Keep More Profit: 5 Steps to Better Job Costing

Accurate job costing data can make or break a service business these days, especially as companies in the trades start to emerge from the global pandemic—only to find they now must navigate the challenges of an inadequate supply chain. 

As the costs of labor and materials fluctuate dramatically, Gary Libkuman, Operations Manager at Benjamin Franklin Plumbing, Mister Sparky Electric, and One Hour Heating & Air Conditioning in Howell, Michigan, says he found the best job costing answer for his multi-trade business. He simply leverages the tools available in ServiceTitan’s all-in-one field management software.

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With ServiceTitan’s Pricebook purchasing module, customized business reporting, and new tool to automate timesheets and performance pay, Libkuman says it’s much easier to calculate job costs for all three trades. Before ServiceTitan, the company’s job costing numbers depended entirely on how fast vendors issued billing.

“If some vendors took a significant amount of time, we weren't getting it until we got our P&Ls [profit and loss statements] at the end of the month,” Libkuman says. “Making adjustments in that time period, with the way everything is fluctuating right now, you're going to fall way behind if you're lagging between adjusting your material costs.”

And falling behind on making price adjustments often means your profit margins take a hit. That no longer happens at Benjamin Franklin, Mister Sparky, and One Hour Air.

“That’s the joy of contracting right now, right?” Libkuman says, half-jokingly. “At this point, we're monitoring it week by week, and the ability to adjust the ServiceTitan Pricebook up and down, in a very quick Excel format, makes it very, very nice, to be able to isolate out specific jobs, specific materials, and make those adjustments on the fly.” 

Three years ago, the residential-service company’s annual earnings totaled about $2.8 million. Since leveraging ServiceTitan to calculate job costing, the plumbing-HVAC-and-electrical company is on pace to bring in $10.2 million this year, with about 45 trucks on the road and nearing 4,000 club memberships to guarantee future work.

In a recent ServiceTitan webinar, Libkuman explains how he uses the software to calculate better job costing in 5 easy steps:

1. Set up ServiceTitan’s digital pricebook to remove technician guesswork.

2. Leverage ServiceTitan’s timesheets and performance pay to determine labor costs.

3. Receive purchase orders and update material costs automatically in ServiceTitan.

4. Calculate accurate job costs using data gleaned through gross margin reports.

5. Communicate the entire process to bridge the gap between techs and office staff.

Step #1: Set up ServiceTitan’s digital pricebook to remove technician guesswork. 

The first step to better job costing requires companies to build a pricebook that’s easy for your field technicians to use, and eliminates any need for techs to guess at pricing when providing customers a job estimate.

For Libkuman—who led the implementation of ServiceTitan software with a Pricebook Pro add-on at Benjamin Franklin, Mister Sparky, and One Hour Air—that meant spending the time to create individual pricebooks by trade, which included adding photos, product descriptions, and pricing for each.

The ability to attach materials needed, as well as add or adjust pricing, to a specific task code in the pricebook turned out to be the biggest game changer for the company, he says.

“When a technician goes to the job, and he selects that task code, this list of materials is going to auto-populate for him,” Libkuman explains. “If we have a case where a technician's job costing is coming off a little high on this particular job type, we're able to say, ‘Hey, what's going on with this?’”

The technicians can easily see what materials are required for which job, or included in which package, and they immediately know the costs associated with each task.

“It improves their efficiency in the field, because they're not searching through a multitude of items,” Libkuman says. “We just tried to make 80% of their job more efficient by having it inside of there, ready to go.”

In the beginning, when adding your materials to specific task codes, just ask your team to remain flexible as you launch the new product and take notes when things don’t seem to line up. Change can be difficult at first, Libkuman says, but you’ll become more efficient.

Step #2: Leverage ServiceTitan’s timesheets and performance pay to determine labor costs.

The next step in the job costing process involves figuring the labor side of the equation, or making sure techs get paid what they’re owed, and your company maintains healthy margins. 

