Track every project cost and protect your margins
JacRox — Xero Gold Partners, Manchester
Can Xero Do Job Costing?
Yes — job costing in Xero is not only possible, it is surprisingly powerful once you know how to set it up. Whether you run a construction business, a marketing agency, or a professional services firm, effective job costing is essential for understanding profitability. Xero gives you two main approaches: Xero Projects and tracking categories. Each serves different needs, and many businesses using Xero combine both to keep all costs in one place.
As Xero Gold Partners in Manchester, we help every business owner configure Xero job costing workflows that automate cost tracking and help you capture job costs accurately. Here is how it works.
Xero Projects: Built-In Job Costing Software
Xero Projects is dedicated job costing software built directly into Xero’s cloud-based accounting software. You create projects for each job, then assign time entries, expenses, and invoices to specific projects. Every cost and every piece of costs and revenue is linked to a project, giving you real-time visibility into profitability.
Key features of Xero’s job costing software include:
- Time tracking — Log time and costs directly in the Xero app or through the mobile app to log hours. Set hourly rates per staff member or per project.
- Expense allocation — Assign bills and expenses to specific projects so actual costs are tracked automatically with automated tracking.
- Invoice from projects — Generate invoices directly from logged time and expenses. No more manual data entry or financial admin.
- Profitability dashboard — See estimated vs actual costs, profit margins, and uninvoiced amounts at a glance. Xero helps you track project financials in real time.
- Budget tracking — Set a budget in real time and monitor spend to avoid cost overruns.
Xero Projects is available on Xero Standard and Premium plans at no extra cost — it is software for your small business included with your Xero account. For sole traders and small businesses managing multiple jobs simultaneously, it is an essential costing tool.
Using Tracking Categories for Job Costing in Xero
Tracking categories offer a different approach to job costing in Xero. Instead of creating individual project records, you tag every transaction — invoices, bills, expenses — with a category value that represents the job or cost centre.
This cost tracking method works well when you need to:
- Run profit and loss accounting reports broken down by job, department, or location
- Track costs for each project across your entire chart of accounts
- Compare profitability between different service lines or clients
- Keep job costing data visible in your core bookkeeping and accounting reports
Xero allows two tracking categories with unlimited values each. For a construction business working on a construction project, you might use one category for “Project” and another for “Cost Type” (labour, materials, subcontractors). This gives you powerful cross-referencing in your Xero management reports.
Tracking Categories vs Xero Projects: Which Should You Use?
The right approach depends on your business model and what you need to manage project costs against:
- Use Xero Projects when you need time tracking, per-project invoicing, and a dedicated project and job dashboard. Ideal for agencies, consultancies, and professional services using Xero accounting online.
- Use tracking categories when you need job-level breakdowns in your accounting reports and financial statements. Better for construction businesses that manage project costs through purchase orders and bills.
- Use both together with Xero for maximum visibility. Create projects in Xero Projects for time tracking and invoicing; use tracking categories to feed your financial tracking and reporting. Your accountant can then produce management reports that show profitability by project, by department, and by period.
How to Set Up Job Costing in Xero
Getting started with Xero job costing takes about 30 minutes. Here is a step-by-step guide:
- Enable Xero Projects — Go to your Xero account settings and activate the Projects add-on. Set default hourly rates for each team member.
- Create tracking categories — In Xero, navigate to Accounting > Advanced > Tracking Categories. Create a category called “Project” or “Job” and add values for each active job.
- Set up cost codes — Use your Xero chart of accounts to create expense categories that align with your job costing needs (e.g. materials, labour, plant hire, subcontractors).
- Configure invoice templates — Customise your Xero invoice layout to show project information, references, and time breakdowns. Choose what’s on your invoices to keep clients informed.
- Connect time tracking software — Use Xero’s built-in time tracker or integrate with apps from the Xero App Store like Harvest, Toggl, or MinuteDock.
- Automate expense capture — Connect Dext or Hubdoc to automatically capture and code supplier invoices in Xero, eliminating manual data entry and streamlining your accounting system.
Tracking Profitability and Project Costs in Xero
Once job costing is configured in your Xero account, Xero provides real-time profitability data for every project. The dashboard shows:
- Total quoted amount vs actual costs incurred on each project
- Hours logged vs hours budgeted
- Uninvoiced time and expenses (revenue you have earned but not yet billed)
- Profit margin percentage per job — essential for effective job costing
This insight lets you review previous projects, catch problems early, and adjust scope before a job becomes unprofitable. For any construction business or service firm, this level of cloud accounting visibility across all project costs is essential for managing cash flow.
Job Costing Integrations That Work With Xero
The Xero App Store has hundreds of apps to help manage your business, including apps specifically designed for your industry. Popular job management and project management software integrations for Xero UK users include:
- WorkflowMax and Xero — Full project management software with quoting, estimating software, and job costing built for Xero accounting.
- Fergus — Job management for trades businesses. Integrates with Xero to automate invoicing and business accounting.
- Harvest / Toggl — Time tracking software that syncs hours directly into Xero Projects.
- Dext — Helps automate expense capture in Xero, reducing admin and manual data entry.
These integrations help you manage your business end-to-end while keeping Xero as your central cloud-based accounting software. Every cost flows back into Xero for consolidated financial reporting.
Get Help With Xero Job Costing
Setting up a job costing system properly from the start saves hours of rework later. At JacRox, we configure Xero job costing for businesses across Manchester and the UK — from sole traders to multi-site construction firms. As your accountant, we will set up your tracking categories, automate your cost tracking workflows, and build Xero reporting templates that show exactly where your money goes. Discover Xero’s software features designed for your small business with our expert guidance.
Contact us to book a free consultation, or read our Xero bookkeeping guide for more on getting your Xero account set up right.
