If you’re in the business of providing a service or manufacturing products for sale, then job profitability analysis is a key component to staying in business. Failure to analyze individual services or product lines can result in under-pricing, which may result in losses on each sale of a product or service. Job profitability analysis can also help you focus on which areas of service or manufacturing could benefit from streamlining or decreasing employee or material costs. If streamlining and decreasing costs is not a viable option, then a business owner may make the decision to stop offering the product or service creating the loss.
Items you will need
- Costs for job
- Income from job
Add together all costs associated with performing the service or manufacturing the product. Manufacturing costs include items such as materials cost, labor cost and utility cost for operating machinery. Service job costs include items such as materials cost, labor cost and fees associated with any licenses or permits to perform the job.
Divide the income received for the job by the total cost of the job. For example, if you made $200 on installing mini-blinds in a home, and your cost to do the job was $150, then divide $200 by $150 to arrive at 1.33333.
Subtract 1.0 from the number calculated in Step 2. For example, 1.33333 minus 1.0 equals .33333.
Convert the number calculated in Step 3 into a percentage by moving the decimal two places to the right. For example, .33333 becomes 33.333 percent. Your job profitability for the mini-blind hanging job is 33.333 percent.
If you are not certain how to calculate job profitability, consider hiring an accountant professional to help you develop reusable tools to do so.
- "Principles of Accounting"; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
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