Tracking job costs: A guide for construction contractors

Did you know that 83% of contractors say their top priority is improving cost estimates for materials and equipment to avoid losing money? This is where construction project cost estimation comes in, as it allows you to set clear limits on expenses throughout the project and secure your profits. In this guide, you’ll learn practical tips and best practices to create a construction budget and how the right software simplifies the process.

Let’s start by understanding why job cost tracking matters in construction.

Why job cost tracking matters in construction

Think of job cost tracking as a fuel gauge on a road trip. If you don’t monitor your fuel level, you risk running out in the middle of nowhere. Just as you’d check your gas tank before a long drive, tracking job costs ensures you have a clear view of where your money is going to make smarter decisions and maximize returns on each project. Major benefits job cost tracking offers include:

Boosting profitability: Cost tracking, especially with the help of construction project cost management software, helps you adjust spending to keep your profit margins healthy and optimize your future pricing. 

For example, if you notice that labor costs are running higher than expected, you can adjust staffing of workers to prevent overspending and ensure your project remains profitable.

Increasing efficiency: Tracking construction project costs provides you with immediate visibility into how much a job is costing as work progresses which helps you spot faulty parts in your workflow and ease planning for future projects. 

For instance, job cost tracking lets you know if a supplier consistently delivers materials late, allowing you to switch to a more reliable vendor to avoid delays that will impact your schedule. 

Promoting accountability: When costs are closely tracked, your crew and subcontractors are more likely to avoid unnecessary spending and stay within budget. Tracking costs enhances transparency with clients because they have a clear understanding of where their money is going.

Accurate job costing in construction allows you to review past expenses so you can avoid costly mistakes, create more accurate estimates for future jobs, and build client trust with transparent pricing.

Cost terms for construction projects

To accurately estimate construction project costs, you need to understand the main cost categories. Let’s take a close look at each one: 

Labor costs

Labor costs include wages paid to your crew or any administrative staff. For example, paying a carpenter $25 per hour for 40 hours of work on-site is a direct labor cost.

Material costs

Material costs cover all the physical supplies needed to complete a project. This includes lumber for framing, concrete for foundations, screws, nails, and adhesives.

Equipment costs

Equipment costs involve the purchase, rental, or maintenance of tools and machinery. For example, renting an excavator for site preparation or maintaining company-owned vehicles.

Subcontractor costs

Subcontractor costs are payments made to specialized trades hired for specific parts of the project. A common example is paying an electrician to wire a building.

Overhead costs

Overhead costs are indirect expenses that support your project but aren’t tied directly to construction work. These can include office rent, project-specific permits, and administrative costs.

Why assigning costs to specific projects matters

When you don’t properly allocate construction project costs, you risk overspending and struggling to stay profitable. Assigning expenses to specific jobs helps you:

• Know exactly how much you’re spending on labor, materials, and equipment per project.
• Identify potential budget issues early so you can adjust before it’s too late.
• Use past project data to create more accurate construction project cost estimations.

However, manually tracking these expenses can lead to incorrect data entries or miscalculations. That’s where construction project cost management software proves its value, as it makes it easy to categorize your expenses. Some popular options include Procore, QuickBooks Online, and Foundation Software.

On a last note, the more organized you are with assigning costs, the better control you have over managing your budget and making profits. 

How to calculate construction job costs

If you’re not tracking job costs accurately, you could be losing money, as small miscalculations can throw off your entire budget. Let’s break down how to calculate construction job costs step by step.

Step 1: Track labor costs efficiently

Labor is one of the biggest expenses in construction, so tracking it accurately is key to staying profitable. Here’s how:

• Track Hours: Use time-tracking tools like Bookipi to log employee hours automatically and reduce manual errors.
• Account for Overtime: Overtime pay can quickly blow up costs, so monitor it closely to avoid overruns.
• Include Benefits: Don’t forget to add health insurance, retirement contributions, and workers’ compensation when calculating labor costs.

