One of the biggest mistakes I see contractors make is judging a project's success by the size of the contract.
The thinking usually goes something like this:
"We landed a $50,000 job. We must have made money."
Maybe.
Maybe not.
Revenue tells you how much work you sold.
Job costing tells you whether the work was actually profitable.
And for contractors throughout Los Angeles, Whittier, Pico Rivera, Santa Fe Springs, and surrounding areas, understanding job profitability can be the difference between growing a successful company and constantly struggling with cash flow.
Job costing is the process of tracking all the costs associated with a specific project.
This typically includes:
Labor
Materials
Subcontractors
Equipment rentals
Permits
Fuel
Other direct project expenses
Instead of looking at your business as one giant bucket of income and expenses, job costing shows you exactly where money is being made—or lost.
Let's say you complete two projects.
Revenue: $40,000
Revenue: $25,000
Most business owners immediately assume Job A was more successful.
But after reviewing the costs:
Revenue: $40,000
Costs: $37,500
Profit: $2,500
Revenue: $25,000
Costs: $17,000
Profit: $8,000
Suddenly the smaller project was actually the better job.
Without job costing, it's almost impossible to see that.
Construction companies throughout Los Angeles County are dealing with rising costs.
Material prices fluctuate.
Labor costs increase.
Fuel costs change.
Subcontractor rates move up and down.
If you're not tracking costs by job, you may discover too late that your estimates are no longer producing the profit margins you expected.
One of the best features in QuickBooks Online is class tracking and customer/job tracking.
When implemented correctly, you can review:
Profitability by project
Labor costs by job
Material costs by project
Gross profit by customer
Unfortunately, many businesses never set these features up correctly.
As a result, all expenses get lumped together and valuable information gets lost.
Instead of asking:
"How much revenue did we generate?"
Ask:
"Which jobs actually made us the most money?"
That's the number that drives growth.
Not sales.
Not invoices.
Not contract amounts.
Profit.
If you're a contractor in Los Angeles, Pico Rivera, Whittier, Santa Fe Springs, or anywhere in Southern California, job costing can provide insights that basic bookkeeping cannot.
The companies that understand job profitability often make better decisions about:
Pricing
Hiring
Bidding
Growth
Cash flow
Because at the end of the day, revenue is interesting.
Profitability is what keeps the business alive.
At DJO Bookkeeping, I help contractors and small business owners throughout Los Angeles County organize their books, track job profitability, and gain clarity about their numbers.
Disclaimer: This article is for informational purposes only and is not accounting, tax, financial, or legal advice.