In 60 Seconds
- •The Illusion: You sold a job for $10,000. Materials were $3,000. You think you made $7,000. You are wrong.
- •Labor Burden: You must load the 'Fully Burdened' labor rate (Wages + Taxes + Insurance + Benefits). A $30/hr tech actually costs you $45/hr.
- •Commission: Did you pay the sales rep 10%? That's a direct cost.
- •The Real Math: Revenue - (Materials + Burdened Labor + Commission + Permits) = Gross Margin.
- •The Goal: Aim for 50% Gross Margin on Service and 40% on Install. If you don't track it, you will drift to 20% and starve.
Most contractors wait until the end of the year to ask their accountant: "Did we make money?"
That is driving with your eyes closed.
Job Costing is the act of checking the scorecard after every single job. It tells you: "We lost money on the Smith House."
Why? "Because Tech Mike took 8 hours to do a 4 hour job."
The Equation
Gross Profit ($) = Revenue - (Materials + Labor + Subcontractors + Commissions + Permits/Fees)
1. Materials Management
- Stock: Items pulled from the truck. (Need accurate inventory prices).
- PO: Items bought at Home Depot specifically for this job. (Need to attach the receipt to the job instantly).
2. Labor Tracking (The Hardest Part)
- Clock In/Out: Techs must clock into the Job in the app.
- Drive Time: Is drive time a job cost or overhead? (Usually Job Cost).
- Burden: Your software must be set up with the Burdened Rate, not the Hourly Rate.
3. Allocation
- Commissions: If the sales rep gets $200, that is a cost of that job, not general overhead.
Post-Mortem Analysis
Once a week, run a "Low Margin Report". Filter for all completed jobs with <30% Margin.
Investigate:
- Was it a pricing error? (Bid too low).
- Was it a labor error? (Tech too slow).
- Was it a material error? (Price of copper went up).
Fix the root cause immediately.
Verification Checklist
- Price Book Update: Are your material costs current? (Inflation changes them monthly).
- Receipt Capture: Do techs snap photos of receipts?
- Payroll Sync: Does your FSM export hours to your Payroll provider? (Eliminates manual math errors).
Common Mistakes
[!WARNING] Confusing Markup vs. Margin Markup and Margin are NOT the same. Cost: $100. Markup 50% = Price $150. (Profit $50. Margin 33%). Margin 50% = Price $200. (Profit $100. Margin 50%). If you confuse these, you will underprice everything.
- Ignoring Callbacks: If you have to go back to fix it for free, that cost must apply to the original job. It destroys the margin.
- Ignoring Small Parts: "It's just a screw." 1,000 screws add up. Charge for "Consumables."
FAQ
Q: Should I show techs the profit? A: Yes. Open Book Management. If they see they lost money, they will improve. If they think you are getting rich, they will slack off.
Q: What is a good Net Profit? A: 15-20% is Elite. 10% is Good. 20% is dying.
Sources and References
- ServiceTitan: The Ultimate Guide to Job Costing - Methodology.
- Profit First: Accounting for Contractors - Cash flow management.
Changelog
- 2024-07-24: Initial publication.
Read Next in This Hub:
- Dashboard Design - Visualizing the wins.
- CRM vs FSM - The tools to track it.
Related System:
- Automation Architecture - Financial setup.