Xero Projects: A Practical Job Costing and Time Tracking Guide

Why Job Costing Matters More Than Your Profit and Loss

Your profit and loss statement tells you whether the business made money last month. It does not tell you which jobs made money and which quietly lost it. For any business that quotes work job by job, that second question is the one that actually drives pricing decisions.

Most tradies, agencies, and consultants have a rough sense of their winners and losers. That instinct is usually wrong in at least one direction. The job that felt painful often had a fine margin, while the easy repeat client you never chase has been slowly eroding into a loss because your rates have not moved in three years.

Xero Projects exists to answer this. It sits inside your Xero file and lets you attach time, expenses, and supplier bills to a specific job, then reports the margin on that job against what you quoted. This guide covers setting it up properly, running it day to day, and the mistakes that make the numbers useless.

What Xero Projects Actually Does

Xero Projects is a paid add-on module inside Xero, charged per user per month. It gives you four things:

• Time tracking against a job, either by timer or manual entry, at a chargeable rate you set.
• Cost capture, where supplier bills, spend money transactions, and expense claims can be assigned to a job.
• Quoting and invoicing from the project, including progress invoicing and invoicing time and materials as they accumulate.
• Profitability reporting per job, comparing your quoted amount against actual time and costs.

It is important to be clear about what it is not. Xero Projects is not a full construction job management system. It does not handle complex progress claims under security of payment legislation, retention schedules, or variation approval workflows. If you are running large commercial contracts, you will likely need a dedicated construction platform that integrates with Xero. For most small builders, subcontractors, agencies, and consultancies, Projects is enough.

Projects Versus Tracking Categories

A common question is whether to use Xero Projects or tracking categories. They solve different problems.

Tracking categories slice your profit and loss by an ongoing dimension: division, location, salesperson, or service line. They are free, unlimited in usage, and appear in standard reports. They are the right tool when you want to see how the Bendigo branch performed against the Ballarat branch every month.

Projects track a finite piece of work with a start, an end, a quoted value, and a margin. They handle time as a cost, which tracking categories cannot do at all.

If you want to know how a department performed, use tracking. If you want to know whether the Henderson Street bathroom renovation made money, use Projects. Plenty of businesses run both.

Setting Up Xero Projects Properly

Step 1: Turn It On and Assign Users

From the Business menu, select Projects and follow the setup prompts. Projects is billed per user, so only give access to people who genuinely need to log time or view job margins. Staff who only need to record time can be given a limited role.

Step 2: Set Staff Cost Rates

This is the step most businesses skip, and skipping it makes the profitability reports meaningless. Every person logging time needs a cost rate, which is what that hour actually costs the business.

Do not use their bare hourly wage. Include superannuation, leave loading, workers compensation, and a share of your overhead. A tradesperson on $40 an hour typically costs the business somewhere between $55 and $70 an hour once you load it properly. If you enter $40, every job will look more profitable than it is.

Step 3: Set Chargeable Rates

Separately, set the rate you bill the client. You can set this at the staff level, the project level, or per task. Project-level rates are useful when a particular client has negotiated pricing.

Step 4: Build a Task List

Tasks are the activities within a job: site prep, rough-in, fit-off, or in an agency context strategy, design, build, revisions. Keep the list short. Five to eight tasks is usually enough. Long task lists cause staff to guess, and guessed time is worse than no time.

Step 5: Decide Your Naming Convention

Pick a convention on day one and hold to it. Something like "Client name - Site or job - Month started" works well and keeps your project list sortable and searchable a year from now.

Running Projects Day to Day

Capture Time on the Day

Time entered a week later is fiction. Use the Xero Projects mobile app so staff log time on site as they finish a task. If daily entry is genuinely impossible in your business, make it a non-negotiable Friday routine with a reminder attached.

Assign Every Cost

Supplier bills, materials, subcontractor invoices, equipment hire, and expense claims all need a project assigned when they are entered. Any cost that does not get assigned inflates your job margins and quietly understates the real cost of doing that type of work.

Watch the Estimate Versus Actual

Open the project and compare the estimate against actuals mid-job, not at the end. If a job is at 70 percent of its budget with half the work done, you want to know now, while a conversation about variations is still possible.

Invoice From the Project

Invoicing from within the project keeps everything linked, marks the time and expenses as invoiced, and stops you accidentally billing the same hours twice. You can invoice a fixed amount, a percentage of the quote, or the specific time and expenses accumulated to date.

Reading the Profitability Report

The Project Summary report is the payoff. It shows, per job, your quoted value, invoiced amount, time cost, expense cost, and resulting margin.

Look for three things. First, jobs where the margin is below your target: what went wrong, and was it estimating or execution? Second, job types that are consistently below target, which is a pricing problem, not a job problem. Third, unbilled time and expenses sitting on completed projects, which is money you have earned and not invoiced.

Common Mistakes

• Cost rates left at zero or set to bare wages, which makes every job look profitable.
• Time logged in weekly batches, which produces round numbers that bear no relation to reality.
• Costs not assigned to jobs, so materials sit in general expenses and margins look inflated.
• Projects never closed, leaving a list of hundreds of stale jobs nobody can navigate.
• Using Projects for everything, including ongoing retainers that are better handled with tracking categories.

How SortBooks Fits

Job costing only works if the underlying transactions are coded correctly and on time. If your bank feed sits unreconciled for three weeks, your project costs are three weeks out of date and the mid-job margin check is worthless.

SortBooks connects to your Xero file and handles the categorisation layer automatically, coding bank transactions, validating GST treatment, and flagging anything unusual. That keeps the data feeding your project reports current, so the margin you see mid-job is the margin that actually exists.

Final Thoughts

Xero Projects is not complicated, but it is unforgiving about setup. Load your cost rates honestly, keep the task list short, capture time daily, and assign every cost to a job. Do that for one quarter and you will have something most small businesses never get: a clear, evidence-based answer to which work is worth taking and what you should be charging for it.