Job costing for contractors: how to know what a job really cost

Job costing adds five lines together.

• Materials: what the job's materials cost.
• Labor: hours x loaded hourly cost. A loaded hourly cost includes payroll taxes and benefits.
• Subcontractors: what you paid the crews you hired out to.
• Equipment or rentals: what the equipment or rental cost for this job.
• Overhead: the cost of running the business that no single job pays for.

Overhead is the cost of running the business that no single job pays for, so it has to be added back in.

1. Annual overhead divided by annual billable labor hours gives an overhead rate per hour.
2. Multiply that rate by the hours on the job.

The setup

• Materials: $4,200.00
• Labor: 60 hours x $38.00 = $2,280.00
• Subcontractor: $1,500.00
• Equipment: $300.00
• Overhead: $90,000.00 divided by 3,000 hours = $30.00 per hour, x 60 hours = $1,800.00

The math

1. Job cost = $4,200.00 + $2,280.00 + $1,500.00 + $300.00 + $1,800.00 = $10,080.00.
2. Profit = bid − job cost = $13,000.00 − $10,080.00 = $2,920.00.
3. Margin = profit divided by bid = $2,920.00 divided by $13,000.00 = 22.46%.
4. Markup on cost = profit divided by job cost = $2,920.00 divided by $10,080.00 = 28.97%.

A bid that looks fine against materials and labor can land thin once overhead is added.

After each job, compare the estimate with the actual, line by line. Where the actual came in higher, change the next bid.