Step 2: Use a formula to calculate total costs

Once labor is accounted for, you need to calculate the total construction project cost. Here’s a straightforward formula:

Total job cost = labor costs + material costs + equipment costs + subcontractor costs + allocated overhead.

Let’s say you’re building a residential garage:

• Labor costs: 120 hours at $25/hour = $3,000.
• Material costs: Lumber, nails, and concrete = $7,500.
• Equipment costs: Excavator rental for 2 days = $1,200.
• Subcontractor costs: Electrician = $1,800.
• Overhead allocation: Office utilities and permits = $1,000.

Total job cost: $3,000 + $7,500 + $1,200 + $1,800 + $1,000 = $14,500.

Pro tip: 

Try Bookipi’s free contractor estimate template to categorize and calculate your expenses.

Step 3: Reconcile payroll data

If you don’t properly review your payroll, you could end up overpaying employees or miscalculating taxes, which are costly mistakes that can eat away your profits. Best practices to keep your payroll accurate and avoid common pitfalls include:

• Compare payroll with timesheets: Ensure the hours recorded in your payroll system match the actual hours worked. Use GPS-enabled time-tracking tools like Bookipi People to prevent misreported hours or manual errors
• Include all payroll expenses: Take into account the full cost of labor including payroll taxes, benefits, and bonuses when calculating job costs. 
• Assign labor costs to the right projects: Use software like Bookipi to categorize your payroll costs per project, especially when running multiple projects at once.

By accurately tracking and reviewing your job costs, it helps you confidently ask for payments, and keep to your budget all through the project.

Strategies for tracking materials and subcontractor expenses

Failing to properly track your material and subcontractor costs can allow you to waste materials, overpay subcontractors and drain your budget. Strategies to improve your construction project cost management and keep your projects running smoothly include:

Tracking material costs and reducing waste

Use inventory management tools: Ever had materials go missing on-site or ordered more than you actually needed? Construction inventory management tools like Buildertrend help you to track materials ordered, delivered, and used to prevent over-ordering and reduce waste.

Create a detailed material list: Before your project begins, create a detailed material list that includes exact quantities and specifications. This helps you avoid over-ordering or running out of critical supplies mid-project.

Train your crew on efficient usage: Educate your crew on efficient cutting techniques, like cutting dry walls more precisely to reduce material waste and save more money over time.

Managing your subcontractor expenses

Track invoices and payments: Use invoice software like Bookipi to log invoices, track payment schedules, and avoid duplicate payments. If you don’t know how to invoice as a contractor or subcontractor, Bookipi offers an easy, professional way to create and send invoices.

Set clear contracts: Before work begins, have a well-defined independent contractor agreement that outlines:

• Payment terms (e.g., hourly rates or flat fees).
• Scope of work to avoid disputes about what’s included.
• Billing frequency and documentation required before payments(e.g., time logs or material receipts).

Setting clear contracts helps you wisely manage your budget, prevent disputes over pricing, and avoid unexpected costs.

Request itemized invoices: Ask subcontractors to use the right invoicing software to break down their charges, including the hours they’ve worked and their pay rate or the supplies they’ve purchased for the project. This billing practice clarifies what you’re paying for and prevents you from paying for unnecessary expenses.

In conclusion, using construction project cost management software to track materials carefully, and applying clear billing practices when managing subcontractor expenses, makes certain that you manage materials wisely and pocket some cash.

Leveraging Bookipi software for streamlined job cost tracking

Whether you’re tracking job costs, material expenses, or subcontractor payments, Bookipi makes job cost management easy by organizing your expenses and making invoicing easier. 

Best in class features Bookipi offers to help you take control of your costs include:

• Real-time tracking: See your expenses as they happen so there are no surprises.
• Expense categorization: Easily sort costs into labor, subcontractors, and overhead for better budgeting
• Detailed reporting: Generate clear, professional reports in just a few clicks.

Get started with Bookipi software: Explore Bookipi today and see how it can help you manage your construction budgets smarter and secure the bag!