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Why is Job costing important?

23 Jan, 2021

In any creative business, the long-term profitability and health of the agency rely on the management team to effectively determine how profitable each client is. and within that Client how profitable each job is. This improves the decision-making on which type of work to undertake. this will ensure future proposals and estimates will be more accurate and ultimately which clients are profitable. 

To get this accurate, you need to pay attention to job costing. This will effectively ensure that your business is profitable and will remain that way. Within the creative and Marcom industries regardless of what you specialize in, your major costs are most likely staff related.

Staff are an important asset in your agency and also a significant cost to your business. Time spent on projects/jobs can never be ignored and should be tracked daily.
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In this blog we will list items that every creative agency should consider in determining Job Cost: 

Daily input on timesheets: Timely job costing is essential.  When cost allocation is done in a timely manner, management can make decisions on jobs on an ongoing basis. Without timely job costing, management could miss an opportunity to identify unforeseen cost overruns that may require a change order to be applied.

Cost per hour: Determining the cost per hour for each employee including overheads leads to the accurate recording. The benefit of recording costs to jobs goes beyond accurate profitability, it also creates better accounting records.  For accurate records, both direct and indirect costs must be properly allocated to the correct job. Having good financial practices, such as accurate and timely cost allocation, helps prepare precise reports and perform an analytical review of projects, which is crucial to making management decisions.

Analyze Cost: An analytical review is a comparison of financial information between the current and prior periods. When completed accurately, a review will show the trends of the business, profitability on contracts, where cost-saving opportunities may be available, and project financial results of the business into the future. Take the following example of what one might ask based on the outcome of the review: 

  • Are the right people doing the work (or is an agency principal doing a junior designer’s work?)
  • Were estimated hours correct?
  • What can be done better next time?

A successful job schedule requires the proper processes and software. A strong job cost system will integrate with accounting software and processes such as tracking budgets and costs as they are incurred. Creating an effective system includes identifying jobs by numbers and type, and the ability to appropriately code costs.

Pegasus Systems is a single source of truth, not only does our platform pack all the features you want for time and cost, and job management, but it has other integrated functions which improve efficiencies. We also have production reporting tools for time and cost transactions, production invoices, order management, and over 15 reporting functions just for the production team.

Our goal is to make Pegasus Edge the industry-leading tool which ultimately improves decision making and allows agency financial professionals to base their decision-making on correct information when it is required.

At Pegasus Systems, our focus is on helping Marcomms Agencies to improve their software systems and as a result, their time and operation management. If you would like any insight, please Contact us – https://au.pegasussystems.com/features/job-management/ 

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