The buyer of a landscaping company described a moment in his first months that many new owners will recognise. He looked at everything that was broken and wondered how the business made money at all. Which projects made money? Which ones cost money? There was no job costing tying revenue and costs to customers.
Once he looked, some answers were obvious. Crews were driving hours each way to distant customers who were charged for time on site but not for the drive. On one route, the work brought in less than half of what it cost to deliver. He stopped serving both areas.
Why the data is missing
Many small service businesses track revenue by customer and costs in total. Payroll is one line. Materials are a monthly bill from each supplier. Fuel is a card statement. None of it is tied to the job that caused it, so the owner can see the business is profitable overall without seeing where.
The costs that usually get missed
Drive time. Crews are paid for the hours they drive. If customers are only billed for time on site, distant work quietly loses money.
Small purchases. Materials bought on a card at a hardware store, with no customer recorded on the receipt.
Equipment. Wear, fuel and maintenance on vehicles and equipment, which grow with distance and job size.
Callbacks and rework. Return visits to fix or finish a job that earn nothing extra.
Start with a rough cut
Full job costing takes months to put in place. A useful answer can come in weeks.
Group customers by something that drives cost: area, service line or job size. For each group, estimate labor hours including travel, the materials it uses and the revenue it brings. Even rough estimates usually show which groups are clearly profitable, which are marginal, and which lose money.
That is enough to make the first decisions while the proper system is being built.
Build job costing properly
Tie labor to jobs. Time records need the job and should include travel. Field-service software usually captures this as crews clock in and out.
Tie purchases to jobs. Spend cards that require a job or customer at the point of purchase remove the monthly guesswork. One new owner gave his crews cards that capture the customer on every transaction for this reason.
Allocate equipment and vehicles. A simple hourly or mileage rate per vehicle, charged to the jobs it serves, is enough.
Review monthly. Gross margin by customer and by job type, every month, next to the previous months.
What to do with the answer
For work that loses money, there are only a few choices. Reprice it, including charging for travel. Change the terms, such as minimum visit sizes. Group it into routes so the drive is shared. Or stop serving it.
What job costing will not tell you
It will not tell you about overhead. A job can cover its direct costs and still not cover its share of the office, management and insurance. Look at contribution first, then at whether the total covers the fixed costs.
It will not tell you why a customer matters strategically either. A low-margin customer may bring referrals or fill quiet weeks. Decide with the numbers in front of you, not by them alone.
Frequently asked questions
What is job costing?
Tracking the labor, materials, equipment and other direct costs of each job or customer against the revenue it earns, so the profitability of each one can be seen.
How do I find out which customers are profitable?
Tie labor, including travel time, and purchases to customers or jobs, then compare each one's revenue with its direct costs. A rough first cut by area or service line can give useful answers before full job costing is in place.
What costs are most often missed in job costing?
Drive time, small material purchases on cards, equipment wear and fuel, and callbacks or rework that earn no additional revenue.
What should I do with unprofitable customers?
Reprice the work, change terms such as minimum visit sizes or travel charges, group the work into routes, or stop serving it if none of those make it pay.
Where CFOLogic fits
After an acquisition, we produce the rough cut in the first weeks, then set up job costing so labor and purchases land on jobs as they happen. Each month you get margin by customer and job type. Navigator, our software, reads the books each morning so the question "which jobs made money last month" has an answer you can trace to the entries.