How do you know what a job really cost? Add up the hours actually worked on it at the full cost of a shop-floor hour, then add the materials and bought-in work it used. Take that from the price and you have the job’s real profit, which is often very different from the margin you quoted.
Most small manufacturers find this out weeks after the job has gone out of the door, if at all. Below you’ll find the formula, how to work out your hourly cost rate, a worked example of a job that looked profitable and wasn’t, why the numbers usually arrive too late, and how to track every job with the tools you already have.
How do you work out the real cost of a job?
Take the hours actually worked on the job and multiply them by your hourly cost rate: what an hour of shop-floor time costs the business, including a share of overheads. Then add the materials used and any bought-in work, such as powder coating, laser cutting from a supplier, hire or delivery. As one line:
actual hours × hourly cost rate + materials + bought-in work = real job cost
Take the real job cost from the price you charged and you have the job’s real profit. Do the same with the quoted hours and quoted materials and you have the profit you expected. The gap between the two is what this whole post is about.
Hours: every hour, from everyone who touched the job
Count every hour spent on the job by anyone: cutting, machining, welding, assembly, finishing, fitting and the drive to site. Include remakes and rework, because they’re real hours the job cost you. If an hour isn’t booked to a job, it disappears into the overheads and makes every job look better than it is.
Hourly cost rate: wages plus overheads
Your hourly cost rate has two parts. The first is the full cost of an hour of the person’s time: their pay plus employer costs such as National Insurance and pension. Someone paid £22 an hour might cost the business about £27 an hour once those are added. Your payroll records or accountant can give you the exact figure.
The second part is a share of your overheads, called an overhead recovery rate. Add up the yearly costs that keep the workshop running, such as rent, power, insurance, machine leases, software and office staff. Then divide by the productive hours your shop floor works in a year: the hours spent on customer jobs, not the hours paid.
For example, a workshop with 8 shop-floor staff, each doing about 6.5 productive hours a day over 230 working days, has 11,960 productive hours a year. With £180,000 of overheads, that’s about £15 an hour. Add it to the £27 and the hourly cost rate is £42.
Materials and bought-in work: what was used, not what was quoted
Count the materials the job actually used, including offcuts you can’t reuse, scrap from mistakes and price rises since the quote. Add any work you paid someone else to do. These costs usually arrive on supplier invoices, so they need a job number on them or they can’t be matched to the job.
What does a job that looked profitable look like?
Here’s a typical fabrication job. It was quoted at £4,200, using the £42 hourly cost rate from above.
| Quoted | Actual | |
|---|---|---|
| Hours | 40 | 55 |
| Hours × £42 | £1,680 | £2,310 |
| Materials | £1,350 | £1,520 |
| Bought-in powder coating | £300 | £300 |
| Total cost | £3,330 | £4,130 |
| Profit on £4,200 | £870 (21%) | £70 (under 2%) |
Nothing dramatic happened. One part was cut wrong and remade, fitting took most of an extra day, and the steel price had gone up since the quote. Each problem was small, and together they took the job from a healthy 21% margin to under 2%.
The bigger problem is what happens next. If nobody compares quoted and actual, the next similar job gets quoted at 40 hours again. And the one after that. A business can be busy, turning over well and still not making money, because the quotes are built on hours the jobs never take.
Why do most workshops find out weeks later?
The numbers exist, but they’re scattered across places that don’t talk to each other:
- Hours are on paper timesheets, a whiteboard or a time clock that records the day, not the job.
- Materials arrive on supplier invoices that go straight to the accounts, often weeks after the job.
- The quote is in a spreadsheet or the quoting tool, in a different format from everything else.
- The invoice goes out from the accounts software, which knows the price but not the cost.
To compare quoted and actual, someone has to pull all four together, by hand, for every job. In a busy workshop that never happens. The first sign of a problem is the year-end accounts showing a lower profit than anyone expected, and by then it’s too late to know which jobs caused it.
How can you track job costs with what you already have?
You don’t need new software to start. You need four habits, and a spreadsheet will do for now.
- Give every job a number the day it’s won, and put it on the job sheet, the purchase orders and the supplier invoices.
- Book time to jobs, not days. Each person notes the job number and hours for each task, even on paper. Rough to the nearest half hour is fine.
- Book materials and bought-in work to the job number as the invoices arrive.
- Compare quoted and actual as each job finishes, while the team still remembers what went wrong.
A simple spreadsheet with one row per job is enough:
| Job | Quoted hours | Actual hours | Quoted materials | Actual materials | Quoted profit | Actual profit |
|---|---|---|---|---|---|---|
| J-1047 | 40 | 55 | £1,350 | £1,520 | £870 | £70 |
Then spend 15 minutes each week looking at the jobs that finished. Look for patterns rather than one-offs: a type of job that always overruns, a machine that always needs rework or a step that’s never in the quote. Fix the quote for that type of job, and you’ve fixed it for every one after it.
Real numbers change how a business quotes. A two-site trade business we worked with went from no time tracking to every job hour measured, and at one of its sites untracked time fell from 25% to 4% in under a year. See how in our case study of a two-site trade business.
When is it worth a proper system?
The spreadsheet works while someone keeps it up to date. It usually starts to slip when:
- you have more than about 20 jobs on the go at once
- several people book time, across shifts or sites
- the same job details are being typed into the quote, job sheet, timesheet and accounts
- the weekly review keeps getting skipped because pulling the numbers together takes too long.
At that point, the answer isn’t another tool to type into. It’s one system where the job lives from enquiry to invoice, so the quote, the hours, the materials and the invoice are all in one place, and quoted-vs-actual is there on screen while the job is still running. That’s what we build for manufacturers. See how it works on our page for manufacturers.
For the time side of the problem, see what admin really costs a small business. If your weekly numbers take too long to pull together, read setting up a weekly numbers dashboard.
Where to start
The quickest way to see where your workshop is losing time is the free admin scorecard. Answer 14 quick questions and you’ll get an instant score for each area, an estimate of what admin costs you a year and the three areas to fix first.