By Kevin Hoffman
Probably the last thing you want to do after finishing a job is to break out a spreadsheet and evaluate it.
But that’s exactly what Chris Moore says you should do.
“Job costing is sitting down and analyzing what your profit is on every project after it’s completed,” says Moore, the founder of Elite Business Advisors, which specializes in coaching painting businesses.
With a good spreadsheet, job costing shouldn’t take more than a couple hours a month. It’s simply a matter of plugging in numbers and running them through a formula. You can compare your percentage profit to the industry best practice of 45%, targeting 50% as the long-term goal. Labor should be around 40% of your cost, with materials making up 10% to 15%.
That leaves a lot of room for savings.
“If you’re not job costing already, you’ll notice a 5% bump somewhere through your gross profit,” says Moore.
Moore points to one client who was pulling in a gross profit of just 30%. As they dug into the ledger, it became clear that the contractor was budgeting far too little for labor in the bid. They were charging around $35-an-hour when the industry average is closer to $60.
Costs like marketing and the various sundries you buy around the office get overlooked if you’re just looking at the P&L project by project.
“We look at it on a month-to-month basis,” Moore says. “And what we find is that a lot of times contractors are profitable on jobs, but when you look at it monthly, they aren’t producing enough work to cover their overhead and their salary.”
Job costing is a great way to measure the accuracy of your estimating, Moore says. There are all kinds of reasons that labor estimates may not go as planned. A common mistake is pricing the cost of painting eaves by the linear foot, forgetting that most of the work time is actually spent climbing up and down the ladder.
“The benefit of doing it after is you get real-time feedback to help better your estimating practices,” Moore says. “When it’s fresh, you can start to understand what happened. You can have a conversation with your crew lead: ‘Hey, we had 10 gallons estimated, we went 14. Was there a gallon that got spilled? Did it soak in the wall more than what we expected?’”
Sometimes business advice doesn’t apply until you reach $5 million, but that’s not the case for job costing.
“I think it’s probably most crucial to the businesses that are under a million,” Moore says. “Just because the numbers matter more.”
Which means that to grow to $5 million, you need to get a handle on this basic but insightful practice.
“Job costing leads you down a path of 18 more questions about your business,” Moore says. “Because when you start analyzing all these different things, it helps you understand what went right, what didn’t, and what you need to fix it in real time, not four months later.”
