¶ Job Costing and Painters' Gross Profit
Welcome to the profitable painter podcast . The mission of this podcast is simple To help you navigate the financial and tax aspects of starting , running and scaling a professional painting business , from the brushes and ladders to the spreadsheets and balance sheets . We've got you covered . But before we dive in , a quick word of caution .
While we strive to provide accurate and up-to-date financial and tax information , nothing you hear on this podcast should be considered as financial advice specifically for you or your business . We're here to share general knowledge and experiences , not to replace the tailored advice you get from a professional financial advisor or tax consultant .
We strongly recommend you seeking individualized advice before making any significant financial decisions . This is Daniel , the founder of Bookkeeping for Painters .
And this is Richard , tax director , with Bookkeeping for Painters . How's it going ? It's going pretty good .
We're here in Chattanooga , tennessee we are . We're still in Tennessee For Brandon Lewis's APPC event , which is we're excited to see folks see a lot of familiar faces and network and everything . So in beautiful Chattanooga the weather isn't that great , but it's a really awesome hotel that we're having the event at .
Yeah , I love so . People probably know I'm originally from the South and so I love being able to come down to the South anytime I can . Southern Tennessee is a beautiful area . We got the mountains in the background . I got trying to find that Chattanooga Choo-choo that they're always talking about . I haven't seen that yet , but maybe .
Yeah , so for get on the train . So today we're going to be talking about job costing and we'll first cover you know what is job costing . Why might you want to do it ? What should you be kind of shooting for ? What are some ? What is , what is a way you can do it . You can do job costing many different ways .
We're going to cover a way , not to say it's the only way , but it's a way you might consider . So first of all , let's cover what job costing is . Job costing is simply the the recording , the revenue , your money received from a project , and then the direct materials and the direct labor to arrive at what the gross profit is on a specific job .
So this is going to tell you your gross profit for each specific job . That's all job costing is . So it's just associating the revenue and the direct costs per project , because when you look at your profit and loss overall , it's just going to tell you overall .
You know you had your revenue , your direct costs , your cost of goods sold and then your gross profit overall , and so the job costing gives you more detailed information on what specifically happened on each particular job .
When you talk about direct costs , you're kind of talking about the things that we don't really have a lot of control over . You know , the cost of the of the paint , the cost of the supplies , the cost of labor to get the job done .
So those are the things that are going to be directly tied to earning that money and you have some control , but probably not as much as you do with other costs like advertising and overhead and things like that .
Yeah , and the reason why job costing is super important is because it basically because a gross profit is super important . Gross profit is probably like the key metric to if I wanna know how well a painting businesses run . I can look at their gross profit and kinda get a real quick idea of how well they're gonna be doing .
And the average gross profit percentage as a percentage of revenue is 40% . That's like the average . If you look at the national data . That basically means that if you do a $10,000 project , the direct cost would be 6,000 , that's the labor and materials , and then what's left over is $4,000 , which is 40% of the 10,000 .
You're talking about gross profit here , which is a little bit different than the money that actually goes into your pocket as the business owner , right yeah .
Yeah , because then after that you have your overhead costs which are not they're not associated with a specific job , just what you need to do to advertise your business . General overhead costs like insurance , those things are not cost of goods sold , they're not direct costs , so those are not included in job costing .
Right , because you're gonna be paying for those , whether you do 100 jobs or 10 jobs , and so the more work you can do , the lower your overhead becomes as a percentage of your total revenue , and I think that's why it's so important to track your direct cost , your job costing , so that you understand where do I need to make adjustments .
If my advertising is not getting me enough work to justify the cost , then do I need to make adjustments there ? Are we making enough revenue to afford having this extra admin labor or an outside office or something like that ? Yeah , yeah .
So that's why it's important what should you be shooting for ? For gross profit , or your gross profit on each job or overall ? Like I said before , average is 40% . We typically recommend starting out shooting for a 50% gross profit , meaning that you're charging your customer twice of what it costs you to do the job . So 100% markup is another one .
It's at 50% gross profit . So if you have a $10,000 project , the direct cost would be 5,000 , which would be labor materials , and then you arrive at your gross profit there at 5,000 .
