Job Costing 101 for Contractors

What Is Job Costing?

Job costing assigns every expense — labor hours, material purchases, subcontractor invoices, equipment rentals — to a specific job or project. At the end of the job, you can see:

• • What the job actually cost vs. what you estimated
• • What your actual profit margin was
• • Which cost categories ran over budget (and by how much)
• • Whether your estimating is accurate or consistently off

Without job costing, you're running your business on gut feeling. You might be making money overall, but losing money on certain job types, certain customers, or certain trade categories — and you'd never know.

The Four Categories of Job Cost

1. Direct Labor

Every hour worked on a job by you or your employees. This includes the actual wage paid plus payroll taxes (typically 7.65% for FICA) plus any benefits. Don't track gross wage alone — track fully-loaded labor cost.

Example: If an employee earns $25/hour and payroll taxes add 10%, your actual cost is $27.50/hour. On a 40-hour job, that's $1,100 in labor cost — not $1,000.

2. Materials

Every supply, material, and product purchased for the job. Track actual receipts, not estimates. Common mistakes: buying materials for multiple jobs in one purchase without allocating costs properly, or forgetting small purchases (screws, tape, connectors) that add up.

3. Subcontractors

Any outside contractors hired specifically for this job. This is often one of the most undertracked cost categories — invoices come in late, or verbal agreements aren't documented until payment is due.

4. Equipment

Rentals or equipment usage charged to the job. If you own equipment, you can allocate a daily rate to jobs based on ownership cost. Equipment rentals should always be tracked per job.

How to Calculate Job Profitability

Gross profit doesn't include overhead allocation (rent, insurance, vehicle costs). That's your overhead — which gets subtracted at the business level. But tracking gross profit per job tells you which jobs are your most and least profitable.

Why Most Contractors Don't Do Job Costing (And How to Start)

The most common reason contractors don't job cost: it feels like too much work. If you're entering expenses into QuickBooks and tagging them manually to jobs, it is a lot of work.

The simplest starting point:

1. Take photos of every receipt and note which job it's for. Even just doing this step creates a paper trail you can work from.
2. Track employee hours by job, not just total hours. A simple timesheet with a job field is enough to start.
3. Get every subcontractor invoice in writing before you pay them. Create a bill in your system linked to the job.
4. Review each completed job against the estimate. Even a 10-minute comparison after each job teaches you more than a year of gut-feeling pricing.