What Is Job Costing in Construction?

By Martin · Updated 2026-02-02
Job costing is the process of tracking all costs associated with a specific construction project. Every expense — labor hours, material purchases, equipment rentals, subcontractor invoices — is coded to a job. This allows you to compare actual costs against estimates, calculate percent complete, and determine true project profitability.

Why This Matters

You cannot manage what you cannot measure. Job costing is how you measure project profitability in real-time, not six months after closeout when it's too late to fix anything.

Without job costing, you're running blind. You know your company made money (or didn't) at the end of the year, but you have no idea which projects were profitable, which ones lost money, or why. You can't calculate percent complete. You can't produce a WIP report. You can't tell if your estimator is pricing jobs correctly or if your field teams are managing costs effectively.

I've worked with contractors who thought they were making 8% margin across the board, only to discover through job costing that three jobs made 15% and two jobs lost 10%. The winners were hiding the losers. Without job costing, they would have kept bidding the same way and kept losing money on the same types of work.

How It Works

Job costing starts with your estimate. You break the project into cost categories — labor, materials, equipment, subcontractors, other — and then break those down further using cost codes. For example:

Every time you incur a cost, it gets coded to the job and the cost code. Your carpenter logs 40 hours on Job 12345, cost code 03-100. Your supplier delivers lumber to Job 12345, cost code 03-200. Your equipment rental shows up as Job 12345, cost code 03-300. At the end of the month, you run a job cost report and see exactly how much you've spent on framing labor, framing materials, and framing equipment — and you compare it to what you estimated.

If you estimated $25K for framing labor and you're at $32K with 60% of the framing complete, you know you're over budget. You can adjust your estimate at completion, you can push back on the crew, or you can look for ways to make it up elsewhere. But you know, in real-time, that you have a problem.

Cost Codes: The Foundation

Cost codes are how you organize job costs. The structure varies by contractor — some use CSI codes (the standard construction specification system), some use their own internal codes, some use a hybrid. What matters is consistency. If you code labor one way on one job and a different way on another job, your reports are useless.

A typical cost code structure has 3-5 digits:

The more detailed your codes, the better your visibility — but also the harder it is to enforce consistent coding. I typically recommend 50-100 cost codes for a mid-sized contractor. More than that and your field teams won't use them correctly. Fewer than that and you lose visibility into where money is going.

The Gap Between Accounting and Reality

Here's the problem: your accounting system knows what you paid and when you paid it. It doesn't know what work was done, where it was done, or whether it's complete.

You buy $10K of lumber on March 15. It shows up in your accounting system as a cost on March 15. But maybe half of it is sitting on the job site waiting to be installed. Maybe some of it went to the wrong job. Maybe your crew used it for something that wasn't in the estimate. The accounting system doesn't know any of this.

That's why job costing requires field input. Your project managers need to review job cost reports weekly and flag discrepancies. "We haven't started framing yet, why do we have $5K in framing materials?" Maybe it was miscoded. Maybe it was delivered early. Maybe it's theft. You won't know unless you're looking.

Common Mistakes

Costs coded to overhead that should be on a job. Your guys grab supplies from the shop for a job, but nobody codes it to the job. It shows up as overhead expense. Your job cost report looks great, your overhead looks terrible, and your estimator is pricing jobs too low because he thinks your actual costs are lower than they really are.

Labor allocated by guess. Your crew works on three jobs in one week. Your bookkeeper allocates labor costs evenly across the three jobs instead of tracking actual hours per job. Now your job costing is fiction.

Equipment rentals not coded to jobs. You rent a lift for $3K, use it on two jobs, and code the whole thing to one job. That job looks unprofitable, the other job looks great, and neither is accurate.

Not comparing costs to estimate. Job costing only works if you're comparing actual costs to estimated costs. If you're just tracking costs without comparing them to the budget, you're doing accounting, not job costing.

The Bottom Line

Job costing is the foundation of every financial metric that matters in construction: percent complete, WIP, margin analysis, earned revenue, estimate at completion. If you don't have job costing, you can't do WIP. If you can't do WIP, you don't know if your projects are making money until it's too late to do anything about it.

Start with clean cost codes, enforce consistent coding from your field teams, and review job cost reports weekly. The contractors who do this well know exactly which jobs are profitable, which estimators are accurate, and which types of work to pursue. The contractors who don't are guessing.