Job costing is where your revenue comes from. Poorly designed bidding structure and job costing means that profit margins are decreased or even nonexistent. Conversely, a well designed structure will allow your products to be competitively priced while still retaining useful profit margins. The two biggest mistakes business owners make in job costing are being either too structured or not structured enough. They don’t know where middle ground is, they go from one extreme to the other. Then they become frustrated and give up, leaving a flawed system in place.
Some owners believe job costing must be rigidly structured. However, rigid structure doesn’t equal control.
A rigid structure creates 4 problems:
– no one follows the system because it’s too complicated
– bidding takes too long and no one understands how to do it
– it’s impossible to account for everything, the big picture is lost in details
– managers are left trying to manage things rather than people
Some owners believe any system is too complicated, a SWAG (Sophisticated Wild A** Guess) is good enough.
They have customers, but are losing money because:
– bids are not consistent
– the owner is often doing the bidding and not running the company
– no system usually results in an underbid
– not enough variables are taken into account
Unfortunately there is no short cut to accurate job costing. The work has to be put in, the numbers have to be run. There is no template that works for every company in the world. The variables at play are too numerous. But if you don’t have the time or know-how to build an elegant, straightforward system for bidding and price quoting, you should seek outside help. You may know all the factors, but a skilled consultant will be able to aid with developing and structuring a bid process.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: