Before You Start

This guide assumes you have administrator access to Xero and Xero Projects activated. Basic knowledge of Xero’s chart of accounts and invoice creation is helpful.

Overview

30 min
Setup Time
Advanced
Difficulty
Weekly
Maintenance

What You’ll Learn

  • How to set up Xero Projects for cost tracking
  • Leveraging Tracking Categories for granular reporting
  • Allocating labor and material costs to jobs
  • Generating profit & loss reports per project
  • Streamlining client billing based on project progress

1. Key Xero Setup Components

For effective job costing, you’ll utilize these Xero features:

Essential Xero Features

  • Xero Projects
  • Tracking Categories (e.g., “Project Type”, “Department”)
  • Inventory Items (for material costs)
  • Expense Accounts (for direct costs)

Recommended for Enhanced Detail

  • Custom Sales Accounts (e.g., “Project Revenue - Service A”)
  • Timesheets (for labor cost allocation)
  • Budget Manager (for project budgeting)

2. Xero Projects vs. Tracking Categories

Understanding the strengths of each is crucial for optimal setup.

Xero Projects

This dedicated feature tracks individual projects.

Pros:
  • Dedicated project dashboard.
  • Track profitability per project.
  • Built-in progress billing.
Cons:
  • Additional monthly cost.
  • Doesn’t replace detailed general ledger tracking.
  • Less flexible for non-project specific categorizations.

Tracking Categories

A powerful, built-in feature for broad categorizations.

Expert Tip: For comprehensive job costing, combine both. Use Xero Projects for the individual job and Tracking Categories for broader classifications (e.g., ‘Region’ or ‘Service Line’) that apply across multiple projects.

3. Step-by-Step: Implementing Job Costing

Here is a sample code block to show how a project data structure might look.

{
  "project_id": "PRJ-2025-001",
  "client_name": "Acme Corp",
  "total_budget": 15000.00,
  "tracked_expenses": [
    { "item": "Consulting Hours", "cost": 5000.00 },
    { "item": "Materials", "cost": 2500.00 }
  ]
}

4. Setting Up Xero Projects & Tracking

  1. 1

    Activate Xero Projects

    Ensure Xero Projects is enabled in your Xero organization settings under General Settings.

  2. 2

    Define Tracking Categories

    Set up categories (e.g., ‘Service Line’, ‘Region’) and their options under General Settings > Tracking.

  3. 3

    Create a New Project

    For each new job, create a project in Xero Projects, adding a budget, estimate, and key client details.

  4. 4

    Allocate Costs and Revenue

    When creating bills, invoices, or expense claims, assign them to the relevant project and tracking category. Use timesheets for labor.

Common Error: Inconsistent Tagging

Ensure consistent entry. Missing a project or tracking category assignment on an expense or revenue item will skew your profitability reports.

5. Reporting and Analysis

Key Reports to Run

  • Project Financials (from Xero Projects)
  • Profit and Loss (by Tracking Category)
  • Budget Variance Report (if using budgets)
  • Detailed Account Transactions (filtered by project/category)

Need Help?

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Struggling with complex project setups or custom reporting? Our Xero experts can optimize your job costing workflow.

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