How to Use Classes in QuickBooks for Better Project Profitability

If you’re running multiple projects, serving different departments, or managing various service lines, you need a way to see which areas of your business are actually profitable. That’s where QuickBooks classes come in.

Classes in QuickBooks let you categorize transactions beyond just income and expense accounts. They help you track profitability by project, department, location, or any other segment that matters to your business. When combined with time tracking tools like Minute7, classes become a powerful way to understand where your money is really being made—or lost.

What Are Classes in QuickBooks?

Classes are tags you can assign to transactions to track income and expenses across different segments of your business. Unlike accounts (which track what the money is for), classes track where or for whom the money is being spent or earned.

Common uses for classes:

• Departments (Marketing, Operations, Sales)
• Locations (NYC Office, LA Office, Remote)
• Service lines (Consulting, Training, Implementation)
• Projects or clients (Project A, Project B)
• Product lines (Software, Hardware, Services)

By assigning classes consistently, you can run Profit & Loss reports filtered by class to see which segments are driving profit and which are draining resources.

Why Classes Matter for Project Profitability

Without class tracking, your financial reports show overall business performance but hide critical details. You might be profitable overall while specific projects or departments lose money.

Classes reveal:

• Which projects exceed budget vs. those that stay profitable
• Which departments consume the most overhead
• Whether certain locations or service lines justify their costs
• Where to invest resources for maximum return

When you track time and expenses by class, you gain the visibility needed to make smarter business decisions.

Setting Up Classes in QuickBooks Online

Step 1: Turn On Class Tracking

1. Click the Settings gear icon (top right)
2. Select Account and Settings
3. Click Advanced in the left menu
4. Find the Categories section
5. Toggle Track classes to On
6. Choose whether to:
   • Warn if a transaction isn’t assigned a class
   • Require a class on every transaction (recommended for strict tracking)
7. Click Save and then Done

Step 2: Create Your Classes

1. Click the Settings gear icon
2. Select All Lists
3. Click Classes
4. Click New to add a class
5. Enter a Class name (e.g., “Web Development” or “Denver Office”)
6. If you want sub-classes (e.g., “Denver Office: Sales”), check Is sub-class and select the parent
7. Click Save

Pro tip: Keep your class structure simple. If you need more than two levels (parent and sub-class), consider whether you’re overcomplicating your tracking.

Step 3: Assign Classes to Transactions

Once classes are set up, you’ll see a Class field when creating:

• Invoices
• Bills
• Expenses
• Time entries
• Journal entries

Simply select the appropriate class for each transaction line item. This is where tools like Minute7 shine—employees can assign classes when entering time, and those classes automatically flow into QuickBooks when you sync.

Using Classes with Time Tracking

Time tracking is one of the most important areas to apply classes. When employees log hours against specific classes, you can see exactly how much time (and therefore labor cost) each project or department consumes.

In Minute7:

1. Employees select the appropriate class when entering time
2. Time entries sync directly to QuickBooks Online
3. Classes automatically appear on time records in QuickBooks
4. You can run reports showing labor costs by class

This eliminates manual data entry and ensures accuracy when calculating project labor costs.

Running Profitability Reports by Class

Once you’re tracking classes consistently, you can generate powerful reports.

Profit & Loss by Class Report

1. Go to Reports in QuickBooks
2. Search for Profit and Loss by Class
3. Set your date range
4. Click Run Report

This report shows income and expenses broken down by each class, with a separate column for each. You’ll instantly see which classes are profitable and which are losing money.

Customizing Your Report

• Filter by specific classes to focus on particular projects or departments
• Compare periods to see trends over time
• Export to Excel for deeper analysis or presentations

What to Look For:

• Negative margins – Classes where expenses exceed revenue
• High overhead allocation – Classes consuming disproportionate indirect costs
• Underutilized resources – Classes with low revenue relative to time invested
• Star performers – Classes with strong profit margins worth expanding

Best Practices for Class Tracking

1. Be Consistent Train your team to assign classes to every transaction. Inconsistent tracking renders your reports useless.
2. Don’t Over-Complicate Start with broad categories. You can always add sub-classes later if needed.
3. Review Regularly Run class reports monthly or quarterly. Profitability insights are only valuable if you act on them.
4. Integrate Time Tracking Use a tool like Minute7 that syncs time entries with classes directly to QuickBooks. This eliminates manual entry errors and ensures labor costs are accurately allocated.
5. Educate Your Team Make sure employees understand why class tracking matters. When they see how their time entries impact profitability reports, they’re more likely to track accurately.

Common Mistakes to Avoid

Not assigning classes to expenses – Income tracked by class is useless if expenses aren’t similarly categorized.

Mixing class purposes – Don’t use classes for both departments AND projects. Pick one framework and stick with it (or use sub-classes thoughtfully).

Forgetting overhead – Allocate shared costs (rent, utilities, admin salaries) proportionally across classes for true profitability.

Ignoring unclassified transactions – Run reports regularly to find transactions missing class assignments and fix them.

Taking Action on Class Data

Once you understand profitability by class, you can:

• Reallocate resources from low-performing to high-performing classes
• Adjust pricing for projects or services with thin margins
• Eliminate unprofitable offerings or find ways to reduce their costs
• Expand successful areas by investing more time and marketing budget
• Negotiate better rates with clients or vendors based on actual cost data

Final Thoughts

QuickBooks classes transform your financial reports from basic income statements into strategic business intelligence tools. When you know which projects, departments, or locations drive profitability, you can make informed decisions that grow your business sustainably.

The key is consistency. Set up your classes thoughtfully, train your team to use them, and review the reports regularly. When combined with accurate time tracking through tools like Minute7’s QuickBooks integration, you’ll have a clear picture of where your business truly makes money.

Ready to improve your project profitability tracking? Start by turning on classes in QuickBooks today, and consider implementing Minute7 to ensure your time entries automatically sync with the right classifications.