Well, let me rephrase that – it should be focused on that.  Fixed prices, monthly packages, paid upfront, deposits collected or a combination of all of these – if you are not accurately looking at and recording costs per job, you business could be bleeding money.

Let’s look at a real life example, and yes this is more common than you think:

Scenario 1 – no job costing

  • Client has a lawn and landscape gardening business
  • They costed a front garden overhaul at $5000 – including supplies, materials, rubbish removal, trips to suppliers and their time plus a markup they were happy with.
  • They didn’t accurately record job costs so at the end of the job they had no idea if the job was profitable, but they were happy with a sale of $5000.
  • The following week, they quoted another home owner $5000 for a similar front garden overhaul, as that is what they charged last time and it seemed reasonable.
  • The business owner was confused as to why they “were not making any money” but had no way to know why, so continued on in this manner.

Scenario 2 – with accurate Job Costing

  • Client had a lawn and landscape gardening business
  • They costed a front garden overhaul at $5000 – including supplies, materials, rubbish removal, trips to suppliers and their time plus a markup they were happy with.
  • They accurately record job costs so at the end of the job they realised that the job actually cost them $6000 to complete so they made a $1000 loss on the job (as in Scenario 1 they were not taking into account employee wages to the job and this was a large chunk of the costs).
  • The following week, they had a new client request a quote for a similar front garden overhaul, and this time they knew to quote at least $6000 in order to cover their materials and labour and to also cover the markup they desired.
  • The business owner had stopped the bleeding and was back on track.

So if you are in a service based business, how do you record your job costing?

We  have just recorded this video for a client showing them how easy it is in MYOB Account Right Live to track timesheets, expenses and sales all to jobs, and then being able to run a report to show if the job was ultimately profitable.

 

So in both scenarios the first job for $5000 made a loss.  You know what, sometimes we just don’t get it right.  As long as you learn from your error and change your ways going forward, the business should only suffer a small financial impact.

Don’t learn your lesson, don’t track job costs accurately, and a loss of $1000 for every job you quote could see your business not make it to the next year alive.

Paramedics can’t save your businesses life – but you can – with accurate job costing and understanding your profit margins.