4 Essential Job Costing Tips to Improve Profit
For service-based businesses, job costing is one of the biggest challenges (especially if you’re still using those trusty spreadsheets). It’s a delicate balance between capturing all costs necessary to perform a job and submitting that winning bid. Too high and you’ll be overlooked for more affordable competitors. Too low and you risk runaway costs that eat into your profits. Yes, striking the right balance is a challenge. But it’s one that you can easily overcome with the right processes and systems in place.
1. Start strong with more accurate job estimates
The logic is simple – the more accurate you can cost the job right off the start, the more likely it is that you’ll be profitable. But the process itself isn’t always that simple. If you’re creating your estimates manually, you’re already at a disadvantage. Not only are you starting from scratch on every job (so the whole process takes longer), but your chances of error are far greater.
When you switch to a job costing ERP system, you get a leg up right off the bat. You have easy access to all your past jobs, so you can see what you estimated and what the actual costs were. This allows you to pinpoint where you’re under or overestimating costs and adjust accordingly on future jobs. And you can setup the system to allocate a percentage of your overhead costs to each job, eliminating that manual calculation. When you let the system do the work for you, you’ll be spending less time creating estimates and they’ll be more accurate – a win-win for you and your customer.
A couple bonus tips in this category:
While they won’t be included in your original estimate, be sure to track change orders in your system. Track all additional materials and labour costs so you can understand the full effect on your budget.
If you’re working with subcontractors, review their estimates carefully before rolling that up into the job cost.
2. Give your team a mobile solution to track time and expenses
To truly understand what a job costs to deliver, you need to track every single transaction. Every material used (no matter how big or small the cost) and every hour worked. It all counts. But most companies don’t capture their costs properly because it’s too hard for their people to track them – especially when they’re working in the field. Often they have to fill in paperwork on the jobsite, then hand it in to the office to be coded before it can be entered into the system. There’s a lot of opportunity for manual error here.
A mobile solution will be a game changer. Your team can enter their time, any materials they used and additional expenses in the field, right from their phone or tablet. That information is tagged to the job when they enter it, so it updates the costs automatically, giving your managers a clear view of progress to-date. Not only is it easier for your field team, but it eliminates a lot of manual effort for your office team as well.
Here’s a quick look at how easy it could be with Eralis Anywhere for SAP Business One.
3. Keep a close eye on your costs throughout the job
How many times have you thought a job was on track, only to tally up the costs at the end and realize you’re over budget? Maybe it’s a little over. Or maybe it’s a lot. Either way, now you have a tough choice to make. You either eat the extra costs or have that uncomfortable conversation with your customer.
If you’ve implemented our first two tips, you’ve got a good base in place. Your estimates are in your ERP system and you’re tracking costs more accurately, as they occur (instead of a week or two later). You’ve got the data you need, so use it! Setup reports that give you a snapshot of where each job is at and allow you to dig deeper if you notice things are going off course. You might start with some of the following:
Schedule / Cost Variance by Job
Resource Utilization (by Job or Phase)
You could set a regular frequency to review your reports or check in at specific milestones – the key is to monitor on an ongoing basis, so you’re not caught off guard. This will help you adjust proactively and update your customers of any concerns early on. Labour will always be your highest cost and it’s the hardest to estimate, so pay special attention to labour costs. The better you understand your labour costs, the easier it will be to estimate more accurately on future jobs.
4. Optimize invoicing and receivables
Invoicing your customers accurately based on the costs incurred is the final piece of the puzzle. Integrating the transactional data from your jobs with your accounting system is key here. There’s no re-entry required, so the information your team enters against the job will flow straight through to your accounting team, lowering the chance of an invoicing mistake.
That covers the profitability side. But a job costing ERP solution also helps you manage your cash flow. You can leverage tools to manage progress billing throughout longer jobs, so your receivables keep pace with payables. Simpler processes and less manual effort mean you can invoice customers faster and collect payment faster.
Let your job costing ERP software do the heavy lifting
Keep your team working efficiently and track costs accurately. That’s how service companies grow. With the right systems in place, you can easily achieve both objectives. Our SAP Business One job costing solution integrates the key parts of your business into one system, so your data and your people are fully in sync – whether they’re in the field or in the office.
Ready to learn more?