Have you ever finished a project only to realise you barely made a profit—or worse, lost money? Studies show that businesses without a proper job costing system can lose up to 20% of potential revenue due to inaccurate pricing and unexpected expenses. You're not alone in this struggle. Many businesses struggle to track their actual costs, leading to underpricing, unexpected expenses, and profit leaks.
In this guide, we'll explain job costing step by step, answer common questions about calculating job costing, and show you how to streamline the process using modern job management software.
What is Job Costing?
Job costing is a process for tracking the total cost of a specific job or project. It includes all direct and indirect expenses, helping businesses determine the actual pricing of delivering a project. Accurately tracking labour, materials, and overhead costs for each project gives you total visibility over your expenses. This allows you to set appropriate prices, control costs, and enhance profitability.
Job Costing vs. Process Costing
Some industries, like construction, fabrication, and engineering, require detailed cost tracking for each project. Others, like mass manufacturing, need a different method called process costing. Here's how they compare:
Job Costing
Process Costing
How it works
Tracks costs for individual jobs/projects
Spreads costs across many identical products
Best for
Custom jobs (construction, consulting, fabrication)
Large-scale production (factories, batch manufacturing)
Pricing Method
Based on the unique costs of each project
Based on average unit cost
Job costing is the correct method for your business if it handles one-off projects, custom orders, or complex service jobs. By tracking project costs, companies can clearly understand their materials, parts, and payroll expenses, allowing for better pricing and resource allocation decisions.
Construction traditionally uses job costing techniques due to project uniqueness and multiple subcontractors, but more industries are now adopting this method, including:
Architecture
Engineering
Construction
Metal Fabrication
Manufacturing
Labour Hire
Trailers, Campers, and Caravans
Boat Builders
Accounting
Electrical Services
Landscaping and Gardening Services
Pest Control Services
Cleaning Services
Why is Job Costing Important?
Here's why job costing is critical:
Accurate Pricing — Ensures you charge enough to cover costs and make a profit.
Cost Control — Identifies areas where you're overspending so you can adjust.
Profit Maximization — Helps improve efficiency and eliminate unnecessary expenses.
Better Financial Planning — Provides a clear picture of project expenses for forecasting.
How to Calculate Job Costing: A Step-by-Step Guide
Breaking job costing into clear steps helps you manage projects efficiently, avoid unexpected expenses, and ensure profitability. This structured approach can also help you gain better visibility into where your money is going and make smarter business decisions.
To calculate job costing accurately, follow these five steps:
Step 1: Define the Job
Failing to track project costs properly can drain profitability and create cash flow issues.
Before you can track costs, clearly define what's included in the project. This should include:
The scope of work
Labour and materials needed
Estimated project duration
Example: Alfresco Shade, which specialises in hospitality shading solutions, transformed from outdated systems to WorkGuru, enhancing project clarity and workflow management.
Step 2: Identify Direct Costs
Direct costs are expenses directly tied to the job, including:
Labour: Wages paid to employees and subcontractors.
Materials: Raw materials, parts, and supplies.
Equipment: Machinery rental, fuel, or usage fees.
Example Calculation:
Description
Quantity
Rate
Total
Project Manager
10 days
$500/day
$5,000
Fabrication Workers
2 workers x 15 days
$300/day
$9,000
Welding Materials
-
-
$2,500
Total Direct Costs
-
-
$16,500
Step 3: Identify Indirect Costs (Overhead)
Indirect costs include business expenses that support job completion, such as:
Many businesses use a predetermined overhead rate to allocate indirect costs.
Note: In Australia and New Zealand, businesses often calculate a predetermined overhead rate based on historical data and projected expenses to allocate indirect costs accurately.
Step 4: Allocate Costs to the Job
Now, combine direct costs + allocate indirect costs to get the total project cost.
Cost Type
Amount
Direct Costs (Labour & Materials)
$16,500
Overhead Costs (allocated at 10%)
$1,650
Total Job Cost
$18,150
Step 5: Set a Price & Ensure Profitability
Add a markup to ensure profitability once you know the total job cost.