Using ServiceTitan’s Contractor Payroll Software feature to easily add bonuses and track timesheets in real time makes it easy for the company to determine labor costs, Libkuman says. As soon as any technician clocks in to do a particular job, that person’s time and labor automatically gets added in.

At Ben Franklin, Mister Sparky, and One Hour Air, the technicians get paid hourly, but also earn bonuses. Managers can easily add bonus pay by clicking on the payroll adjustments tab or building commissions into specific types of jobs. And if a technician forgets to clock in manually, the payroll software automatically clocks them in when they dispatch to the job, and keeps them clocked in until the job is complete.

Once the job closes and you’re ready to invoice the customer, Libkuman says, “you can hit the job costing button, and it’s going to calculate, and give you your gross margin immediately, right there on that job.”

Step #3: Receive purchase orders and update material costs automatically in ServiceTitan.

Libkuman says his company takes the job-costing process in ServiceTitan a step further. His office manager tracks purchase orders to make sure all materials for a specific job actually get ordered, and his warehouse manager replenishes that inventory when the job closes to keep material costs as up to date as possible.

“So, now the tech closed that job up, his labor's in there, his bonus is in there, and he's ordered the material. He is done with this job, as far as he's concerned,” Libkuman explains. “Now this comes to our warehouse manager to replenish the job.

“This is where I get to look at my materials now, and see how we did on that job,” he adds.

To avoid the hassle of material returns, Libkuman says, make sure your material lists default to zero quantities in your pricebook, then let your technicians fill in the amount. Otherwise, if they forget to uncheck a couple of items not used, it can throw off your job costs and inventory control.

“It's easier for them to add the materials they've used, then take it away,” he says. “Because if they miss something and forget, then we have a box of returns we're paying our warehouse manager to process purchase orders for and return back.”

Step #4: Calculate accurate job costs using data gleaned through gross margin reports.

Once ServiceTitan added features to calculate gross margins and total revenue per job, Libkuman says it’s easy to “build a pretty neat report” that tells you whether you're hitting company goals, as well as identify training opportunities to help improve your team’s performance.

“We typically shoot for an average 60% gross margin, across all jobs,” Libkuman explains. Then, his dispatch team filters jobs to locate any particular projects that came in under that goal. 

“Because if we’re under that 60%, we need to isolate,” he says. “Is it a material cost? Is it a labor cost problem? Did I mess something up in the office and add something that shouldn't be there, or was it too short a time?

“We filter it out to get a quick snapshot of what's going on there. That way, we can see training opportunities, and we can see which techs are amazing at certain things.”

For instance, Tech Joe may love to sell toilets, and he meets his margins on every call. Whereas, Tech Mike hates selling toilets, takes more labor hours, and uses more parts. 

“We're able to isolate that kind of thing from this report,” Libkuman says. “Monitoring that on a weekly basis is going to give you a real inclination, week over week, if the tech’s growing, if they're learning. That aspect has been huge for us in our growth.”

Step 5: Communicate the entire process to bridge the gap between techs and office staff.

Be transparent about your company’s performance, and you’ll often gain better buy-in from your field technicians, salespeople, and office staff.

“We're an open book,” Libkuman says. “If anybody wants to see the P&Ls with our technicians, I'm more than happy to show them our P&L, show them why, and everything that goes into that. They know how all of our raises come, they know how we get new trucks, they know how we get nice equipment, and then we rely on the team to help communicate that and get everybody behind that vision.”

His industrious customer service representative, Kayla Bush, also created multiple colorful charts showing the performance numbers for each technician in HVAC, plumbing, and electrical. ServiceTitan helps her keep the numbers updated weekly, and she sends out positive messages to the entire company to showcase their success.

The company’s leadership team also uses the tracking charts to help individual techs create success plans, as well as offer virtual-reality training on specific jobs. In addition, accountability charts outline each step needed for techs to move to the next job level.

“It's just getting that entire buy-in of like, ‘Hey, if we can cut material costs, that means we can spend more money on you guys,’” Libkuman says. “We don't want to hide anything, we want to be just an open book for everyone to see across the entire company.”