Job Costing & Profit Strategy

Calculate your annual overhead (office rent, insurance, truck payments, tools, etc.) and divide by your annual labor hours or revenue to get a percentage. Apply this percentage to each job. For example, if overhead is 25% of revenue, add 25% to each job's direct costs.

Net profit margins of 8-15% are realistic for most residential contractors, with gross margins (before overhead) of 40-50%. Higher-end custom work can support higher margins, while competitive repair work typically runs lower. Focus on consistency rather than chasing unrealistic margins.

Track in real-time. Waiting until completion means you can't make course corrections if costs are running over. Weekly updates at minimum – daily is better for larger projects. This helps you spot problems while you can still do something about them.

Track change orders as separate line items within the project, not mixed with original scope costs. This preserves the accuracy of your original estimate analysis and helps you see if change orders are profitable or if you're undercharging for extras.

Markup is added to the cost (cost + 20% = selling price). Margin is the percentage of the selling price that's profit (20% margin means profit is 20% of total price). Use margin for consistency – it's easier to track and compare across projects.

Review every completed project within 30 days of completion while details are fresh. Look for patterns across multiple projects monthly. Major pricing reviews should happen quarterly to adjust for material cost changes and labor efficiency improvements.

Not tracking small materials and supplies, forgetting to include travel time and mileage, underestimating cleanup and disposal costs, and failing to account for warranty callbacks. These "little" costs add up to 5-10% of project costs.

Build 1-3% of project revenue into your pricing as a warranty reserve. When warranty work occurs, charge it against this reserve, not the original project. This prevents old projects from showing false losses and gives you true project profitability.

Not necessarily. High-cost items (appliances, fixtures) can often support lower markups while still generating good profit dollars. Small items (fasteners, supplies) need higher markups to cover handling costs. Adjust markups based on item cost, risk, and market acceptance.

Pay yourself a market-rate wage for your labor time and track it as a job cost, separate from owner profits. If you don't value your time, you can't accurately assess project profitability or make good decisions about growth.

At minimum, a system that tracks labor hours by project, material costs by job, and overhead allocation. This could be as simple as QuickBooks with proper setup, or specialized contractor software like Buildertrend or Sage. The key is consistent use, not fancy features.

First, determine if overruns are due to scope creep (billable change orders), estimation errors, or execution problems. Document lessons learned and adjust future estimates accordingly. For current projects, communicate with clients early about potential overruns and solutions.

When you can't achieve your minimum acceptable margin, when the client's budget doesn't align with realistic costs, or when the project requires capabilities outside your profitable expertise. Sometimes the best job is the one you don't take.

Identify your most profitable project types, client segments, and services, then focus marketing and business development in those areas. Gradually phase out low-margin work. Use historical data to improve estimating accuracy and identify efficiency opportunities.

Stop bidding those job types immediately until you can fix your pricing or processes. Analyze what's causing the losses – unrealistic estimates, inefficient processes, or market pricing that won't support your costs. Either fix the problem or exit that market segment.

Detailed enough to identify problems and opportunities, but not so detailed that tracking becomes burdensome. Start with these: direct labor, subcontract labor, materials, permit, other project costs (like dumpster and port-a-potty rentals).