SBTB Ep. 26 | Stop Guessing Your Profit: How to Job Cost Every Project Accurately

SBTB Ep. 26 | Stop Guessing Your Profit: How to Job Cost Every Project Accurately === ​​ Welcome to Success Beyond The Brush - Welcome back to the Success Beyond the Brush podcast, the podcast helping contractors build more profitable and sustainable businesses. In this episode, Consulting4Contractors founder Scott Lollar breaks down job costing, what it is, which expenses belong in your cost of goods sold, and how to determine what you actually made on every project. Scott also explains how accurate job data can uncover estimating mistakes, production problems, underperforming marketing sources, and hidden profit leaks.

Be sure to check the show notes for a free copy of the C4C Job Profitability Spreadsheet. Let's get into it. All right, welcome back to another episode of Success Beyond the Brush. I'm the founder of Consulting4Contractors, Scott Lollar, and I'm flying solo again today.

And once again, we're talking about one of my favorite topics. It's in our financial pillar, and it's job costing. We are heavy on data and understanding your financial data, and what we find is really most people don't really know it. So today I want to talk about job costing.

People throw around that term job costing, and I want to talk about what is it, how do you get it, and how do you know if it's accurate? The question I have for you is, do you know your numbers? Are they accurate? And do you know where to get them so that you can accurately report exactly how much money as a dollar and a percentage you made for each job?

If you don't know that, and your data's not set up to get it, then this episode's for you. Why Job Costing Matters - So first of all, why does it matter that we job cost? Well, first of all, we want to do an analysis of our estimate to our actual. So sometimes we're doing estimates, but they're not accurate as far as our production rate.

Or maybe we're missing something as a substrate or an activity like setup or cleanup or mobilization. So analyzing the project based on the estimate is really important. And I also want to challenge people to make sure they're capturing all their costs. I find that people sometimes miss significant costs because they're not tracking their data well enough.

So you have a lift that might not be in there because the receipt's somewhere else or lost or paid later or whatever. Maybe there's things like dumpsters or maybe your timekeeping's not that accurate. For those of you using subs, you think you've got a guaranteed profit because you pay X percentage every time. But we also know that subs negotiate with you, and sometimes you have to tweak those numbers.

So, are you tweaking those and maintaining your profitability? Are you giving too much profit away? And you're not going to know that until you do the analysis. So I want to acknowledge that more and more of the companies are going away from the traditional employee model, but a lot of you still have employees, and some of you are just using subs.

This will apply to both of you. What Counts as COGS - So what is job costing? It's simply taking your revenue and subtracting your cost of goods sold. So what's included in cost of goods sold?

Well, absolutely, it's the labor. So on an employee model, a W-2 model, it's their wages plus the cost to employing that painter or service technician. So it's their taxes that the company pays. It's the work comp insurance that we pay for them.

You could also include liability, but often we just use that as an expense. We also want to include any benefits we pay. Do you have a PTO policy? Are you paying holidays?

Is there a 401K? Do you have a health benefit? Anything that you have for this employee needs to be attributed to their burden. So we all know that if we paid someone twenty dollars an hour, it doesn't cost us twenty.

It can cost you anywhere from twenty-two to twenty-five, depending on your burden, and we have ways to analyze those costs and set a fee to it. Some influencers out there are just going to give you a number. I think you can do better than just using their number. I think you should create your number.

Now, if you're using a subcontractor model, that's a little easier because we're just paying one set number to that subcontractor. But you still need to know what you pay them for this job and make sure that's in line with our budgeting. Then we have materials. So anything that we bought for this job, whether it's paint sundries, anything that you bought to perform this job is included.

Then there's other items that are not in every job. So maybe this job, you rented a lift, or maybe you needed a toilet rental or a dumpster. Maybe this was a job far away, and you paid travel and per diem and lodging. These are all costs that are associated with this job and should be counted as cost of goods sold.

After you assemble all those costs, then you can deduct them from your revenue, and that's your gross profit. Variable Costs Debate - I want to address something that some people will include, which is called variable cost. I don't typically include these in my cost of goods sold, but I would not call it wrong to do so. Variable cost would be other things that we spend money on, like commissions that we pay a salesperson.

