Most job-costing software can tell you whether a project covered its direct costs.
I wanted to know something else:
Did the production on those jobs generate enough money to carry the whole company?
That sounds like a simple question.
The math is simple.
Keeping the payroll, burden, hours, direct costs and overhead behind the answer accurate and current is the hard part.
That problem is one of the reasons I built PaintCurrent.
A profitable job does not necessarily mean a profitable company
A painting project has direct costs:
- productive field labor and its employer burden
- paint and materials
- subcontractors
- other costs that belong specifically to that project
Those costs should stay with the job that consumed them.
But the company also carries costs that don't belong cleanly to one project:
- sales, project management, administration and marketing salaries — with their corresponding burden
- non-production field labor — meetings, training, shop time, maintenance, weather delays — with its corresponding burden
- overtime premium and its corresponding burden
- vehicles
- insurance
- software
- advertising
- rent
- office and professional expenses
- the rest of the cost of operating the business
Those costs don't disappear because they aren't listed underneath an individual job.
Production has to carry them.
That is why overhead per production hour matters.
The formula is easy
Suppose the company incurred $20,000 of actual overhead and generated 625 actual production hours:
Now the overhead number becomes operational.
Every productive field hour had to generate enough money not only to cover its direct labor and job costs, but also to carry $32 of company overhead.
I call this:
True Overhead per Production Hour
Actual company overhead ÷ actual production hours
The important part isn't the division. It's making both sides of that division real.
"True" starts with actual payroll and actual activity
A painter's hourly wage is not the company's complete labor cost.
PaintCurrent works from what payroll actually cost the company, including actual employer burden, and reconciles that with where the employee's hours actually went.
If an employee is paid for 40 hours but spends 35 hours producing customer work and 5 hours in the shop — the company paid for all 40 hours, but economically they did different things.
The 35 hours remain direct production labor.
The five non-production hours, along with their corresponding employer burden, become overhead.
The same principle applies to salaries for sales, project management, administration and marketing. They may be essential to producing revenue, but they are not direct painting labor on an individual project.
That classification matters. Otherwise, job costing can look very precise while answering the wrong question.
Three analyses. Three different questions.
This is where I think job costing often gets confusing.
A painting company needs more than one number.
Hours
Are the crews producing?
Budgeted hours compared with actual production hours measures production efficiency. Keep this analysis about production.
Margin
Did the job make money after its direct costs?
Revenue minus direct productive labor and burden, materials, subcontractors and other direct project costs tells you what the job contributed. Keep this analysis about the job.
Net Profit per Production Hour
Is production making enough to carry the whole company?
Now account for the overhead that those productive hours must support: salaries and burden, non-production field payroll and burden, overtime premium and burden, vehicles, insurance, advertising, software, office expenses and the rest of the company. Keep this analysis about the company.
Hours measure productivity. Margin measures job profitability. Net Profit per Production Hour measures company profitability.
PaintCurrent keeps those analyses separate so one number doesn't distort another.
Why "current" matters
You can calculate overhead per production hour in a spreadsheet.
I did versions of that for years.
The spreadsheet was never the problem.
The work was keeping everything behind the calculation current: actual hours, payroll, burden, production versus non-production labor, materials, subcontractors, salaries, company expenses, credit cards, deposits and bank activity.
Once a year tells you history. Once a month gives you better history. Once a week is much more useful — but it requires a lot more work.
What I wanted was a number that moved when the business moved.
Hire a project manager? Overhead changes. Increase salaries? It changes. Add a vehicle? It changes. Lose production hours to weather while company expenses continue? Overhead per production hour increases. Improve production efficiency? The economics change again.
The company is moving continuously.
The operating picture should move with it.
The bank is the reality check
Job attribution and financial accuracy are related, but they are not the same thing.
Direct materials should be attached to the project that consumed them. Subcontractor costs should remain with the appropriate project.
But some expenses legitimately belong to overhead, and forcing every company dollar onto a job can create false precision.
PaintCurrent uses the company's actual financial activity as the reality check: did we account for the money correctly? Then job costing answers a different question: which project should this cost belong to?
The goal is not to pretend that estimating, payroll, time tracking, expenses and banking all originated in one application. They didn't. The goal is to reconcile them well enough that the owner can manage the company from one current operating picture.
The numbers I ultimately wanted
I wasn't looking for more reports.
I wanted to know:
What are we producing per hour?
What is actual production labor costing per hour?
What does the company cost per production hour?
And ultimately: What is left?
That's the point of PaintCurrent. Not a more sophisticated division. Not another dashboard.
Complete Current Visibility.
Ask your job-costing software better questions
Instead of only asking does it do job costing? — ask:
- Does it use actual payroll and employer burden?
- Does it separate production labor from non-production labor and salaries?
- Does it keep direct materials and subcontractors with the jobs that consumed them?
- Does it calculate actual company overhead against actual production hours?
- Can it show whether productive hours are carrying the whole company?
If not, your software may still be giving you useful job costing. It just may not be showing you the complete economics of producing the work.