I've heard some people say like oh man , charge the customer double the cost that it takes to do the job . That seems high . It's not high . It's actually pretty standard for most industries . If you go to a restaurant , the cost of the food they serve you is less than 50% of what they're charging you for it .
If you go to the store to buy clothes , like a retailer , the cost of those clothes to the store itself is much less than 50% of what they're selling it for . So it may sound 50% , man . That may sound high . It's not . It's actually pretty standard among most industries .
Yeah , and there's folks that we work with that have gross profit of like 65% gross profit Granted . They are a larger , more established . They've been around , they have a lot of social proof and established processes , good sales process , but they're getting their gross profit is just blowing 50% out of the water .
So , yeah , 50% is not high , so don't be afraid to . If you can't charge that , you might need to look at your sales process and make that a little bit stronger so you can command a 50% gross profit . But that is a separate podcast . So today we're gonna talk about job costing . How do we actually do the track the cost per job in a stream line of way ?
Now you can keep this simple . I mean you can have a spreadsheet . I know there's a lot of spreadsheets that folks use . I know Nick Slavik's spreadsheet's good , which can work completely . That works fine .
You basically have your revenue for the job , how much you're charging the client and then how much labor you paid out for that job and then how much the materials were for that job . So you can keep track of that on a spreadsheet . It doesn't have to be anything or a piece of paper , it doesn't have to be anything fancy .
Now , as you grow your business this might become a little bit arduous , a little bit difficult to keep track of just this on a spreadsheet or on a piece of paper . So you might wanna streamline your process . So you're actually doing this tracking in your bookkeeping software . Quickbooks Online is what we typically recommend .
So I'll go through a way you can do this , set this up in QuickBooks Online so that the process is done in your bookkeeping records . So the first thing that you wanna do to set this process up so that your job costing is being tracked in your bookkeeping records in your QuickBooks Online , is you wanna have a job naming convention , so the job name .
Typically folks are using something like the name of the customer with the type of project , so like John Smith Exterior , maybe with a year at the end , like 2024 . And then that's a very descriptive name , so it's not like a number .
The problem with like job number five , six , seven , six , eight , four , three is that it's easy to transpose the numbers and when you're trying to communicate this to other people the numbers might get mixed up and everything .
So just kinda keeping it simple with your job naming convention so that it uniquely identifies the project but is also very descriptive , so it's easy . If something is misspelled the paint store clerk misspells John Smith you might still be able to determine what they try to spell . Not always the case , but a lot of times you can .
Oh yeah , I completely agree . We were at Home Depot the other day buying some stuff for the house and when you go to check out they'll ask you do you want an email receipt in addition to the printed one ? And we hit yes and it would not allow me to check out until I put in a name for that project . Now I wasn't , I was a homeowner .
I'm just buying some stuff for my bathroom . But if you've got an easy to remember job costing naming convention you can put in , you know , john Smith , dash 2024 . That's gonna be a lot easier to remember than what . Was it ? 8675309 or whatever the number is , but I thought it was interesting .
Like you know , like these , you know suppliers like Home Depot and Sherwin Williams . They understand the importance of this and they're making it easier for people to match receipts with the jobs and that all goes towards this goal of job costing . Yeah .
Yeah , so establishing your naming convention , that's step number one . And then from there and your in Quipwix Online , what you would wanna do is either use subcustomers or Quipwix projects . I'm not gonna go too deep into this , but I'm gonna kind of just go through the subcustomer way .
Which is a subcustomer is if you look at your customer list in Quipwix Online , you'll see you know all your customers and it should be more likely their name or the company that you did the painting project for A subcustomer is just like an indentation and there's a subcustomer or a job is what it really is underneath that customer , and so you might have John
Smith as the main customer and then underneath them you know , john Smith , exterior 2024 . And then maybe you have John Smith , exterior 2022 . You know . So you have those separate subcustomers underneath the main customer . There's Quipwix projects as well which you can use that and it's a little bit more fancy of a user interface , but it's the same idea there .
And so that's you know . You have your job naming convention and then you have that subcustomer created in Quipwix Online underneath your main customer . And then the next part is your time tracking .
Now , if you're this is for if you're using employees you'll wanna have a time tracker , ideally , that syncs with Quipwix Online and your payroll provider , ideally , but for job costing purposes , at least your Quipwix Online . So the time time trackers that sync with Quipwix Online , there's plenty of them out there .