Some people will put a vehicle, like the gas that we put in our vans to drive to these jobs. Those are variable costs, and they're hard to track to one job, so I typically make those expenses below the line, not cost of goods sold. But if you do that, it's not improper. It just is a way to look at it differently, and you're going to have to adjust your targets accordingly.

Gross Profit Targets - So when we do this math, now we just simply have a gross profit both in dollars and in percentage. Now our target nirvana is 50%. I think that's a fair number in our industry. Not everyone can hit that depending on your model.

So I would say anything over 45% is acceptable. If you can get 50% or even higher, that's great. Some of you use dynamic pricing, and I think that's a very sophisticated tool, and I think you... If you use it well, that's fantastic.

So if you can get more for a job than maybe is market rate, then I'm okay with you keeping more of that and maybe you'd achieve a higher gross profit. Those are all dynamics that are outliers. Let's talk about the traditional model. We're looking at 50%.

Anything under 45%, I think you're going to start struggling paying your expenses and making an acceptable profit. So what do I tell people? In the residential world, the repaint world, we are looking for profits of 50%, no less than forty-five. If you're lower than forty-five, you are really going to be taking it on the net profit line, and you're going to be unhappy with what you have left over for yourself.

Residential vs Commercial Margins - Now, I do want to address commercial contractors. Commercial contractors have a slightly different model. Your cost of goods sold will be higher. Your paint costs are going to be much higher than a residential repaint, as much as 5% to 8% higher.

An acceptable GP would be 40%, and some people even slightly lower. Now, why does that model still work? Because your expenses will be a lower percentage of that revenue. So I'm really talking today about residential repaint.

Free Profitability Spreadsheet - Now I want to talk about the C4C job profitability spreadsheet, which we are offering free to anyone that wants it by just using the link in the show notes. Our job costing sheet does the simple math that we just went through, but it will do some additional things. We've included some different fields, such as your different service items. So you do residential interior, residential exterior, you do carpentry, you do cabinets, you do wallpaper, you do commercial.

Whatever you want to add there, you can decipher and select one of those per job. You also can have different salespeople. So if you have two or three salespeople, you can select which one is attributed to this job. You can select different project managers.

You can select different crew leaders and subcontractors. You can actually also select different lead sources. We also have the ability to input your monthly revenue goal. Now, what is the benefit of all that?

Because it gives us more detail about the results of this job, more than just did we win or lose. It gives us a chance to look at different profitabilities per job type, per salesperson, per crew leader, per subcontractor. And so we can analyze the data more than just did we win or lose. So this is what it looks like.

Marketing ROI by Lead Source - You have a lead source. Let me just make it up, the billboard person. And the billboard person says, " Billboards are the best thing ever, and I have a deal for you, and I want you to give me another ten thousand dollars for more billboards." Well, we could go to our job costing sheet, look at all of our jobs that we can attribute to a billboard, look at how much we did with the billboards, what was our profit for these jobs, and we can determine, do we want to drop another ten grand on billboards?

Now, before you say billboard's a ridiculous example, it's just an example. Facebook, pay-per-click, publications, radio, I don't care what it is, all of those people are going to say, "Give me more m - of your marketing dollars," and we need to understand how much revenue did we do with that marketing activity, and how much did we make from it? So you'll see sometimes in a report with a client that some lead sources bring a lot of Karens in. I don't know why, they just do.

And they always make you do more than you bid, and it's always a hassle and a bunch of callbacks, and they're terrible lead sources. I have someone that I've referenced before where he loves this magazine he's in. It's a tabletop, fancy and I think a lot of times magazines are difficult to really attribute to a lead because they're more for branding. But I also think we all love to see our name in a magazine.

So he loved this magazine. I kept challenging him "Hey, you know, I think you're spending too much on this magazine." He goes, "I... The magazine's great.

