What counts as a job cost
Direct costs for a job include materials bought for it, subcontractors, equipment rental and the labor hours of workers on it. Overhead, such as office rent and general insurance, is shared across all jobs and is added separately if you allocate it.
Decide in advance which costs you will track by job. Starting with materials and subcontractors is simple and useful.
Set up the tracking
Accounting software usually offers projects, jobs, customers with sub-customers, or classes for this. Pick one method and use it consistently. Tag each bill, expense and invoice with the job when you enter it.
For labor, use timesheets that assign hours to jobs. The pay rate should include payroll taxes and benefits, called a burdened rate, so the cost is not understated.
Estimates versus actuals
Before the job, build an estimate with line items for materials, labor and subs. During and after, compare actual costs to each line. Variances show where estimates are weak: labor underestimated, material waste, change orders not billed.
Update your estimating sheet with what you learn, so next quotes reflect reality.
Billing and work in progress
For long jobs with progress billing, billed amounts may differ from costs incurred. Track billed to date against percent complete. Costs ahead of billing are cash you have fronted. Billing ahead of costs means you hold customer money for work still to do, and that portion is not profit yet.
Your CPA can advise on how to account for work in progress on long contracts.
Allocating overhead
To see true profit by job, spread overhead using a reasonable base such as labor hours or revenue. It does not have to be perfect. The goal is to find out whether a job at your usual markup covers all costs.
Review profitability by job type, customer and size. You may find that small jobs consume disproportionate effort or that one trade is subsidizing another.
Close out each job
When a job finishes, run a job profit report, note lessons, and make sure all costs and invoices are in before you consider it closed. Late vendor bills often arrive weeks later, so check back.
Keep a short summary file for each job with the estimate, final numbers and notes. It is a quick reference for pricing the next one and for resolving any disputes.
A remodeler quotes a bathroom job with a target margin. Tracking shows materials came in on budget, subcontractors came in slightly over, and labor ran well over because of a design change that was never billed. Without job costing the owner would only have noticed that the month felt tight. With it, the owner learns to price change orders and to add a contingency, and the next bathroom quote is more realistic.
Common questions
Is job costing only for contractors?
No. Agencies, consultants and repair businesses all benefit from tracking profit by project.
Do I need special software?
Mainstream accounting software handles basic job costing. Larger needs may use construction or project tools.
How detailed should I be?
Detailed enough to answer pricing questions without burying you in data entry.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.