job Costing

The power of job costing. It can mean the difference between thriving and going out of business.

Sound overly dramatic?

Maybe. But it’s true.

One of the top reasons businesses die is cash flow.

Job costing is like a superpower to help you identify cash flow leaks.

Job costing is essentially the act of comparing estimated vs actual man-hours, material usage, and other expenses. How much did I estimate vs how much did we actually use to complete the job?

Let me describe a scenario that highlights the power of job costing.

Let’s say you aren’t comparing the actual hours and expenses to the original estimate on any of your jobs.

Instead, you’re charging forward, cranking out the work, keeping customers happy, keeping the world right side up.

If that’s you, your most likely “barometer” of “how you’re doing financially” is by checking your bank account balance.

The problem with that approach is by the time the bank account balance is spelling trouble, you’re months downstream of the source of the problem.

The million-dollar question is “What went wrong?”

What do I change?

How do I prevent this from happening again?

Job costing answers all of those questions.

So, when job costing, you compare the actual man-hours and expenses against the original estimated man-hours and expenses.

Let’s say you estimated it’d take you 100 man-hours to complete that job.

You check your actual hours used, and realize it took 130 man-hours to actually complete the job.

You underestimated the job. You didn’t estimate enough of man-hours.

But because you compared the estimated vs actual (job costing) you now have the power and knowledge to not make the mistake again!

Next time you estimate that type of job, you’re going to take that historical track record into consideration, and estimate the man-hours it takes to do the job more closely with what you’re proven ability is.

The way that contractors do amazing work all year long, have happy clients, and make no money, is they aren’t paying attention to this stuff.

And they underestimate something time and time again. Chronically. And there’s no warning bells clanging anywhere until you run out of cash.

Then you’re forced to do something.

But by that time your back’s up against the wall.

Job costing gives you the power to never get into that situation.

Now, I’m not done yet.

There is even more power to squeeze out of job costing.

And that is getting this job costing feedback in real-time.

Up-to-the-minute reports on the job on how you’re progressing estimated vs actual on man-hours, materials, expenses, and net profit.

What’s the difference between having job costing data after the job is complete vs having it in real-time?

Well, having job costing data after the job is complete helps you not make the same mistake on the next job.

Having job costing data in real-time allows you to correct and make moves to reduce the blow of any overruns that are happening on this job! Before it’s even done.

Let’s say you are about 50% complete on a job you’re doing.

You check your real-time job costing data and see that materials are on track, but you already consumed 75% of the man-hours.

You know that you’re going to run over hours.

What to do?

Well, start thinking.

Could you beef up the crew with some extra help the next day, and crush it out, and get it done?

Sure, you may still be running over hours, but you preserve the day after it’s completed to go on to the next revenue-producing job. Instead of losing that day to opportunity cost and taking an extra day to finish the job you are running over on. Robbing you of that ability to move on to the next job, recover overhead for that day, and more.

Or, is there any chance of upselling something on the job to produce more revenue without incurring additional logistic expenses? If you’re doing a patio, you could potentially upsell some lighting, and add a nice amount of revenue and profit to the job. The higher-than-normal profit margins that come from adding work to a job site you are already present on (without incurring any more logistical expenses) will lessen the blow of the overruns on the patio.

Best of all, the power of real-time job costing gives you the chance to greatly increase the quality of your learning about your crew’s production ability.

Because it’s happening in real-time, all the details are fresh in your mind. And in your crew’s minds.

Have a bit of a powwow with your team and discuss it.

What slowed you down?

How could we have been more efficient?

Did we simply not have enough hours in the estimate?

Or was this overrun an anomaly?

Armed with this information, you are unstoppable.

You have a constant feedback loop.

You immediately know when you win and when you lose.

Long before you run into any cashflow crisis.

And that is the power of job costing.

I have a webinar on this feedback loop, where I go into more depth and detail on how a healthy Know-Your-Numbers feedback loop operates and how you can install it into your business.

Catch it here.

Cheers!

Weston Zimmerman

co-founder & CEO of SynkedUP