10 Reasons Why Accurate Job Costing Is Essential For Your Shop
Stop bleeding profits from inaccurate job costing
As a manufacturer, you know the drill: razor-thin margins, customers haggling, and constant pressure to stay competitive. You want to grow, you need to be profitable, and yet, every job feels like a gamble. Unforeseen costs, overrun materials, and miscalculations can quickly erase your hard-earned gains.
That's where accurate job costing comes in.
It's not just about tracking numbers; it's about taking control. Imagine knowing exactly what every job costs down to the last bolt and wire. Picture bidding with confidence, eliminating cost surprises, and optimizing your margins for maximum profit.
When profit margins are the driving force of your business, you need to stay on top of every cost of every job. Otherwise, you might be in for a shock come the end of the year.
From Profit Leak to Cashflow Powerhouse:
The basic principle of job costing? Knowing your true costs per job, every time.
It's not just about ticking boxes - it's about control and squeezing every ounce of profit from your shop floor. Think of it as an x-ray for your margins, revealing hidden waste and pinpointing opportunities for better estimates and quotes, giving you better profitability on every job.
No more "guesstimating" your way to success:
Accurate job costing means predicting future project costs with laser precision. That's bidding with confidence, knowing exactly where you stand. No more sweating over thin margins or watching potential winners turn into profit drains.
Why Use a Job Costing System
How to put the theory into practice
It’s one thing talking about the benefits. Actually making them happen is a whole different ball game.
Understanding true manufacturing costs and knowing which jobs make money is vital not only to success, but to survival. So why are so many owners unable to say which jobs turn a profit and which don’t?
Well, maybe it’s because many try and keep up with the figures using spreadsheets. Sure, accounting systems can do a great job of keeping track of the cash, recording revenues & expenses, or generating standard income statements and balance sheets. But they aren’t designed for manufacturing job costing. Or maybe, they’re still using methods like notes on the back of the traveler or shop paper.
These processes are open to duplicate data entry and prone to human error.
These processes won’t provide the real-time data you need to make timely decisions. Besides, that data will usually only be sporadically reviewed, or not at all. In fact, it will only be of use in hindsight due to the fact it’s only been collected at the end of the job.
That’s where a job costing system comes into play.
To cut to the chase, a job costing system helps you turn the theory into reality and protect those hard-earned profits. It represents a highly efficient way of capturing the exact costs of materials, labor, and overheads of every job in real-time, all the while providing you with the insight you need to stay in control.
The right approach to job costing will deliver benefits across your whole business—and the right system makes it happen.
Why Use Job Costing Systems
The 10 Benefits of Using a Job Costing System
So now, let’s take a quick look through the ten essential reasons why job costing is essential to success in today’s global, connected and highly competitive market.
1. Keep Cash Flowing
We don’t need to tell you twice that cash flow is the life blood of any business, but how does job costing help? Well, by instantly reconciling the relevant costs to each project, a job costing system will power a faster invoicing process to bring in the cash more quickly.
2. Stay in Control
We all know that jobs have a habit of deviating from the original price quoted, but a costing system helps to keep things on track. Continuous monitoring of the production process keeps you on top of what’s going on—and what’s going wrong. That means you’re always in position to identify potential issues and take the action required to avoid profit-burning situations: producing defective items, say, or going over budget.
3. Go for the Most Profitable Jobs
A job costing system will automatically assign costs separately to individual jobs, then calculate the profit margin you can expect from each. And with accurate job cost reports, it’s easy to compare the actual costs of every project to your original estimates. This rich vein of insight lets you identify the most profitable operations, so you know where to focus your efforts.
4. Stay Organized
Good software will provide accurate cost tracking in real-time. By directing specific types of cost into the appropriate accounts, it effortlessly keeps everything in order. Take period expenses such as sales and marketing for example: a system should be capable of automatically grouping them under your income statement rather than classing them as a manufacturing overhead.
5. Boost Profitability
The ability to track costs also means the opportunity to identify possible savings. Job costing tracking in real-time, together with job cost reporting, also bring up to the moment visibility into profitability of each job. And that’s exactly the kind of valuable insight that protects margins and boosts profitability for any manufacturer.
6. Improve Employee Performance
A job costing system doesn’t stop at reviewing your processes. It also measures the performance of your people. By providing the information you need to evaluate individual performance in terms of productivity, efficiency, and cost-control, you’ll always know who’s making the grade—and who needs extra support, training, or simply a rocket up their backside. The simple knowledge that management has access to detailed information has been shown to improve employee performance levels.
7. Transform Complexity into a Piece of Cake
Job costing systems can make life a whole lot easier. Take the way you manage indirect costs as an example: they typically consist of all kinds of diverse items, from employee salaries to machine oil, and can be a pain to calculate. A job order costing system offers the flexibility to automatically trace and allocate each one, completely transforming a very complex task into a straightforward click of a mouse.
8. Go Customized
Whether you’re involved in highly complex operations or more routine tasks, you can customize many job costing systems around your own manufacturing processes, so they work the way you need them to. And the flexibility to scale up as your business grows makes them ideal for manufacturers of all shapes and sizes.
9. Fine Tune Your Business
One of the beautiful things about a job costing system is the possibility it offers to keep getting better. Every time you deliver a job, you get your hands-on fresh data that not only shows exactly how much it cost but breaks down those costs into specifics. You can then use that insight to hone your processes, shave costs, allocate labor more effectively, even negotiate a better deal on materials you‘re buying in bulk.
10. Quote More Accurately
New business is the key to growth. But winning new business depends on hitting the balance between a competitive estimate and a profitable job. Job costing software helps you do just that. By displaying the actual costs involved in a job, it supplies you with the data you need to evaluate and estimate future projects more accurately.
The Bottom Line
An effective job costing system delivers real-time financial insight both into individual jobs and into your shop performance as a whole. In doing so, it offers a myriad of benefits that deliver tangible results to the bottom line of any manufacturer. Controlling costs, automating complex tasks, generating accurate quotes, supporting better decisions, enhancing efficiency, you name it. All of which contribute to the outcome that matters most: boosting profitability.
What’s not to like?
How to Select the Right System
Job costing unlocks higher profits, confident bidding, and manufacturing success. But choosing the right ERP system is a puzzle not many can piece together themselves. Here's how to find the perfect solution:
- Ditch the one-size-fits-all trap. Your manufacturing process should dictate what ERP system to use, from make-to-order, make-to-stock, and everything in between. You need an industry-proven partner that can tailor and mold itself into your unique workflow.
- Demand real-time data, not dusty echos. Live cost insights should flow seamlessly into your accounting, estimating, and quoting.
- Embrace a symphony, not scattered instruments. Find a partner that brings all the parts together into one seamless system, from quote to cash. Don't piecemeal solutions that solve one or two problems and doesn't communicate together.
To Sum it All Up
Job Costing Automation Transforms Your Business
Just like any other business decision, the move to more accurate and more effective job costing needs to be thought through. But in a time of ever tighter margins, one that manufacturers who haven’t already done so really need to make.
Job costing automation as part of a wider ERP software can transform the way your shop operates.
By deploying one completely integrated software solution, you put yourself in control of one truly joined up organization all the way from quote to cash.
- Gain Insight
- Speed Up Processes
- Improve Productivity
- Boost Profitability
- Control Costs
- Streamline Processes
- Automate Tasks
- Make Life Easier
And out yourself in the best possible position for meeting your goals in today's fast-moving market.
Ready to have job costing that gives your business to better profits?
Let's chat and figure out your path to success, together.