Job costing: are your jobs actually profitable?

Job costing means tracking every cost against the specific job it belongs to, so you can see the profit on each job rather than just the business as a whole. Without it, most service businesses know whether the year was good but cannot say which jobs paid for it and which quietly lost money. For job costing in a small business, you do not need accounting software built for a large contractor; you need a consistent habit of tagging costs to jobs.

Here is how it works, a worked example, and where it usually goes wrong.

Why isn't your overall profit enough?

Your profit and loss statement shows totals. Revenue in, costs out, what is left.

That is useful for tax and for the bank, but it hides the detail. A strong year can include several jobs that lost money, carried by a few that did very well. If you keep quoting the losing type of job, you are working harder to stand still.

Job costing pulls that detail out so you can quote, staff and market based on what actually earns.

What costs belong to a job?

Split costs into two buckets.

Direct costs belong to one job and would not exist without it:

• Materials and supplies bought for that job
• Labour hours spent on it, at what those hours cost you (wages plus payroll costs)
• Subcontractors
• Equipment rentals, permits, disposal or delivery fees for that job

Overhead keeps the business running regardless of which jobs you take: rent, insurance, software, vehicles, your own admin time, marketing.

Job costing focuses on direct costs first. That gives you gross profit per job. Overhead then has to be covered by the total gross profit across all jobs.

A worked example

Say a job bills $12,000 before HST. The direct costs come to:

• Materials: $4,200
• Labour: 60 hours at a loaded cost of $45/hour = $2,700
• Subcontractor: $1,500
• Disposal and rentals: $400

Total direct costs: $8,800. Gross profit: $3,200. Gross margin: about 27%.

Now say a second job bills $6,000, with $1,800 in materials and 40 hours of labour ($1,800). Gross profit is $2,400, a margin of 40%.

The bigger job brought in twice the revenue but only a third more gross profit, and tied up 60 hours instead of 40. Per labour hour, the smaller job earned $60 of gross profit and the larger one about $53. Those figures are invented for illustration, but the pattern is common.

Note that HST is not revenue. The $1,560 of HST collected on the $12,000 job belongs to the CRA, minus the input tax credits on your costs. Keep it out of your job profit figures.

Where does job costing usually go wrong?

Our team has extensive experience in project accounting and construction finance, and the problems are rarely complicated maths. They were almost always about capture:

• Receipts not tagged to a job. Materials bought on a general run get lumped into overhead.
• Labour hours estimated after the fact. Memory is generous; the real hours are usually higher.
• Change orders not tracked. Extra work gets done, the cost lands on the job, but the extra billing does not.
• Costs arriving after the job is "done". A supplier invoice shows up weeks later, after the job was already marked profitable.
• Quoting from gut feel. If you have never measured actual costs, your next quote is built on the same guesses.

How do you start without new software?

A simple version you can run this month:

1. Give every job a short code or name. Use it on every receipt, timesheet and supplier invoice.
2. Record labour hours per job daily. Even a note on your phone works.
3. Compare estimate to actual when each job closes. Materials, labour, subs.
4. Calculate gross profit and gross profit per labour hour. The second number is often the more revealing one.
5. Review by job type every quarter. Which kinds of work, customers or areas earn the most per hour?

The answer feeds straight into pricing and marketing. If one service consistently earns more per hour, that is the one to advertise. We walk through that check in which of your services actually makes money?.

When is it worth automating?

Once you run more than a handful of jobs at once, the matching gets tedious and things slip. That is when it helps to have costs attached to jobs at the point they are entered, rather than reconciled later.

An admin system that holds the quote, the job, vendor costs and the invoice in one record makes the profit on each job visible without a separate spreadsheet.

Where Papaya fits

Papaya Admin was built with job costing at its core: jobs and projects with vendor costs, quotes and invoices in CAD with HST, and a lean double-entry ledger. It starts from $4,000 one-time plus Admin Care from $149 a month, and like all our prices those are published on /pricing. See how it works on our CRM & Admin page, or describe your setup through the contact form.

Common questions

What is job costing in a small business?

Job costing is tracking the direct costs of each job, such as materials, labour and subcontractors, against what that job billed. It shows the gross profit on each job instead of only the total for the business.

Should HST be included in job costing?

No. HST collected is owed to the CRA, not revenue, so job profit should be calculated on amounts before HST.

What is the most useful job costing number for a service business?

Gross profit per labour hour is often the most revealing, because it shows which types of work earn the most for the time your team actually spends.