{{first_name}}, A few months back I sat across from a roofing contractor who said his commercial jobs were the bread and butter of his business. The big new-construction work was his pride.
The residential service calls? He said, "That’s small stuff. Barely worth keeping the trucks on the road for."
So we pulled his jobs apart, one at a time.
The commercial work, the work he was proud of, was running at about a 8% margin once you loaded in the real labour hours, the change-order delays, and the equipment sitting idle on site waiting for other trades.
The "small residential stuff" he barely respected was clearing close to 28% profit.
He had it backwards for six years. He was chasing the bigger jobs, working harder, and quietly getting poorer doing it.
And here's the part that matters. He wasn't a bad operator. He was a good roofer. He just judged the business the way most owners do, by revenue. The phone was ringing, the trucks were busy, the top line was growing. What he couldn't see was that the bigger he got, the bigger the leak got right along with him.
Because revenue and profit are not the same thing. You can win more work than ever and still go backwards. You could be underpricing jobs, underestimating labour, eating change orders you never charged for. The growth hides the bleeding. That's the trap.
That's exactly where job costing comes in. It answers one simple question, and it's narrower than the one most owners ask. Not "Did the company make money this year." But, “Did this project make money?” Not the company. Not the month. That one job.
The best contractors I meet can tell you within minutes whether a job hit its margin. The ones who are struggling are almost always guessing.
Here's the good news, you don't need software to fix it. You just need four columns in a spreadsheet and the discipline to fill them in after every single job.
For each job, break your costs into the big four; labour, materials, subcontractors, and equipment/other and run each one across four columns:
Estimated - what you bid it at.
Actual - what it truly cost once the dust settled.
Variance ($) - actual minus estimated.
Variance (%) - how far off the bid you really were.
That's it. The magic isn't the table. It's the question the table forces you to answer after every job: where did reality differ from the bid, and why?
Do this for 90 days and the patterns jump out. You will find, there is that one crew that always runs over on labour. The one type of job that always eats more material than you quoted. The one GC who drags out payment and ties up your cash for months. None of it shows up on your financial statements. All of it shows up on your job cost sheet. And once you can see it, you finally know where to point your crews.
But job costing does something bigger than tell you which jobs make money. Over time, it tells you which kind of work makes money and that's where most owners are leaving real value on the table.
Think back to that roofer. New construction gave him volume, but it's stop-and-start work. You finish the job and you're effectively unemployed again until the next contract lands. His "small" residential service work was the opposite, it kept revenue coming in month after month, the kind you can actually count on.
When we help an owner sell their business, a sophisticated buyer values a dollar of recurring service profit very differently from a dollar of one-off project profit. Because one comes with certainty and the other comes with a question mark. That's why two businesses with the same revenue don't fetch the same price. The one with predictable, recurring margin is worth more every single time.
The Number: My team has been through the books of hundreds of construction businesses in due diligence over the years. Without fail, the ones without a real job cost system are blindsided by the same thing. Somewhere between 20% and 30% of their jobs lost money, and they had no idea which ones. Not because they were careless. Because they never measured at the job level, so they couldn't see it. And you can't fix what you can't see.
So here's the question worth sitting with this week:
Do you know which jobs made you money last year and which ones didn't?
If you can't answer that cleanly, you're not behind. You're exactly where most owners are. And the fix isn't more marketing, it isn't another truck, and it isn't another hire. It's four columns and the discipline to actually look at them.
Reply and tell me your biggest job costing challenge. I read every one.
Why am I writing this? I have spent over 20 years working alongside construction and trade business owners across Canada. My firm N3 Business Advisors Inc. has helped hundreds of contractors buy, grow, value, and sell their businesses.
I started by career as a teacher and that part of me never left. So once every week, I want to put one lesson in your inbox, for FREE; so you can build a business that buyers will line up to buy. I don’t have any other motivation but to just share the lessons that I have learnt from other successful construction company owners.
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Nitin Khanna, CFA | Founder, N3 Business Advisors | Mastering the Business of Construction