Quipwix Time obviously syncs with Quipwix Online In most cases it doesn't need to be set up correctly but it syncs with that . And then Clockshark is another one that syncs with Quipwix Online that a lot of folks use . That works great .
So these time trackers , basically they sync over the customer names from Quipwix Online , so those subcustomers and the customer names . That syncs it over into the time tracker so your team can see oh okay , here's John Smith , exterior 2024 . And this is the one that I need to log my time under .
And then , once the hours are approved in the time tracker in Clockshark or Quipwix Time or whatever you're using , it will sync the hours back over to Quipwix Online so that you can have those hours in there . Now an added bonus is if your time tracker can also sync over the hours to your payroll provider . So this might be Quipwix Online .
If you're using Quipwix Online payroll , then it'll make it easy to run payroll . Or if you're using Gusto Clockshark and Quipwix Time Clockshark definitely integrates with Gusto . I think Quipwix Time does as well .
But just finding that time tracker that kind of works well with others that you can use to sync those hours and those customers back and forth , to make things streamlined and easy for job costing purposes .
Yeah , take a step out of the . It'll reduce your admin costs , right Cause you're taking a step out of your payroll processing by automatically syncing those hours over , and then you can approve them and get them paid .
Yeah , absolutely All right , then from there . So that's the time tracking for employees , and these are painters on the job site . Now , if you're using subcontractors , this process , this part , is a lot easier because your subcontractors are probably not tracking their time , so you don't need a time tracker for them .
And if you're paying them by project , that makes it pretty easy , pretty straightforward . It's just a matter of you know . If you're paying them by check in the memo line writing , you know what project that's for , so you can go back in your check register to know it's a matchup .
Okay , this check was for John Smith , exterior 2024 , and that can be coded to that subcustomer in QuipLux Online . Or you could even make it a little bit more streamlined by using QuipLux Online's . They have a contractor pay functionality in QuipLux Online where you can pay your your subcontractor subcontractors with direct deposit inside of QuipLux Online .
It's like an additional 10 bucks a month or something like that , and so you can just basically , at the end of every project , pay your subcontractor right within QuipLux Online and code it to the project , the subcustomer name and the amount , and then it will pay them be a direct deposit . And it also helps with W9 tracking for your 1099s as well .
So that's that's a cool feature if you want to even streamline your , your subcontractor payment process a lot more as well . So that's the labor piece . That's how you might want to consider setting up tracking of time paying of labor for job costing purposes .
Then the next piece is the materials , and so this is you know , ordering from Sheryl Williams or whoever your , your paint store provider is Basically providing that . That job name , you know maybe it's Home Depot , you know , just putting in John Smith , exterior 2024 , and that should be put on the receipt .
And if you're using Sheryl Williams or Dunn Edwards , you know they provide an online portal . They'll have the history of all your invoices that you paid on credit
¶ Job Costing and Performance Pay Simplified
there . So you it will and it will show you you know the job name , how much it was and all that stuff .
And so from there you can actually download that as a CSV and upload it into QuickBooks Online and track those as basically like a credit card in your QuickBooks Online , and it'll make it easy to track each individual material purchase with the job name in QuickBooks Online and so you can go in there , upload it , code it based off of the , the PO number that
was on on that CSV and then you've now categorized all those materials in QuickBooks Online . So it's , it makes that process pretty . You can do it pretty , pretty quick either on a weekly or monthly basis .
Knock that out in a few minutes just by downloading the CSV from Sheryl Williams or from maybe Dunn Edwards and then uploading that into QuickBooks Online and coding that , categorizing that , and so that will get you you know it's coded to materials , obviously with the , the job name , the sub-customer name in QuickBooks Online , and then you have your materials into
QuickBooks Online . Now , from there you know if you've tracked your hours and it's the hours are in QuickBooks Online and you also have the , the materials in there . From there you'll be able to run different reports for job-classing purposes .
If you're using QuickBooks Online projects , you can go into the project and the good thing about QuickBooks Online projects is that you can actually have if the hours are being pushed in from your time tracker . You can go in and assign an hourly rate for each of your employees and it will calculate the labor for you .
