Are you unsure how much it really costs to deliver on a project? Or do you feel like you don’t have a good grasp on your employees’ workload? Job costing and project-based time tracking can help you price out projects and forecast workloads with more efficiency.
Read on to learn about the benefits of job costing and project-based time tracking.
The Difference Between Job Costing and Project-Based Time Tracking
Job costing and project-based time tracking are terms that are often used interchangeably. And while they are similar, there are some differences between the two.
Job costing is the method of tracking the actual cost to deliver a job or product, including all materials, hours, and overhead needed to deliver a service or product to a client.
Project-based time tracking is a particular method of tracking employee time by having them track their time to specific projects, instead of just clocking in and clocking out.
Calculating the hours required to complete a project is a big part of job costing, and therefore project-based time tracking is a part of job costing.
Is Job Costing Right for Your Business?
Every business should know how much money it costs to deliver a good or service, but not every business needs to take a project-based approach to calculating cost-to-deliver and time tracking.
Job costing and project-based time tracking works best for businesses where either the cost to deliver or the cost to the client changes from project to project. Businesses that offer professional services, like lawyers, CPAs, or marketing agencies often use job costing and project-based time tracking to provide accurate estimates for their services.
Job costing can be incredibly beneficial for construction, design, and trades businesses. Material costs are often high for these businesses, and job costing can help ensure projects stay on budget.
6 Benefits of Job Costing and Project-Based Time Tracking
Job costing and project-based time tracking can help you improve your bottom line. These are just some of the benefits:
#1 Account for how your employees spend their time
With project-based time tracking, you have a zoomed-in view of how your employees spend their time. Because their time is attributed to specific projects, employees are held more accountable for how they spend their time. And as an employer, you can more accurately assess both how long a project should take, as well as how many employees you need to deliver on projects.
#2 More profitable pricing
Without tracking how much it costs to deliver a project, you risk under charging for your services or products.
With job costing, you account for all of the expenses, hours or labor, and overhead needed to deliver on a project. With this accurate picture, you can price your services better, and therefore increase profits.
But what about the cost of doing business that you can’t attribute to specific projects, like your software costs, office rental, and other operating costs? That’s where overhead comes in. A part of job costing is using a simple formula to determine an overhead rate that’s added to every project. That way, you’re still accounting for non project-related expenses in your pricing.
#3 Saves time
Tracking all of your expenses and hours per project sounds like a lot of work, but once you set up job costing processes, you will end up saving time generating proposals and invoices.
You can look at past projects to generate an immediate starting point for costing out new projects. If your client requests a breakdown of costs, you can generate one automatically because you’ve already tracked all of the project’s expenses.
Job costing is the most efficient way to manage project-based proposals and invoicing.
#4 Builds trust with clients and employees
Job costing and project-based time tracking builds trust with clients and employees by increasing transparency. If the final invoice is more than the original estimate, you can easily show clients how the project has gone beyond the proposed scope and provide an exact breakdown of the new cost.
Project-based time tracking also helps build trust with employees by communicating workloads, so employees know how many hours they’re expected to spend on any given project.
#5 Prevent time tracking inaccuracies
Time tracking inaccuracies – whether intentional or not – can cost you a lot of money in the long run. Project-based time tracking makes it more difficult for employees to fudge their hours, because they know how many hours they are estimated to spend on each project, and their hours must be attributed to specific projects.
#6 Plan for a profitable future
When you have a product or service that changes in scope and cost every time, you can’t make big picture decisions without understanding what’s happening on the ground.
Job costing gives you an accurate view of what your largest expenses are and which projects require the most hours. This can give you valuable information, like determining what your most profitable activities are.
Job costing and project-based time tracking has many benefits, but how can you get started?
How to Get Started on Job Costing and Project-Based Time Tracking
Job costing requires some time to set up, but once you’ve started, most processes can be automated, saving you time.
Project-based time tracking platforms are essential to making it easy and seamless for employees to log their hours to a specific project, and for employers to track how many hours are going to a specific project. Employees can also record any materials used for a job, making it easy to add expenses and time on one platform.
The next step should be to establish an overhead rate. A simple way to do this is by dividing estimated yearly labor hours by estimated yearly overhead costs. The resulting number should be added to every hour of labor for a specific project. For example, let’s say you’ve calculated an overhead rate of $10 per labor hour. For a project requiring 10 hours of labor, $100 ($10×10) of overhead should be added to the project.
You can then add this overhead rate to your time tracking platform.
Commonwealth Payroll & HR Makes Project-Based Time Tracking Easy
Commonwealth Payroll & HR offers payroll and time tracking solutions on one platform. By leveraging an array of fixed and mobile tools to capture employee time, employers can provide a method for each employee to accurately track their job time. With mobile access, employees can add time from the jobsite, and remotely. And because we offer payroll solutions too, you won’t have to switch to a different platform to handle any of your payroll needs.
Are you interested in setting up project-based time tracking for your company? Let’s talk.
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