Calculating costs on a per-job basis is essential to profitability and productivity.

Source: REPLACEMENT CONTRACTOR Magazine
Publication date: 2009-11-08

By Jim Cory

Before Austin Gutterman starts a job, the proposal at the Texas gutter and gutter replacement company is reviewed by three people: the owner, the production manager, and the warehouseman. Each studies the components that have gone into the selling price. That price includes, besides labor and materials, the company's markup, state retail taxes on materials (8.25%), and an additional percentage to negotiate around. Should some error slip through, the company's software issues a variance report, which indicates if the job, as priced, is higher or lower than it should be. The goal? A 10% net profit on every job, owner Bill Frazier says.

Illustration: Peter Horjus

Companies that analyze job costs give themselves a powerful tool for controlling expenses and managing company profitability by planning for, then measuring, profitability on each unit (job) sold. Energy Swing Windows owner Steve Rennekamp, in Pittsburgh, says that this information allows the company to set daily profit-margin goals, in dollars. He takes job-costing metrics and multiplies by the number and size of jobs sold.

"What affects the margin dollars," he says, "is getting a certain number of jobs done each day." Every Friday the owner, production manager, project managers, and salespeople meet to review forthcoming jobs. Every two weeks all personnel meet to evaluate the quality of completed jobs.

At Capizzi Home Improvement, in Cotuit, Mass., "everything's been checked twice by a second person" before the job is launched, owner Tom Capizzi says. Every job at the company — which does everything from multi-trade remodels to installing storm doors — is logged and costed out. Gross profit results, distributed for monthly company meetings, determine employee bonuses.

Scott Hayes, owner of New York Sash, in Whitesboro, N.Y., says the hour he spends each week over job-cost breakdown sheets enables him to hew closely to monthly, quarterly, and yearly gross margin goals. Job-cost reports show "which department needs work, or whether the cost of your product has gone up and you need to raise your price," Hayes says. Tracking price increases and building them quickly into job costs is a major defense against margin erosion.

Companies that don't monitor their costs and apply that information to the job price "end up giving work away," Frazier says. "If you're not going to make money on it and you know it, why would you do the job anyway? For exercise?"