Knowing how to calculate job costing is essential for determining your service business’ profitability, pricing strategies, and cost control.
Lawn care, landscaping, cleaning, and pest control are just a few of the field service businesses that rely heavily on job costing to ensure accurate financial planning.
When you know how to calculate job costing for your service business, you can easily track the costs associated with specific jobs or projects.
In this guide, we’ll break down the job costing calculation process, key components, and practical tips to apply it effectively in your field service business.
Before we get started, let’s talk about job costing. Job costing is a method of tracking expenses for individual projects or jobs.
You’ll use job costing to assign direct materials, direct labor, and overhead costs to a specific job. In turn, this helps you determine the total cost and profitability of that job.
For example, you could use it to determine the total cost of labor, supplies, materials, and overhead for specific jobs, like mowing, landscaping, or cleaning.
Once you complete a job, job costing helps you pinpoint which jobs are your most and least profitable. As a result, you can review costs and adjust pricing accordingly.
Your prices are set before a job begins. This is where you estimate the time, labor, and materials you’ll use for the job, which is based on previous similar jobs and current prices in the local market. You’ll then add your profit margin based on your goals for scaling.
However, job costing is done after a job is completed, and it tells you how much the job actually cost your business. Using job costing, you can gain insights into multiple factors impacting overall profitability. For example, your labor might cost more than expected or supplies might cost less than your estimate.
In conjunction, job costing and pricing work together to help you pinpoint which jobs are most and least profitable to your service business—allowing you to adjust prices and strategies accordingly.
As a result, you can scale up (or back) on service offerings, negotiate costs with vendors, or raise prices to ensure you’re reaching the desired profit goals.
To accurately calculate job costs, you must track three primary cost components:
These are the raw materials and supplies used specifically for the job.
A landscaping business would use it to track the cost of mulch, soil, plants, and other materials used for a landscaping project.
This includes wages paid to employees who are directly working on the job.
The hourly wages of landscapers and electricians on a landscaping project.
These are indirect costs that support the job but aren’t directly tied to it.
Rent, utilities, depreciation of equipment, or administrative expenses.
Every service business can benefit from job costing. When you know how to calculate job costing, you can easily maximize profitability.
For instance, job costing is particularly useful with calculating variable costs which vary between jobs. Landscaping projects, house cleaning, and lawn mowing are all prime examples of this.
By job costing in your service business, you can develop an accurate estimation of the costs associated with jobs—allowing you to maximize profitability.
To calculate job costing, you’ll add up all of the costs associated with a completed job. Next, you’ll compare it to its generated revenue to see your profitability for the job.
Here’s the formula you’ll use to calculate job costs:
Total Job Cost = Direct Materials + Direct Labor + Applied Overhead
If you don’t know the variables in the above formula, follow along in these steps:
For example, material costs could be:
Plus, instead of manually tracking these, you can keep track of these expenses in a field service software like Service Autopilot.
Here’s an example of how you’ll use the formula:
Total Direct Materials Cost = (chlorine) + (algaecides) + (muriatic acid)
In this step, you’ll add up all of your labor costs directly associated with a specific job. This includes any wages or salaries of any employees who were directly involved with the job.
To calculate, you’ll multiply the number of hours an employee(s) worked on a job by their wage.
You can easily pull this information from your field service software. However, if you don’t have one then you’ll use the formula below. You’ll use this formula for each employee associated with the job to find your direct labor cost.
Here’s the formula you’ll use to calculate direct labor:
Total Direct Labor Cost = ∑(Hours Worked × Hourly Wage)
For instance, if your cleaners are paid $18 per hour and it took two cleaners two hours to complete the job, then your calculation would look like the below example.
Here’s an example of how you’ll use the formula:
Total Direct Labor Cost = cleaner #1 (2 × 18) + cleaner #2 (2 × 18)
Total Direct Labor Cost = $72
Lastly for costs, you’ll need to account for overhead, which are the indirect costs associated with a job.
For example, overhead costs could be:
To calculate, you’ll divide your total monthly overhead by your monthly billable hours to find your hourly overhead.
Here’s the formula you’ll use to calculate hourly overhead:
Hourly Overhead = Monthly Overhead ÷ Monthly Billable Hours
Here’s an example of how you’ll use the formula:
Hourly Overhead = $6,000 ÷ 200 hours
Hourly Overhead = $30
In other words, you’d have to charge $30 on top of materials, labor, and profit in order to cover overhead costs.
Additionally, you can calculate your hourly overhead as a percentage.
Here’s the formula you’ll use to calculate your overhead percentage:
Overhead Percentage = (Hourly Overhead Rate ÷ Total Hourly Cost) × 100
Here’s an example of how you’ll use the formula:
Overhead Percentage = ($30 ÷ $100) × 100
Overhead Percentage = 30%
As a general rule of thumb, you want to keep overhead percentages to 35% or below.
After tracking all three components, sum them up to get the total job cost.
Here’s the formula you’ll use to calculate your total job cost:
Total Job Cost = Direct Materials + Direct Labor + Hourly Overhead Rate
Once you calculate the total cost, compare it to the revenue from the job to determine how profitable it was. Calculate it by subtracting the direct job costs from the revenue.
Here’s the formula you’ll use to calculate your profit:
Profit (or Loss) = Revenue − Total Job Cost
If you get a positive number, then you’ve made a profit. However, if you get a negative number, then it means you lost money on that job.
Use this calculation to adjust your pricing strategy accordingly.
For instance, if you are only making marginal profits, then you’ll likely need to raise prices. Likewise, if your costs were higher than estimated, then it might be time to re-evaluate your suppliers.
Let’s say a landscaping company takes on a new design and build project.
If the client is charged $2,500, the profit is:
$2,350 − $1,947.70 = $402.30
While you should always have a trusted CPA (Certified Public Accountant) maintain your finances, it’s still important for you to keep tabs on your job costing on a regular basis.
Here’s why job costing matters to your service business:
Did you know, field service software is one of the best ways for knowing how to calculate job costing?
Knowing how to calculate job costing is essential for every service business. By accurately tracking direct materials, direct labor, and overhead, you can calculate total costs, set competitive prices, and ensure profitability.
Mastering job costing helps you to reduce waste, improve efficiency, and maximize profit margins. Implementing a reliable job costing system will give you better financial control over your jobs and overall business operations.
Related: Must-Have Elements in Your Cancellation Policy to Win Client Trust
Originally published March 14, 2025 5:02 PM CT
Tags: Business Operation, Featured Post
You must be logged in to post a comment.
