Building up a construction company is not an easy venture. It takes money, it takes determination, and it takes hard work. Given these requirements, you will need every edge you can get. That’s why having access to the proper construction project management software such as a suitable job costing tool can be the difference between making or losing money in your business.
Construction companies use job costing software for several purposes, but the primary reason is better to understand their bottom line in terms of financing.
Using job costing software: before or after tendering?
Using job costing software before tendering will allow you to gain a greater understanding of how much you should charge for each phase of a project. It will also let you know if you’re offering the right services at the right price points. If you can’t get the pricing right, don’t expect to win a contract.
But, what if you already have a contract? Using job costing software after tendering will allow you to create an accurate profit margin per total cost for each phase of the project. This will enable you to give your clients an accurate quote and document your work in case change orders occur, which they often do on construction projects.
Benefits of job costing software
Calculating profit margin
Job costing software can save you money by automatically calculating your profitability after each phase of a project. You can track the costs associated with handling change orders and recognize that your profit margins are much higher on jobs that don’t have any change orders. This helps you know which jobs you should pitch and which ones to avoid. Job costing software also generates timecards so you can keep track of employee productivity. You can use the information to determine how much time was spent on particular tasks to understand better how your labor costs stack up against other projects. Also, when working with subcontractors, job costing software will help manage invoices and avoid billing errors.
The financial information you collect from job costing software helps you understand how profitable a particular project was overall. If you don’t use job costing software, you’re effectively only managing the end of each project. You can accumulate your profit, analyze it, then move onto the next project without having any insight into the profitability of previous projects comparable to one another. The more complex and frequently repeatable the project is, the bigger your potential savings will be by switching to job costing software. For example, suppose you’re a plumbing contractor, and you use job costing software. In that case, you can quickly and easily compare the profit margin of your plumbing installation jobs (which are comparable and repeatable) with your renovation jobs. Knowing this information will allow you to make better decisions about pitching a job with lower profit margins but higher security.
Reducing costs with pre-qualification requirements
Pre-qualifications are simply standards that customers must uphold. When these standards become part of your tender process/quotation process, they help reduce the overall costs associated with each project.
Using job costing software and pre-qualifications is a great way to reduce costs on every project by ensuring that you’re only working with qualified contractors. Your jobs will also have less of a chance of incurring change orders because clients won’t want to pay for new items on the job until they’ve seen the completed work. Furthermore, by pre-qualifying projects in advance, you can avoid losing work, saving time and money, as well as reducing your overhead costs.
Impact of job costing software on final project costs
In general, a company that uses job costing software will charge less for projects than competing companies. This is because the company has more information about the profitability of its projects due to its use of job costing software. While other companies are guessing about their profit margins, the construction company using job costing software will make a solid estimate that they can justify with numbers. If your estimates are inaccurate, you’ll be able to recognize them and adjust accordingly before you start incurring change orders on jobs.
If you don’t use job costing software, you are at a competitive disadvantage compared to your competition. Your projects will be overpriced, and your profitability will be low. Plus, if you’re forced to make changes on a project after the work has begun, your profit margins will suffer even more.
Construction is a lucrative and dynamic industry, but that means it’s got its share of challenges. It also has a substantial risk factor that can result in financial consequences for contractors.
So why use construction job costing software? The answer is clear…the price of your contract. The prices of your jobs will vary depending on the size and complexity of the project, so anyone who uses construction job costing software will benefit hugely in terms of saving money.
Founder Dinis Guarda
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