Do You Know Which Jobs Lose Money? 35% of Contractors Don't Track Job Profitability

Mark Anderson's agricultural contracting business generates £280,000 in annual revenue. After expenses, he nets about £42,000—a 15% profit margin. Not terrible, but not great either. He wondered why his profitability wasn't better given the volume of work.

When Mark finally started tracking profitability at the job level—not just overall business profit—he discovered something shocking:

Profitable Jobs (68% of his work):

Average profit margin: 28-35%
These jobs were highly profitable and worth his time

Break-Even Jobs (14% of his work):

Profit margin: 0-8%
Barely worth doing, tying up equipment for minimal return

Money-Losing Jobs (18% of his work):

Profit margin: -5% to -12%
Actually losing money on nearly 1 in 5 jobs

Mark was astonished. Almost 20% of his work was unprofitable, dragging down his overall business performance. The problem? He'd been pricing based on market rates and gut feel, not actual costs.

Why the unprofitable jobs existed:

Distant client location (excessive travel time and fuel)
Small acreage with high setup time
Difficult field conditions (slow work, high equipment wear)
Low pricing to win competitive bids
Inefficient equipment for that job type

Mark's overall 15% profit margin was actually 68% of jobs at 30% margin dragged down by 32% of jobs at 0-10% margin or worse.

What changed when Mark started tracking job profitability:

Declined or repriced the worst unprofitable jobs
Focused capacity on high-profit work
Adjusted pricing based on true costs
Made equipment decisions based on profitability data

Results Year 1:

Declined £48,000 in low/no-profit work
Replaced with £52,000 in profitable work
Overall profit margin: 15% → 24%
Net profit: £42,000 → £67,200
Income increase: £25,200 (60%) without working more

Mark's story is common. Industry surveys suggest 35-40% of agricultural contractors don't track profitability by individual job—they only know overall business profitability. The result: Unknowingly accepting unprofitable work that drags down margins.

Here's how job-level profitability tracking transforms agricultural contracting and farming operations.

The Profitability Blindness Problem

Most operations track:

Total annual revenue
Total annual expenses
Overall profit

But they don't know:

Which specific jobs are profitable
Which clients are worth keeping
Which services make money vs. lose money
True cost per job type

What You Think vs. What's Real

Typical Contractor Perception:

"All our work is profitable at market rates"
"We charge £22/acre for spraying, that must be profitable"
"Big jobs are always good"
"We make money on everything"

Reality With Job Costing:

Some jobs highly profitable (30-40% margins)
Some barely break even (5-10% margins)
Some actually lose money (-5% to -15% margins)
Small highly profitable job often better than large low-margin job

Example Discovery:

Spraying Job A: 180 acres, £22/acre = £3,960 revenue
- Costs: £2,120 (fuel, labor, equipment, travel)
- Profit: £1,840 (46% margin) ✓ Excellent

Spraying Job B: 180 acres, £22/acre = £3,960 revenue  
- Costs: £4,180 (distant location, difficult access, equipment issues)
- Profit: -£220 (LOSS!) ✗ Terrible

Same service, same acreage, same price—dramatically different profitability.

Without job costing: Both jobs look the same.
With job costing: One is great, one loses money.

Why Profitability Varies

Distance from Base:

Travel time costs money (labor, fuel)
More travel = lower profitability
Example: Job 15 minutes away vs. 60 minutes away—dramatically different cost structures

Field Conditions:

Easy, flat, rectangular field: Fast, efficient, profitable
Hilly, irregularly shaped, rocky field: Slow, difficult, lower profit
Same per-acre price, very different profitability

Equipment Efficiency:

Right equipment: Efficient, profitable
Wrong equipment: Slow, high cost, low profit
Example: Small planter on large field = unprofitable

Setup/Breakdown Time:

Large field: Setup time amortized over many acres
Small field: Setup time eats entire profit
5-acre job can cost more per acre than 150-acre job

Client Behavior:

Good clients: Pay on time, clear communication, easy to work with
Difficult clients: Constant changes, payment delays, extra time required
Difficult clients cost more to serve

Job Costing: Understanding True Profitability

Job costing means tracking all costs associated with specific jobs, then calculating profit per job:

Revenue Per Job

What's Invoiced:

Acreage × rate
OR hours × rate
Materials markup
Total revenue for that specific job

Costs Per Job

Direct Labor:

Operator hours × wage rate
Benefits/overhead allocation
Travel time labor cost

Equipment Costs:

Fuel consumed
Equipment hours × cost per hour (maintenance, depreciation)
Wear and tear

