Job Costing for Home Service Businesses: Finding Your True Margin

Here is the uncomfortable pattern behind most struggling home service businesses: they are busy. The schedule is full, the phone rings, and the bank balance never grows. The reason is almost always the same. Nobody has ever loaded the real cost of labor and overhead into a single job to see whether it actually made money. Job costing is the discipline that surfaces the truth, and for most trades owners it is the difference between mistaking activity for profit and actually running a profitable company.

Revenue Is Not Profit

The most dangerous number in a home service business is revenue, because it feels like success while hiding margin problems. A company can run full schedules on jobs that barely break even once true costs are accounted for, and the owner will conclude the answer is more volume, which only multiplies the problem. Profit, not revenue, is what funds payroll, equipment, and the owner's living, and profit is invisible until you measure cost at the job level.

This is why two companies with identical revenue can have completely different bank balances. The one that knows its true cost per job prices with margin and steers toward profitable work. The one that prices off a rough markup and never looks back accumulates a schedule full of jobs that individually feel fine and collectively starve the business.

The True Cost of Labor

Labor is where job costing most often goes wrong. Owners price off the technician's hourly wage and forget everything stacked on top of it. The fully loaded cost of a technician includes payroll taxes, workers compensation, benefits, and, critically, non-billable time: drive time, training, callbacks, and the hours between jobs.

A technician paid $25 an hour commonly costs $38 to $45 an hour once taxes, insurance, and benefits are loaded in. And if only 60 percent of their paid hours are actually billable, the effective cost per billable hour climbs higher still, because you are paying for the non-billable 40 percent out of the billable jobs. Pricing a job off the bare $25 wage instead of the fully loaded billable rate is the single most common reason trades work quietly loses money, and it compounds on every labor-heavy job.

Loading In Overhead

Gross margin (revenue minus materials and direct labor) is where most owners stop, and it is where the illusion lives. A job can post a healthy 45 percent gross margin and still lose money once overhead is allocated: vehicles, fuel, office and software, insurance, advertising, and the owner's own time. Net margin, what remains after all of that, is the number that actually matters.

Allocating overhead does not require accounting software to start. Take your total monthly overhead and divide it by the number of jobs you complete in a month to get a rough per-job overhead load, then subtract it from each job's gross profit. The result is sobering for most owners the first time they run it, and it is exactly the figure that lets you decide whether financing fees are affordable on a job, the kind of margin-aware decision that offering financing depends on.

Targets and the First Step

A well-run residential service business typically targets a net profit margin of 10 to 20 percent after the owner has been paid a market wage for their own work. Many trades operate below 8 percent without realizing it, precisely because they never load overhead into job costs. The path to the higher end is usually not a blanket price increase; it is identifying which job types and service lines carry margin and steering the business toward them.

The simplest way to start needs no software. Pick your five most common job types and cost one real example of each: materials from the invoice, labor at the fully loaded hourly rate times hours on site plus drive time, and an overhead allocation. Compare the true cost to what you charged. That one exercise almost always reveals a job type or two that is quietly unprofitable and needs a price correction. Build the corrected numbers into how you quote, capture the job details with a pricing tool, and protect the margin you just found by turning one-off jobs into recurring revenue through membership plans and a clear view of customer lifetime value.