How does a small business owner know how to price a job? Or fire a client? Or where to focus their marketing efforts?
To make these types of important decisions, an owner must be able to know their numbers and measure what jobs/clients/ads will drive profitability in their business.
Full-charge, full service, management accounting is internal accounting which helps the business owner put their true numbers to work to make data-driven decisions for the present and future.
One of the most important areas that a business owner needs to get right is how to price jobs and services accurately. The process of job costing tracks the true cost to deliver a service or job so that the business can meet its gross profit margins.
Put simply, job costing is the total of direct labor and materials it takes to complete a specific job. If you want to hit a 60% Gross Profit Margin, then your Job Costing, or ‘Cost of Goods Sold’, needs to come in at 40%. For example, if you price a job out at $1000, then you’ve got $400 to spend in labor and materials (40%). If it takes more than $400 to complete that job, then you’ll be eating into your gross profit margin which in turn negatively affects your net income/profit. Thus, it is imperative that a business accurately job costs and continues to price out jobs accordingly.
We here at Spark are experts at this and love helping our clients make the best decisions possible to drive growth and profitability in their businesses.
After all, if you don’t know your numbers, you don’t know your business!