Keys to a Better Year: Job Costing
In construction, there is one very simple reality: In order to be profitable, you have to know what a job actually costs you to perform.
This sounds easy, right?
One of the biggest killers for contractors is not fully accounting for the costs associated with running a business. If every bid is based solely on the direct costs (materials and hourly labor), you’re letting some major expenses fall through the cracks.
There are actually three types of costs you need to keep in mind when running your company: (1) Direct costs (2) Indirect costs, and (3) Overhead expenses.
- Direct costs–these are the costs most contractors base their bids on. Materials, equipment rentals, hourly labor, and subcontractors all make up the direct costs of a project.
- Indirect costs–these are the additional costs associated with a job, such as the time spent preparing an estimate, supervising your crews, or providing benefits for your workers. In addition, things like purchasing small tools, depreciation on your equipment, and liability insurance all fall under this umbrella.
- Overhead–these are the costs incurred irrespective of any particular job. Overhead includes such costs as general office/administrative salaries, company advertising, professional licenses, and the like.
Failing to take these last two types of expenses into account is one of the biggest reasons that so many contractors consistently underbid. When it comes to determining what’s needed to make a job profitable, it’s crucial that all of these expenses be considered.