Understanding Job Costing: A Straightforward Guide for Small Business Owners

Ever finish a project and wonder, “Did we actually make money on that?” Or find yourself thinking, “Where did all that budget go?” You’re not alone—and that’s exactly where job costing analysis comes in.

So, What Is Job Costing?

Job costing is a method that tracks all expenses tied to a specific job or project, think materials, labor, and overhead.

Instead of lumping your expenses into broad categories, job costing assigns them directly to individual jobs. This gives you a clear picture of the true cost of each project.

Think of it like this: You run a custom furniture business. One client wants a reclaimed wood dining table. Another wants an entire home office setup.Each project is different—so tracking the exact time, wood, hardware, and labor for each job gives you the real numbers you need.

In short: Job costing is like having a mini profit & loss statement (P&L) for every single job you do.

Why Does Job Costing Matter?

If you don’t know what a job really costs, it’s impossible to know what it’s worth. And if you’re making assumptions, you might be:

• Underpricing, and cutting into your profits

• Overpricing, and losing out on business

• Guessing, and hoping the math works out

With job costing, you can:

• Spot budget issues early 

• Price jobs with confidence 

• Create more accurate estimates 

• Identify “money pits” (like tasks that always take longer than expected)

What You’ll Track: The 3 Key Components

Let’s use your furniture shop as the example:

1. Direct Materials: All physical items used in the job: wood, paint, screws, hardware, etc.

2. Direct Labor: The actual hands-on hours your team puts in. Don’t forget to include payroll taxes and insurance—what’s often called “burden.”Note: This typically excludes supervisors or admin staff.

3. Overhead: The trickiest part. These are indirect costs like rent, electricity, tools, or office supplies. You’ll need a system to allocate these fairly (most software can help).

Getting Started (Without Getting Overwhelmed)

Yes, setting up job costing takes effort. You’ll need your team to track time, log materials, and possibly adopt new software like QuickBooks, Jobber, or Buildertrend.

But once it’s in place? You’ll finally be able to answer: 

• “Which types of jobs are our most profitable?” 

• “Where are we consistently losing money?” 

• “Should we keep taking on this kind of work?”

How to Start Today

Don’t aim for perfect—just aim to begin.

1. Pick one current job: Start simple and focused.

2. Track materials separately: Don’t lump them into general inventory.

3. Have your crew log hours for that specific job: A time-tracking app or spreadsheet can work here.

4. Add in overhead: Use a simple labor-based percentage, or ask your bookkeeper for help.

5. Compare costs to the invoice: What did you quote? What did it really cost?

That’s your first job costing report! Take what you learned from your team, your bookkeeper, and the process, and refine it as you move forward. 

You Don’t Have to Be an Accountant

You just need a simple system and a little consistency.Once you build job costing into your routine, you’ll wonder how you ever ran your business without it.

Need help building or improving your job costing system? Let’s chat! We’ve got tools, templates, and no-stress systems that can help you make smart, confident financial decisions...without the overwhelm.