Running a forestry business without job costing is like flying a plane without a fuel gauge. You might feel like you’re cruising along at high altitude, but you won’t know if you’re running on fumes until you’re headed for the ground.
Without tracking costs at the project level, Foresters run into serious challenges:
Feeling “Profitable”, but not sure: Most folks see a big check from a client and think they’re doing well, but haven’t considered the herbicide, marking tape, paying for GIS maps, and paying for contractors.
Guessing on Forestry Project Pricing: New projects are being estimated on a gut feeling from walking in the woods or what Bob is charging down the road, rather than what it actually costs you to do the work.
Cash Flow Tightness: You may be busy with projects, but zero cash in the bank because what it costs to just run your business is eating your margins.
So let's look into what is job costing, how to do it, and what you can do with those numbers.
So, What Exactly Is Job Costing?
Job costing is the process of tracking every dollar, both direct and indirect, that goes into your specific projects. This is the only way you can see your true profit on the project. There are three primary buckets for job costing: At its core, job costing is the process of tracking every dollar—both direct and indirect—that goes into a specific project. It’s the only way to see your "True North" profit. We break these down into three primary buckets:
1. Direct Labor
These are your hours and time that you and your crew spend working on a specific project. This isn't just the "boots on the ground" time doing fieldwork, like cruising or marking timber. It includes some hidden hours as well:
Office work: GIS mapping, planning, and writing reports.
Travel and drive time: The hours spent behind the wheel getting to the site.
Pro Tip for Labor Burden: Job Costing is using the "Cost" to your company, so this is not your billable rate. This is your labor burden/cost rate, which includes payroll taxes, workers' comp, and any benefits.
2. Direct Materials & Expenses
These are materials and items that are consumed, or used up, on the specific project.
Materials: Paint, flagging tape, and tags.
Expenses: Equipment rentals (like a tractor for a specific site), mileage, and job-specific permits.
Pro Tip: Calculate the Unit Rate for materials and make sure to add in extra costs, like shipping and taxes. For example, I bought a case of 40 flagging tape and the cost was $86.50. The $86.50 includes shipping and taxes. To get the unit cost, I divide the units by the total price. Let's walk through together:
Step 1: Identify a material to find the Unit Cost.
Flagging tape!
Step 2: Identify how much it cost you to purchase, including shipping and taxes.
My invoice was $86.50, after tax and shipping.
Step 3: Divide Cost by Units to get the unit cost.
$86.50/40 units = $2.16 per unit (or roll)
Pro Tip: When you're doing job costing, use the unit cost to track your project-to-date costs.
3. Overhead (The "Hidden" Costs)
Overhead includes the indirect costs required to keep the lights on. These can't be tied to one single tree or one single job, so they are allocated across all of them. This includes your office rent, software subscriptions (like your GIS tools), and general supplies like gloves.
To "allocate", or spread, indirect costs across your projects appropriately, you'll need to identify an "Activity Driver" to allocate those "pool" costs. In forestry, it can be anything from Machine Hours to your Billable Hours. If you're primarily service-based, it your "Activity Driver" may be hour billable hours.
The formula for Hourly Overhead Allocation = Total Annual Indirect Costs (rent, software, insurance, etc.) / Total Annual Billable Hours
Example: If overhead is $50k and you work 2,000 billable hours, every hour you bill needs to cover $25 of overhead just to break even on the back office.
What's Next: Using the Numbers to make Decisions
Once you have the data, you don't just leave it in the spreadsheet (or ForestTrack). Use it to make more informed business decisions to help you reach your goals:
Analyze Your Margins: Compare your Contract Price vs. Actual costs. If your margin is lower than you expected, you need to figure out why. Was it tougher terrain? Did you have to go back to the track because you weren't sure if you checked on something?
Improve Pricing by knowing your "True" breakeven: If you pay yourself $60/hr (burdened) and your overhead allocation is $20/hr, your absolute floor is $80/hr. If you bill $85/hr, you aren't "making" $25, you're making $5.
Trim the Fat: If you see that certain types of jobs (like small-acreage marking) consistently have high overhead-to-profit ratios, it might be time to raise your rates or stop taking those jobs.
Bid with Confidence: When you know exactly what your burdened labor, materials, and overhead rates are, you can bid high enough to ensure a profit. Or, you can walk away from a bad deal without looking back.
Need help?
Is figuring out unit cost rates stumping you? Send me a message at hannah@tryforesttrack.com and I'll send you a spreadsheet so it's easier for you to calculate your Unit and Billable Rates.
