Job costing is a crucial aspect of your business. It’s vital to set the right prices for your products and services to ensure that your business makes a profit. Although the process may seem simple enough on the surface, it can be tricky and time-consuming to do well. Here’s what you need to know to get job costing right for your business:
How Job Costing Works
The basic principle behind job costing is to determine all of the necessary components of a particular job and how much each of those components costs. These can include parts and materials, shipping and transportation, worker wages, and even overheads to name just a few. The specific components you will use in your job costing calculations will depend on the products or services your company offers and what is necessary to produce them.
Using your integrated business management software (like MYOB Exo) is a key component in getting a handle on the costs involved in each job. Your accounting software will give you a breakdown of your daily overhead costs and your parts invoices, your payroll function will give you an idea of the wage costs, and even your time entry system can give you a better idea whether staff are over-servicing on certain jobs or product production so you can adjust your costs accordingly.
Once you have a general sense of how much each component costs, you can calculate how much the job will cost as a whole. By combining all of the included costs into one figure, you can determine an appropriate price for your products and services to generate income for your business. A job costing module that integrates with all of these modules can pull in the necessary elements and do the calculations for you.
Why Accurate Job Costing Is Important
If you are unaware of the actual costs of producing your company’s goods and services, you run the risk of undervaluing them, thus hindering your business’s ability to turn a profit. If you go too far in the other direction and overprice your offerings, your customers may leave for your competitors who offer fairer prices in relation to the value of the work.
Particularly if you are in a service-related business, you may offer your clients price quotes before you begin the work, so you’ll want your quotes to be as accurate as possible. If you quote too high, you could lose the job to another service provider with lower rates. On the other hand, if your quote is too low, you run the risk of upsetting your customers when the project goes over budget. Job costing will help you find the balance between the two, giving you the most accurate estimates possible.
Future Benefits for Your Business
Aside from benefiting your customers with fair pricing, job costing also has a host of benefits for your business itself. Your preliminary job cost estimates will give you a benchmark against which to compare your actual costs. For example, you may notice that it took your team longer to complete a job than you had originally anticipated, resulting in higher wage costs for the job. This could alert you to potential productivity issues among your team or could be a sign that you are underestimating the amount of work involved. Either way, you’ll be able to adjust your prices accordingly.
Frequent monitoring of your costs will enable your business to stay on top of changes in the marketplace with regards to the price of materials. Even small changes could have major impacts on your costs. If left unchecked for long periods of time, these rising costs could eventually put your company out of business if your prices do not rise accordingly.
Business Management Software Makes It Easy
Calculating job costs by hand is time-consuming and increases the risk of error. It is also extremely difficult to track trends and changes over time. With business management software, like the EXO Job Costing Module from Horizon Business Systems, you’ll have all the data you need right at your fingertips. You’ll be able to print out detailed estimates for your clients, showing all of the information they need to make an educated decision about employing your services. Finally, staying on top of your job costing gives your business the greatest chance of succeeding financially through careful monitoring and adaptation.
To find out how our business management software can give you the power to create more accurate jobs costings, just get in touch with our team today!