Materials:

Seed, fertilizer, chemicals used
Cost of goods sold

Travel:

Fuel to/from job site
Travel time (non-billable labor hours)

Overhead Allocation:

Shop rent, insurance, office costs
Allocated per hour or as percentage

Profit Calculation

Revenue - All Costs = Profit
Profit ÷ Revenue = Profit Margin %

Example Job Costing:

Fertilizer Spreading - Morrison Farm, North Field
Revenue: 140 acres × £15/acre = £2,100

Costs:
- Labor: 6 hours × £16/hour = £96
- Equipment: 6 hours × £24/hour = £144
- Fuel: 80 litres × £1.30/litre = £104
- Fertilizer: 35 tonnes × £42/tonne = £1,470
- Travel: 45 min × £16/hour + 18 litres fuel = £35
Total Costs: £1,849

Profit: £2,100 - £1,849 = £251
Profit Margin: £251 ÷ £2,100 = 12%

Verdict: Profitable, but lower than target 20% margin.
Action: Consider £16-17/acre pricing for similar jobs.

What Job Costing Reveals

When contractors implement job costing, common discoveries:

Discovery 1: Geographic Profitability Patterns

Revelation: Jobs within 15 miles highly profitable. Jobs 30+ miles away often unprofitable.

Why: Travel time and fuel costs eat profit on distant jobs.

Action: Focus on nearby clients, charge premium for distant work, or decline distant low-margin jobs.

Discovery 2: Client Profitability Varies Wildly

Revelation:

Client A: Average 32% profit margin across all jobs
Client B: Average 8% profit margin
Client C: -3% average (losing money!)

Why: Some clients have easy fields, pay well, communicate clearly. Others have difficult conditions, negotiate prices down, require extra time.

Action: Focus on best clients, reprice or decline worst clients.

Discovery 3: Service Type Profitability Differences

Example Discovery:

Spraying: 28% average margin (good)
Fertilizer spreading: 18% average margin (acceptable)
Planting: 35% average margin (excellent!)
Custom harvesting: 12% average margin (low)

Action: Emphasis on high-margin services (planting), improve pricing or efficiency on low-margin services (harvesting).

Discovery 4: Equipment Utilization and Profitability

Revelation: New expensive combine generates 22% margin. Older reliable combine generates 31% margin (lower costs).

Why: Newer equipment has higher hourly costs (depreciation, financing). Must price accordingly or equipment becomes profit drag.

Action: Ensure pricing reflects true equipment costs.

Discovery 5: Small vs. Large Jobs

Common Assumption: Larger jobs always better.

Reality:

Large easy job: 25% margin
Small easy job: 32% margin (less travel, higher per-acre price)
Large difficult job: 8% margin (low price to win competitive bid)

Truth: Profitability depends on pricing and conditions, not size alone.

Real-World Case Studies

Case Study 1: UK Contractor - Unprofitable Work Discovery

Operation: Thompson Agricultural Services, Lincolnshire
Revenue: £320,000 annually
Profit: £44,800 (14%)

Job Costing Implementation:
Tracked costs for 6 months across all 180 jobs completed.

Shocking Discovery:

High-Profit Jobs (42% of work):
- Average margin: 34%
- Value: £134,400 revenue, £45,696 profit

Medium-Profit Jobs (38% of work):
- Average margin: 18%  
- Value: £121,600 revenue, £21,888 profit

Low/No-Profit Jobs (20% of work):
- Average margin: 2%
- Value: £64,000 revenue, £1,280 profit

Total: £320,000 revenue, £68,864 potential profit
Actual profit: £44,800
Difference: £24,064 lost to inefficiency and poor pricing

Analysis Revealed:

3 clients consistently unprofitable (difficult fields, low negotiated prices)
Jobs over 25 miles away averaged 6% margin vs. 28% for nearby jobs
Small acreage jobs (<20 acres) with high setup time unprofitable

Actions Taken:

Repriced distant work (+15% travel surcharge)
Declined 2 consistently unprofitable clients
Increased minimum charges for small jobs
Focused marketing on profitable service areas

Results Year 2:

Revenue: £295,000 (reduced, but intentionally)
Profit: £68,300 (23% margin)
Profit increase: £23,500 (52%) despite £25,000 less revenue
Worked less, earned more

Owner Quote: "Job costing was eye-opening. I was working hard, running equipment everywhere, and making very little on 20% of my jobs. Once I saw which work was profitable and which wasn't, the decision was easy: Stop doing unprofitable work. My revenue dropped slightly, but my profit jumped 50%. I work less hours now and make more money."