The Formula for Pricing:
Example: If you apply a 30% markup, the final price would be $18,150 +(30% x $18,150)= $23,595
Manual Job Costing vs. Job Costing Software
Job costing can be done manually using spreadsheets or automated with specialised software. While manual tracking may seem cost-effective initially, it often leads to errors, inefficiencies, and wasted time. Automated job costing software, like WorkGuru, eliminates these risks by providing real-time tracking, integration with accounting tools, and streamlined workflows.
Below, we compare the two approaches to highlight the benefits of automation.
Factor
Manual
Software-Based (WorkGuru)
Accuracy
Prone to human error
Automated and precise
Time Efficiency
Time-consuming
Fast and real-time
Reporting
Limited insights
Real-time profitability tracking
Integration
Requires manual entry into accounting
Syncs with accounting software
Using job costing software like WorkGuru automates cost tracking, invoicing, and profitability analysis. For example, Hyserve, a designer of industrial hydraulic systems, adopted WorkGuru to improve project management and efficiency, reduce admin workload, eliminate errors, and save hours of admin work.
Best Practices for Maximising Your Job Costing Strategy
Using job costing effectively requires more than just calculations—making informed decisions that maximise profitability. These best practices will help optimise your job costing strategy and streamline your workflow.
Use Job Costing Software for Accuracy & Efficiency
Job costing is only effective if all direct and indirect costs are accounted for correctly. Ensure you accurately track labour, materials, and overhead to avoid pricing mistakes.
Monitor and Adjust Regularly
Job costing isn't something you do just once—it's a continuous process. Keep an eye on your costs regularly, tweak your pricing when needed, and look for ways to save money or work more efficiently.
Communicate with Your Team
Employees need to track their time and expenses for job costing correctly. Train your team and set up transparent processes for logging costs in WorkGuru.
Use Job Costing Insights to Improve Pricing Profits
Your past job data is a goldmine. Analysing job costing reports in WorkGuru helps you refine pricing models, optimise resources, and maximise profits. By consistently evaluating past projects, businesses can identify trends, correct inefficiencies, and fine-tune pricing strategies to maintain profitability.
Use real-time reporting in WorkGuru to track costs as they happen, ensuring timely adjustments and preventing budget overruns.
Automate timesheets & invoicing to eliminate manual errors, reduce administrative overhead, and ensure every billable hour is accounted for.
Optimise material purchasing with better cost tracking, ensuring you never over-order or run out of stock mid-project.
A clear example of implementing job costing software is MJK Industries, a Brisbane-based engineering, fabrication, and construction company. They faced challenges with fragmented data and inaccurate project cost tracking. After implementing WorkGuru, they centralised their data, streamlined processes, and improved financial management, enhancing operational efficiency and profitability.
Conclusion: Get Job Costing Right with WorkGuru
Job costing isn't just an accounting exercise—it's a profit protection strategy. By accurately tracking every project's costs, you can charge the right price, control expenses, and grow your business profitably.
If you're still relying on spreadsheets or guesswork, it's time to upgrade. WorkGuru makes job costing easy by automating cost tracking, integrating with invoicing, and providing real-time profitability insights.
Job costing is used in industries handling custom projects or services with varying costs, such as construction, fabrication, engineering, amongst others.
How is job costing different from contract costing?
Job costing tracks costs for smaller, short-term projects, while contract costing applies to large, long-term projects like civil engineering and infrastructure. Contract costing typically spans months or years, whereas job costing covers shorter timelines.
Can you do job costing in Xero?
Xero alone doesn’t offer job costing, but it integrates with WorkGuru, allowing businesses to track labour, materials, and overhead while syncing financials with Xero.
How can job costing improve profitability?
It helps prevent profit loss by identifying hidden costs, optimizing pricing, and controlling expenses. WorkGuru automates the process, reducing errors and providing real-time profitability insights.
