You landed the bid. The project kicked off on schedule. But six months later, you’re looking at margins that are half of what you projected. Sound familiar?
Job costing mistakes don’t announce themselves with flashing red lights. They hide in spreadsheets, get buried in change orders, and quietly erode profitability until it’s too late to course-correct. The good news? Most of these mistakes are preventable once you know what to look for.
Mistake 1: Treating All Labor Costs the Same
Not all labor hours carry the same price tag, but many contractors still use blended rates that mask the true cost of getting work done.
Your lead carpenter costs more per hour than your apprentice. Under the Fair Labor Standards Act, overtime hours require time-and-a-half pay, adding a 50 percent premium to base rates. Travel time, mobilization, and downtime all hit your labor budget differently. When you average these into one rate, you lose visibility into where money actually goes.
The fix? Track labor by classification, shift differentials, and actual versus productive hours. Strong systems break this down automatically. If you’re still using spreadsheets, you’re probably leaving money on the table.
Mistake 2: Forgetting to Account for Small Tools and Consumables
Here’s what happens on most job sites. Workers grab drill bits, saw blades, safety supplies, and fasteners from the truck throughout the day. Nobody tracks it because each item might cost under 20 dollars. But multiply those small purchases across a six-month project, and you’re looking at thousands of unaccounted costs.
These expenses don’t fit neatly into material orders or equipment rentals, so they often get lumped into overhead instead of assigned to specific jobs. That makes every project look more profitable than it is.
Start treating consumables like any other direct cost. Industry practice suggests calculating these as a percentage of total labor hours based on your historical averages. Track actual spend against your estimate. You might be surprised by what you find.
Mistake 3: Using Outdated Material Costs in Your Bids
Material prices in construction can swing wildly, especially for lumber, steel, and concrete. If you’re pulling unit costs from last quarter’s jobs or relying on pricing that’s more than 30 days old, you’re essentially guessing.
This mistake is compounded when projects stretch over multiple months. According to RS Means data, framing lumber prices climbed more than 12 percent year-over-year through 2025, with quarterly fluctuations creating significant exposure for contractors working from stale estimates.
Lock in pricing with suppliers whenever possible or include escalation clauses in your contracts. For materials you can’t lock in, update your cost database monthly at a minimum. It’s tedious, but it’s less painful than eating a double-digit price increase on materials halfway through a project.
Mistake 4: Misallocating Equipment Costs
Equipment costs should reflect actual usage, not just ownership. According to industry research from Volvo Construction Equipment and Komatsu, construction equipment sits idle with an average of 28 to 38 percent of scheduled time. That idle time still carries costs, but how you allocate those costs to jobs matters.
The mistake happens when companies either fail to charge jobs for owned equipment at all (because “we already own it”) or charge inflated rates to active jobs to cover equipment that’s sitting unused elsewhere. Both approaches distort project profitability.
The fix requires tracking actual equipment hours per job and calculating rates that reflect true costs, including maintenance, fuel, insurance, and appropriate depreciation allocation based on your accounting method. If you’re using straight-line depreciation, work with your accounting team to ensure depreciation expense is allocated to jobs in a way that aligns with your overall financial reporting.
For rented equipment, make sure costs hit the correct project codes immediately, not two weeks later when someone finally processes the invoice.
Mistake 5: Failing to Update Costs as Projects Progress
Job costing isn’t a set-it-and-forget-it exercise. Real-time tracking matters because construction projects are living, breathing things that rarely go exactly to plan.
Weather delays, change orders, site conditions, and supply chain disruptions all impact costs. If you’re only reconciling actuals against estimates at project close, you’ve lost your chance to make adjustments while there’s still time to protect margins.
Review job costs weekly or biweekly at a minimum. Compare budgeted versus actual spending across labor, materials, equipment, and subcontractors. When you spot variances early, you can adjust crew sizes, renegotiate supplier pricing, or have conversations with clients about scope changes before small problems become big losses.
The Bottom Line
Accurate job costing isn’t about knowing whether you made money after the fact but having the visibility to make informed decisions while projects are still active and building estimates for future work that actually reflect what things cost.
The construction companies that consistently maintain healthy margins aren’t necessarily the ones winning the most bids. They’re the ones who know their numbers and adjust quickly when reality diverges from the plan.
If you’re struggling to pinpoint where profitability is slipping on your projects, it might be time to take a harder look at your job costing processes and the financial infrastructure supporting them.
Rea’s construction and real estate team partners with contractors and construction companies to strengthen financial infrastructure across job costing and budgeting, cash flow forecasting tied to project timelines, equipment acquisition strategies, and project-specific financial analysis. We help clients build visibility and processes that support profitable growth.
Contact us to learn how our advisory services can help you improve project-level financial management.
