Many trades companies assume they're making money because revenue is coming in. But without tracking the true cost of each job, it's impossible to know whether the work is generating profit.
Purpose of This Module
Job costing is how you determine whether your jobs are actually profitable. Many painting companies assume they are making money because revenue is coming in. But without tracking the true cost of each job, it is impossible to know whether the work is generating profit.
The goal of this module is to show how job costing works, what should be tracked on every project, and how to use job cost data to improve pricing, production efficiency, and profitability.
What We're Going to Cover
- What job costing is
- Why job costing matters in a trades business
- What costs should be tracked on every job
- How job costing connects to your P&L
- What a healthy job margin looks like
- Common mistakes owners make with job costing
- How to use job costing to improve profitability
What Job Costing Is
Job costing is the process of tracking the actual cost and profit of each individual job. For every project, you measure revenue from the job minus the COGS (cost of goods sold, or variable expenses) required to complete the job. The difference is the gross profit for that job.
Example Job Cost Breakdown
| Line Item | Amount | % of Revenue |
|---|---|---|
| Job Revenue | $8,000 | 100% |
| Labor | $3,000 | 37.5% |
| Materials | $900 | 11.25% |
| Subcontractors | $1,000 | 12.5% |
| Total Job Cost | $4,900 | 61.25% |
| Gross Profit | $3,100 | 38.7% |
This allows you to see whether the job was profitable and whether the estimate was accurate.
Why Job Costing Matters
Job costing answers the most important financial question in a service business: Are the jobs actually profitable? If you only look at revenue or the bank balance, you cannot answer this.
Job costing helps you:
- Identify which jobs make money
- Identify which jobs lose money
- Improve estimating accuracy
- Detect production inefficiencies
- Control labor and material costs
- Protect your gross profit margin
In a painting company, the majority of financial performance comes from how well jobs are estimated and executed. Small errors repeated across dozens or hundreds of jobs can tank your profit.
The Cost of Under-Charging by Just 5%
On $1,000,000 in sales, under-charging by 5% means:
- $500k GP vs $450k GP — that's 10% less gross profit
- $150k NP vs $100k NP — that's 33% less net profit
Small pricing errors compound dramatically at scale.
What Costs Should Be Tracked on Every Job
To understand job profitability, you need to track the variable costs directly tied to that project. These costs fall under Cost of Goods Sold (COGS).
Labor (32–40% of Revenue)
Crew wages required to complete the job. This is typically the largest cost on most painting projects. It should include painter wages, payroll taxes, and workers' compensation. Labor efficiency has a major impact on job profitability.
Materials (10–15% of Revenue)
All materials used on the job: paint, primer, caulking, tape, plastic, rollers and brushes. Material costs are usually easier to control than labor but still need to be tracked.
Subcontractors
If subcontractors are used, their cost should be assigned directly to the job.
Equipment and Rentals
Lift rentals, scaffolding, and special equipment required for the project should be tracked per job.
What Job Costing Does NOT Include
Job costing tracks variable job expenses only. It does not include overhead (fixed) expenses such as office staff, marketing, insurance, software, office rent, or vehicles not tied to a specific job. Those expenses are tracked on your Profit & Loss statement, not inside individual jobs.
How Job Costing Connects to Your P&L
From Job Costs to Net Profit
| Line Item | Amount |
|---|---|
| Revenue | $1,000,000 |
| COGS (Job Costs) | $600,000 |
| Gross Profit | $400,000 |
| Overhead | $250,000 |
| Net Profit | $150,000 |
If job costs are too high, gross profit shrinks and the company becomes unprofitable even if revenue is strong.
What a Healthy Job Margin Looks Like
We highly recommend your residential work is 50%+ gross profit, and commercial 40%+ (with some exceptions). This margin needs to be strong enough to cover overhead expenses, owner compensation, and net profit. If job margins fall too low, the company must rely on higher volume just to survive.
Common Job Costing Mistakes
Not Tracking Labor Accurately
Labor is usually the largest cost on a painting job. If hours are not tracked properly, job profitability becomes inaccurate.
Ignoring Small Material Costs
Small material purchases across many jobs add up and can distort job margins if they are not tracked.
Mixing Overhead With Job Costs
Expenses like office salaries or marketing should not be included in job cost calculations. These belong on the P&L under overhead.
Only Reviewing Job Profit After the Job Is Finished
For larger jobs, doing a mid-project P&L can be extremely helpful to see where you are landing on the budget. Monitoring job costs during production helps prevent overruns.
Winning Habits
- Use digital receipts whenever possible, and tag them to the job name.
- For physical receipts, each job should have a job folder. All receipts must go in there with the job name on them.
- Make time each week to add them all up, or have your admin do it.
- Have your employees track their hours with a daily job tracker to get granular on labor job costing.
- Consider piece-rate pay — by implementing a pay-for-production system, you will increase your profitability on every job.
- Incentivize your production manager or crew leads with a materials bonus. If materials come in below budget, do a profit share with them.