We get so much work." I said, "Well, let's take a look." Well, it turns out the magazine cost them more to run their ads in the magazine than they had done in total revenue from the magazine. Now, emotionally, he felt great about the ROI for his magazine spend.

The truth is, he had not made a single penny from his magazine spend. Now there were still some other benefits from the magazine for his brand, and he told me later after he heard me reference this in a different podcast, that he did get a big job and it was worth it. We can analyze jobs per lead source. We can analyze them per crew leader.

We can analyze the crew leader and the kind of job. Crew Performance Insights - So another story, we had a client who employed their son, came into the company, and put him with his top crew leader. We saw that crew leader's profit just start to drop boom, and we're like, "Wow, this is weird." So we were able to see this data.

We brought the crew leader in and said, "Hey what's up? What's going on?" because we didn't know if it was a personal thing, what was going on with the, you know, something behind the scenes. Well, they said, "Well, the truth is I'm struggling leading your son on my job sites, and instead of saying anything, I'm just putting the burden on my shoulders and because of your son, my jobs are suffering."

Well, the truth is he didn't know really how to manage this, the new employee, which was a son. He was afraid to say something, so he just said nothing, and his profit plummeted. What we actually did is pivoted. We put that person on a different crew that had a better temperament for training, and both thrived.

So instead of terminating the crew leader, which would have been a mistake, he was our top crew leader, we actually used the data to analyze, "Hey, there's something here we need to check into." So the data speaks to us, and what I really like about data is so many people say, "We're doing great. We're profitable. Everything's great."

I say, "Well, could you show me that?" "Well, I can't show you, but I just feel it." Well, we can't manage our businesses emotionally. We have to do it through data, through fact.

Fact, not fiction, I say often. So this is really critical to track this, and we have the system that you can do it easily, and we'd love to give it to you. Systems to Capture Data - before we end today, I want to acknowledge that a lot of you don't have a good system to manage your data, get it into a place that's usable. And that is something that we are really good at helping our clients do.

So first of all, you need good receipt management. So the idea of when you're buying things that it gets into our system. We have a fantastic system that's seamless, that helps us really put all the data right into the spot where you can easily harvest it. We're using projects inside of QBO, which is really helpful to not have to go mine data in a lot of places.

It's in one place. If you have employees, a timekeeping app is critical. We prefer QuickBooks Time because it's in our system. The other one is using a payroll system that helps us easily job cost.

We prefer QuickBooks Payroll. Using QuickBooks Time and Payroll, those costs for that job, for that employee gets directly attributed into the project. You don't have to go do any math or anything. And then we also have other ways to help you determine your burden.

So having a good chart of accounts, having a good methodology to get your data into the place where you can just easily harvest it is important. So if you can't easily track your numbers and harvest your data to get your true job cost, then you've got a big problem in your business. Get Your Free Discovery Call With Scott Now - If you're not sure how to find this data, if you're not sure how to organize the data, if you don't have a system to get the data in the right places, give me a call.

If you'd like a free copy of the job costing spreadsheet, just click the link in the show notes, and we'll send it to you, including a tutorial of exactly how to use it. If you have questions along the way as you're trying to use it, schedule a call. I'd be glad to talk through it with you This is a critical KPI that you need in your business and we're here to help you get it. If we can help you accomplish that in any way, reach out, schedule a call.

We'd love to help. ~Until next time~ ~See you next time~ Thanks for joining us. We'll see you next time. Thanks For Listening To Success Beyond The Brush!

- Well, that wraps up another episode of Success Beyond the Brush. Accurate job costing allows you to see what your projects are really producing, identify problems before they spread, and make decisions based on facts instead of feelings. If you cannot show exactly how many dollars and what percentage you made on each job, make job costing a priority in your business. You can download the free C4C job profitability spreadsheet using the link in the show notes or video description.

If you need help cleaning up your financial data, organizing QuickBooks, or creating a more reliable job costing system, schedule a free strategy call with Scott today. Be sure to subscribe, leave a review, and share this episode with another contractor who needs to get a better handle on their numbers. Thanks for listening to the Success Beyond the Brush podcast. We'll see you in the next one.