Case Study 2: Midwestern Farm - Enterprise Profitability

Operation: Henderson Farms, Iowa - 3,200 acres
Enterprises: Corn, soybeans, custom work for neighbors

Assumption: Farming own land most profitable, custom work side income.

Job Costing Revelation:

Own Farm Corn: £52/acre profit
Own Farm Soybeans: £38/acre profit
Custom Harvesting: £65/hour profit = £85/acre (13 acres/hour avg)
Custom Planting: £48/acre profit

Discovery: Custom work for neighbors MORE profitable per hour than farming own marginal ground.

Action:

Rented out 400 acres of marginal farmland (£80/acre rent = £32,000)
Used freed capacity for more profitable custom work
Grew custom harvest operation (more profitable than farming)

Results:

Overall farm profit: +18%
Less land farmed, same/more profit
Better equipment utilization

Quote: "We assumed farming our own ground was always the priority, and custom work was just side income during spare time. Job costing showed custom work was actually more profitable per hour than farming our worst 400 acres. Renting that ground out and doing more custom work increased our profit significantly."

Case Study 3: UK Agricultural Contractor - Service Profitability

Operation: Wilson Contracting
Services: Planting, spraying, spreading, tillage, harvesting

Assumption: All services similarly profitable at market rates.

Job Costing Analysis:

Planting: 31% average margin ✓ Excellent
Spraying: 24% average margin ✓ Good
Spreading: 19% average margin ✓ Acceptable
Tillage: 16% average margin ⚠️ Low
Harvesting: 9% average margin ⚠️ Very Low

Investigation:

Planting: Modern efficient equipment, good pricing
Spraying: Efficient, high margins per hour
Spreading: Decent margins, good volume
Tillage: Old equipment, slow, high fuel costs
Harvesting: Competitive market, price pressure, equipment expensive

Actions:

Expanded planting (most profitable)
Maintained spraying and spreading (good margins)
Upgraded tillage equipment (improved efficiency and margins to 22%)
Exited harvesting (too competitive, low margins, tied up expensive equipment)

Results:

Focused on highest-margin work
Overall business margin: 18% → 26%
Revenue stable, profit up 44%

Quote: "Before job costing, I thought all agricultural services earned similar margins. The data showed huge variation—planting at 31% and harvesting at 9%. Why tie up expensive equipment for 9% when I can do planting at 31%? We shifted focus to our most profitable services and our business transformed."

Implementing Job Costing

Step 1: Track Costs Per Job

What to Capture:

Labor hours (operator time on specific job)
Equipment hours (which equipment, how long)
Fuel consumption (estimate or actual per job)
Materials used (seed, fertilizer, chemicals)
Travel time and distance

How to Capture:

Digital systems: Automatic time tracking, equipment logging
Manual: Job sheets with start/stop times, equipment used, materials
Estimates: Use average costs if tracking perfectly is difficult

Step 2: Calculate Equipment Cost Per Hour

Need to Know: What does it cost to run each piece of equipment per hour?

Factors:

Fuel consumption (litres/hour × fuel cost)
Maintenance (annual maintenance ÷ annual hours)
Repairs (annual repairs ÷ annual hours)
Depreciation (optional but recommended)
Insurance (annual insurance ÷ annual hours)

Example Tractor Cost Per Hour:

Fuel: 12 litres/hour × £1.30 = £15.60
Maintenance: £2,400/year ÷ 600 hours = £4.00
Repairs: £1,800/year ÷ 600 hours = £3.00
Depreciation: £6,000/year ÷ 600 hours = £10.00
Insurance: £1,200/year ÷ 600 hours = £2.00
Total: £34.60/hour

Do This Once: Calculate cost per hour for major equipment, use for job costing.

Step 3: Allocate Overhead

Overhead Costs (shop rent, insurance, office, etc.):

Simple Method: Percentage of revenue (e.g., 12% of job revenue)
Accurate Method: Cost per hour (annual overhead ÷ total billable hours)

Example: £24,000 annual overhead ÷ 2,000 billable hours = £12/hour overhead allocation

Step 4: Calculate Job Profit

For Each Job:

Revenue: What you invoiced
- Labor costs
- Equipment costs
- Materials
- Travel
- Overhead allocation
= Profit

Profit ÷ Revenue = Margin %

Step 5: Analyze and Act

Monthly Review:

Which jobs most/least profitable?
Patterns by client, service type, geography?
Pricing adjustments needed?

