Machine shop rate calculator
A shop rate is the hourly price that covers the full cost of running your machines and leaves a profit. Enter a year of costs, the machines that earn revenue and how much of their time you can bill. The calculator gives the break-even rate and the rate to charge for the margin you want.
The calculator
How do you use the calculator?
Run it for the whole shop to get an average rate. To get the rate for one machine or a group of similar machines, enter only that group: its machines, its hours, and its share of the people and the overhead. A 5-axis mill and a saw do not cost the same to run, so they should not carry the same rate.
What costs go into a shop rate?
- The machines: yearly payments or depreciation, maintenance, tooling, consumables and power.
- The people: wages plus payroll costs and benefits, for the operators and for everyone who does not run a machine, such as the office, estimating, quality and shipping.
- Overhead: rent, utilities, insurance, software and anything else the shop pays for whether or not a machine is cutting.
How many hours can you bill?
Fewer than the hours the shop is open. One shift is about 2,000 hours a year, which is 50 weeks of 40 hours. Setups you cannot charge for, maintenance, waiting for material and gaps in the schedule all come off that.
Use your own records. Billable hours divided by the hours available is the machine's utilization: a machine that bills 1,400 of its 2,000 hours runs at 70%. The table in the calculator shows how quickly the rate climbs when utilization falls.
What is the formula?
Billable hours = machines × hours each is staffed × utilization
Break-even rate = yearly cost ÷ billable hours
Shop rate = break-even rate ÷ (1 − profit margin)
Worked example: one CNC mill
These are sample numbers to show the arithmetic for a single work centre, not typical figures for any shop.
| Machine payment, maintenance, tooling and power | $42,000 |
|---|---|
| Operator: wage plus payroll costs | $80,000 |
| Share of overhead | $28,000 |
| Total yearly cost | $150,000 |
| Billable hours (2,000 at 70%) | 1,400 |
| Break-even rate | $107.14 |
| Shop rate at a 20% margin | $133.93 |
Most shops round the result to a figure they can quote, here $135 an hour.
What is the difference between markup and margin?
Markup is profit as a share of the cost. Margin is profit as a share of the price. Adding a 20% markup to $107.14 gives $128.57, which is a margin of about 16.7%. To earn a 20% margin, divide the cost by 0.8, which gives $133.93. Mixing the two up is a common way to underprice.
Should setup and run time use the same rate?
Many shops charge both at the work centre's rate, quoting setup once per order and run time per piece. Some use a lower rate for unattended running, when one operator tends several machines, and a higher one for work that needs their most skilled people. Whichever you choose, write it down so every quote uses it.
How often should you update your rates?
At least once a year, and whenever a large cost changes: a new machine, a wage increase, a rent review, or a shift added or dropped. A rate worked out three years ago gives away margin on every quote.
How do rates feed into quotes?
A quote is each operation's setup and run time multiplied by its work centre's rate, plus material, outside services and markup. OneThou builds each shop's setup on its own work centres and rates, so changing a rate once changes every new quote. See how a machining quote or a sheet metal quote is put together.
Questions about shop rates
How do I calculate my shop rate?
Add up a year of costs for the machines, the people and the overhead. Divide by the hours you can bill, which is the number of machines times the hours each is staffed times its utilization. That is the break-even rate. Divide it by one minus your profit margin to get the rate to charge.
What is a typical machine shop hourly rate?
There is no single figure. Rates vary with the machine, the region, labour costs and how full the shop is, so a rate copied from another shop can leave you underpriced or out of the running. Work yours out from your own costs and billable hours.
What is a burdened labour rate?
The cost of an hour of someone's work including payroll taxes, benefits, vacation and the other costs on top of the wage. The calculator calls it the loaded cost per hour. It is the labour figure that belongs in a shop rate.
Should every machine have its own rate?
Yes, or at least every group of similar machines. One rate for the whole shop overprices work on simple machines and underprices work on expensive ones. Run the calculator once for each group, with that group's share of the people and the overhead.
Pricing material next? Work out weight and cost with the metal calculator, or see all the free tools.
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