Have you ever finished a project only to realise you barely made a profit, or worse, lost money? Studies show that businesses without a good job management system can lose up to 20% of potential revenue. This loss happens because of wrong pricing and unexpected costs.
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 will explain project costing step by step. We will answer common questions about job costing. We will also show you how to make the process easier with modern job management software.
What is Job Costing?
Project 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 labor hours, 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 profits.
Process Costing vs Job 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. How can you make better decisions about resource allocation and pricing? By tracking project costs, companies can understand their materials, parts, and payroll expenses clearly.
Construction has always used job costing techniques. This is because each project is unique and involves many subcontractors. However, 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 poject 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.
Maximising Profits — Helps improve efficiency and eliminate unnecessary expenses.
Better Financial Planning — Provides a clear picture of project expenses for forecasting.
For example, FWR Pty Ltd is a company that makes heavy haulage trailers. They had problems with their operations because they did not track projects well. By using WorkGuru, they improved project tracking and inventory management. This resulted in a 100% increase in output and a doubling of cash flow, without the need to hire additional staff.
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 gains. This method can help you see where your money is going. It can also help you make better business decisions.
To calculate the cost of your individual jobs, follow these five steps:
Step 1: Define the Job
Failing to track project costs properly can drain profits and create cash flow issues.
Before you can track costs, clearly define what you include in the project. This can be:
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. Here's an example:
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 returns 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 Management 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 management tools, such as WorkGuru, reduce these risks. They offer real-time tracking, work with accounting software, and simplify 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 systems like WorkGuru makes it easier to track costs, send invoices, and analyse profits. Hyserve, a company that designs industrial hydraulic systems, used WorkGuru to improve project management. They aimed to increase efficiency, reduce administrative work, eliminate errors, and save time on admin tasks.
Best Practices for Maximising Your Job Costing Strategy
Using project costing effectively requires more than just calculations; it involves making informed decisions that maximise your profits. These best practices will help optimise your job costing strategy and streamline your workflow.
Use Job Management Software for Accuracy & Efficiency
Project costing is only effective if all direct and indirect costs are accounted for correctly. Ensure you accurately track labour, materials cost, 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 project costing. Train your team and set up transparent processes for logging costs in WorkGuru.
Use Project 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 regularly reviewing past projects, businesses can spot trends, fix problems, and adjust pricing to stay profitable.
Use real-time reporting in WorkGuru to track costs as they happen. So you can make adjustments in the time spent and prevent budget overruns.
Automate timesheets and invoicing to eliminate manual errors, reduce administrative overhead, and and ensure you account for every billable hour.
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 management software is MJK Industries, a Brisbane-based engineering, fabrication, and construction company. They faced challenges with fragmented data and inaccurate project cost tracking. After using WorkGuru, they brought their data together, made processes simpler, and improved financial management. This helped them work better and earn more money.
Conclusion: Get Job Costing Right with WorkGuru
Project 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, optimising pricing, and controlling expenses. WorkGuru automates the process, reducing errors and providing real-time profitability insights.