So that's kind of a benefit of using QuickBooks Projects . It kind of takes a step out of the labor recording the labor for job-casting purposes in there . So QuickBooks Projects is really good for that , and then , if you're not using QuickBooks Projects , you're just using sub-customers in QuickBooks Online .
You can still get the labor captured in your bookkeeping software . You'll just basically need to do a journal entry for your wherever you're paying your , your payroll . You run your payroll in whatever platform you're doing , and then you'll have to do an entry for your job , for job costing purposes , and so that can get a little bit technical .
So if you need help with that , you might need to get with a bookkeeping professional . But if you're using QuickBooks projects , that process can be made pretty easy , just if you have your time tracking sinking over and then you're just assigning the hourly rate in QuickBooks projects .
So , once you have all this information and you have a really good idea of what each job is costing you , what that is as a percentage of your overall pay or your overall revenue , what are some of the things that we can do with this information ? Should we talk about performance pay ? Daniel shaking his head ?
No , I know , daniel and I both are big believers in performance pay and that's basically incentivizing your employees to be more efficient and more effective and then rewarding them monetarily when they're able to do that . And you really can't do a good performance pay if you don't know what each job is costing you .
You need to be able to quantify how much money did my employees save me on this project and how much money is there for me to give them as a bonus or a reward . And that's where the job costing is gonna come in . So you might set a goal .
You might say , hey , this job needs to come in at X amount of hours , we need to keep our material costs to X amount of dollars .
And you talk to your project manager or maybe the employees directly , if you don't have a project manager and you let them know that if we're able to not waste materials , if we're able to be more efficient , then and we hit these metrics that we're looking for , then I wanna reward you by giving you a portion of the savings .
Yeah , performance pay system can be really powerful .
Actually , Charlie Munger , who just passed away a little bit ago , he was a big proponent of incentives , like making sure you get the incentives right in your business , and so I can't remember what he said exactly , but he was basically like if you get the incentives right , that's like rock up fuel for your business .
Right because we want a lot . So we have our employees and we have the business owner , and the incentives are not always aligned , and we want to try to align those right . When you're an hourly employee , sometimes you start to think like my incentive is to get through the day and clock out as quickly and easily as possible .
The business owner's incentives are to be as profitable as possible , and so performance pay is a good way to help align those incentives , to help the employees have a little skin in the game , sort of speak . It helps them feel ownership of the project and people will do things .
When people feel like they have ownership , when they feel like their contributions really matter , they will be motivated to give you a level of work that is higher than anything you could pay them for . We're human beings .
It's important for us to feel like what we do matters , and so if they feel like , hey , I'm not gonna throw away that 20% paint that's left in the can , I'm not gonna overuse tape , I might be a little bit more efficient with my brush strokes or whatnot , that just kind of gets everyone on the same page and everybody benefits from it .
So yeah , and so you'll need to have job costing set up to do any kind of performance pay for your painter . So that's the key there , and so what we covered today is basically what job costing is what you should kind of be shooting for in terms of your goals . You know , 40% is average , 50% is at least your target starting out .
And then we went through a way to streamline your process using ,
¶ Streamlining Job Costing in QuickBooks Online
you know , a simple to remember job naming convention and QuickBooks projects in QuickBooks Online .
And then setting up your time tracker and ensuring that it integrates with QuickBooks Online like something like QuickBooks Time or Clock Shark , and then making sure that you're getting that PO number , which is the job name , on to your when over your ordering materials from Sherwin-Williams or Home Depot or wherever , and then making sure you're then categorizing the
materials If they're not , you know if you're buying them on credit with Sherwin-Williams makes you upload that CSV spreadsheet into QuickBooks Online and categorizing all the material transactions you know based off of the job name . And so you get your time in your labor .
And then oh yeah , we also talked about QuickBooks paying your subcontractors using QuickBooks contractor pay to record those subcontractor payments really easily and then getting your subcontractors paid with direct deposit . So if you can get those components put together you can come up with a really good streamlined job costing system in your QuickBooks Online .
Yeah , I think you covered that really well , daniel . If folks have questions or maybe you just want to kind of share with us the way you do job costing in your business , grow your painting business Facebook group is where you're going to want to go . Let us know your questions or the things that have worked well for you . We'd love to hear your feedback .