Quarterly Decision-Making:

Focus on high-profit work
Reprice or decline low-profit work
Equipment and capacity decisions
Marketing and growth strategy

Advanced Profitability Analysis

Profitability by Client

Rank Clients by Average Margin:

Top 20%: Focus, nurture, expand
Middle 60%: Maintain, look for efficiency
Bottom 20%: Reprice or consider declining

Client Lifetime Value: Factor in repeat business, referrals, ease of work.

Profitability by Service Type

Which Services Most Profitable?:

Expand high-margin services
Improve or exit low-margin services
Guide equipment investment decisions

Profitability by Time Period

Seasonal Analysis:

Spring planting profitability
Summer spraying profitability
Fall harvest profitability

Identify: Which periods most/least profitable? Why?

Breakeven Analysis

Know Your Numbers:

Fixed costs per month
Variable cost percentage
Revenue needed to break even
How many jobs/acres to cover costs?

Use For: Minimum pricing, capacity planning, slow period strategy.

Digital Job Costing Systems

Manual job costing possible but tedious. Digital systems automate:

Automatic Cost Capture:

Time tracking per job (start/stop times)
Equipment logging (which machines used)
Material usage from job data
Cost calculation automatic

Profitability Dashboard:

See profit by job instantly
Identify trends and patterns
Reports by client, service, time period

Decision Support:

Which jobs to accept/decline
Pricing guidance
Equipment ROI analysis

Cost-Benefit Analysis

Investment

Job Costing Software:

Included in most farm management systems
Medium plan: £189/month = £2,268/year

Setup Time:

Equipment cost calculation: 4-6 hours one-time
Job costing configuration: 2-3 hours
Team training: 1-2 hours

Ongoing Time:

Minimal (mostly automatic)
Monthly analysis: 1-2 hours

Total Investment: £2,268/year + 10 hours setup

Returns

Better Pricing:

Data-driven instead of guessing
Value: 5-10% margin improvement = £14,000-28,000 (on £280k revenue)

Decline Unprofitable Work:

Stop losing money on bad jobs
Value: 10-20% profit improvement

Focus on Profitable Work:

Capacity used for best-margin work
Value: Significant

Equipment Decisions:

Data-driven equipment investment
Value: Avoid expensive mistakes (£10,000-50,000)

Total Annual Value: £20,000-50,000+ (for typical contractor)

ROI: 782-2,104%

Conclusion: Know Your True Profitability

35-40% of contractors don't track job-level profitability—they only know overall business profit. The result: Unknowingly accepting unprofitable work that drags down margins.

Job costing reveals:
✅ Which jobs make money (focus here)
✅ Which jobs lose money (decline or reprice)
✅ True cost by service type
✅ Client profitability patterns
✅ Geographic profitability
✅ Equipment efficiency and ROI

Without job costing: Work hard, wonder why margins aren't better
With job costing: Work smart, focus on profitable work, increase margins 15-30%

Stop guessing profitability. Start knowing it.

Frequently Asked Questions

Is job costing worth it for small operations?

Yes. Even small operations benefit from knowing which work is profitable. If you do 50-100 jobs annually, knowing which 20% are most profitable guides where to focus. The principle scales—small operations just have fewer data points but same insight value.

How accurate does cost tracking need to be?

Reasonable accuracy is sufficient. You need to know if a job makes 25% vs. 10% vs. loses 5%—not whether it's 24.3% vs. 24.7%. Use average equipment costs, reasonable labor rates, estimated fuel. 80% accuracy reveals patterns and guides decisions.

What if costs vary seasonally?

Track that variation. Fuel costs higher in winter? Labor costs vary with overtime? Capture that in your cost tracking. Many systems allow seasonal cost adjustments. Or use annual averages for simplicity (still reveals profit patterns).

Should we include depreciation and overhead?

For complete picture, yes. But even tracking just direct costs (labor, fuel, materials) reveals profit patterns. Start simple (direct costs), add sophistication (depreciation, overhead) over time. Something is better than nothing.

What about jobs we do for goodwill or relationships?

Some contractors do occasional low-profit work for strategic reasons (key client relationship, community goodwill, fill equipment idle time). That's fine—but do it KNOWINGLY based on data, not unknowingly because you don't track profitability. Conscious strategic decisions different from accidental money-losing work.

How do we handle time-and-materials jobs?

Job costing still works. Track costs as usual, compare to what you invoiced. Reveals whether your T&M rates are appropriate. Many contractors discover their hourly rates don't fully cover costs when they actually calculate true cost per hour.

Track profitability by job and make data-driven decisions. Start free trial →

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