Glossary
Job costing
Job costing is the practice of tracking every direct cost, labor, subcontractors, and billable expenses, against a single project so you can see what it actually earned once the work is done. It runs alongside a project budget rather than replacing it: the budget is the plan set before work starts, and job costing is the record of what really happened.
What counts as a job cost
Direct costs are the ones a job costing report should always include: the cost of the hours logged against the project (at each person's internal cost rate, not the rate the client is billed), subcontractor and freelancer fees, and any billable expense such as travel or software passed through to the client.
Overhead, office rent, admin salaries, and software licenses shared across every project, is harder to assign to one job. Most agencies either leave it out of the per-project number and track it separately, or allocate a flat percentage of revenue or hours across active projects to spread it.
How to calculate job costing
The formula only works if time is logged accurately against the right project. A cost rate, what an hour actually costs the agency in salary and overhead, is different from a bill rate, what the client is charged for it, and job costing needs the cost rate to produce a true number.
Job Profit = Revenue - (Direct Costs + Allocated Overhead)
Example: a project bills $40,000. Logged hours cost $18,000 at internal cost rates, a subcontractor invoice adds $6,000, and a $2,000 overhead allocation is applied. Job profit is $40,000 - ($18,000 + $6,000 + $2,000) = $14,000, a 35% margin.
Job costing vs a project budget
A budget is the estimate made before work starts. Job costing is the actual cost record built while the work happens and finalized once it is delivered. Comparing the two, budgeted cost against actual job cost, shows whether a project came in under, on, or over plan, and by how much.
Running job costing on every project, rather than checking it only when a client questions the margin, is what lets a team catch an overrun while there is still time to act: a project sitting 20% over its logged-cost budget at the halfway mark can still be re-scoped before it closes at a loss.
Example
A five-person creative team runs a $60,000 fixed-fee brand project. Over ten weeks the team logs 420 hours at a blended internal cost rate of $70 an hour ($29,400), pays a photographer $4,500 as a subcontractor, and the agency allocates $3,000 in overhead. Total job cost is $36,900, leaving a job profit of $23,100, a 38.5% margin, even though the client was billed one fixed fee with no hourly detail.
