Please correct me if I am wrong, but I do not see a section on educating shop owners. Many guys on here at least dream of owning their own shop, but unknowingly they increase the difficulty. I own a brick & mortar shop and it is getting more difficult to survive. You know all the points about overseas competition, so I won't kick that dead horse. If I have a "REPEAT or HIGHVOLUME" customer, I can work very cheap,but guys on here are giving away the farm on 10-100 part runs. I think there needs to be an educational section to the forums or main page with pointers on general business practices and pricing. It would be more financially valuable for all of us. If you go to any car repair shop, they look in "The Book" to see how many hours any given repair task pays and charge accordingly. Virtually every other industry has some type of pricing standards. We do not! I am not suggesting price fixing, but we need to at least be in the same book if not on the same page.

There are laws against colusion(sp?). I'd be nice if everone banded together to inflate prices to a liveable amount, but then you run afoul with the law. Also economics points out that there will always be someone that undercuts eventually to gain more market share. When this happens, everything falls right back to where you were before banding together.

I agree, you can put yoursef out of business with price wars, or clueless bidding. Just need to thin the herd and with fewer shops, prces will rise.

There are laws against colusion(sp?). I'd be nice if everone banded together to inflate prices to a liveable amount, but then you run afoul with the law. Also economics points out that there will always be someone that undercuts eventually to gain more market share. When this happens, everything falls right back to where you were before banding together.

I agree, you can put yoursef out of business with price wars, or clueless bidding. Just need to thin the herd and with fewer shops, prces will rise.

This is true but what will happen to the employees (Skilled Ones) that lose there jobs because of this??? It would be nice to see a fair market to keep Manufacturing in the US and Canada.

I guess only time will tell.

There are laws against colusion(sp?)....

You are only missing an 'l'. :)

There is something about people getting together to fix 'prices' that has always amused me. But maybe amused is the wrong word??????

If you own a company and get together with other company owners to set the prices that you charge you are accused of 'price fixing', 'collusion; 'conspiracy', etc, etc. This sort of thing is forbidden by most governments.

However, if you are an employee and get together with other employees to make demands regarding how much you should be paid, etc; i.e., colluding to set the price you charge for your labor, you will often get support from many governments.

There seems to be a double standard here.

There seems to be a double standard here.

There seem to be a lot of these in North America. What about other Countries???:confused:

There seem to be a lot of these in North America. What about other Countries???:confused:

Double standards are ubiquitious.

That's not at all collusion and there is nothing wrong with it. sounds more like education which would be a good thing. A program to increase financial, business economics and pricing would be great however i think the damage is done, the industry has ruined itself. Economics doesn't necessary predict a change in supply side led recovery, that industries can ruin themselves and kind of just hovering about bankruptcy is a known result of poor pricing practices in an industry. I suppose you could argue eventually it does, but it can be protracted into decades.

Jeff it's a noble idea, but you got some challenges the industry is very fragmented. Perhaps your biggest challenge though is apathy, I mean the gist of it is going to be basic business economics, pricing and finance right? well how many times have those chapters been written already yet the market isn't picking it up and reading it.

When's the first installment come out? :D

I think part of the problem is that there is such a wide range of 'starting points' available for startup shops, that competition in price has a lot to do with what you begin with.

I sure as hell would not be in business if every machine had to be a Mori, < 5 years old :D

I really can work cheaper than some newer shops. Consider also that 'the going rate per part', as quoted by a very modern high speed shop may prevent you from making a profit. So, you will be out of business because you cannot produce.

Consider also that a startup shop may be willing to work at cost for a while (with external financing to keep body and soul together :D) until they get their ducks in a row, and actually learn how to do some work.

It can be tough. The trick is to fill a niche, one that is not so large that it attracts a lot of competition, yet earns you a decent income.

Small competitors do serve a purpose, BTW. I send the really crap jobs and 'no-pay customers' over there :D Ain't I nasty? :D

.....It can be tough. The trick is to fill a niche, one that is not so large that it attracts a lot of competition, yet earns you a decent income....

Emphatically yes.

It is much better to be a small fish in a small pond that does not have any room for the big guys. Keep your head just below the horizon, be successful but not too successful.

Maybe this is an over simplification of the truth. Guys working out of their garage for $28.00/hr think they are killing it. A real shop owner sees certain death. A novice to business,(not just machining, any business) thinks he is just garnering market share instead of leaving all his profit on the table. I am not suggesting price fixing. But, there is a huge differance between a $55-$75/hour rate and anything below $40/hr. Purchasing agents have also ruined things. They are only driven by price. When engineers were purchasing, they had a reasonable expectation of what a job required and allowed pricing to be in-line with their knowledge. Any shop that constantly bends over for ruthless purchasers only gets screwed ultimately. As soon as you bump your rate even a little, they throw you out with the garbage and are down the road looking for the next sucker. Any job put out for bid to 50 different shops is a certain killer. It only makes since that someone is going to make a mistake and win the job while losing the farm. Or, the purchaser will try to cherry-pick each quote and give each shop only the parts they will lose money on. To wrap it up, I am saying we are being taken advantage of collectively and individually! We need to be more educated about approaches to projects and business. There is a big differance between sharing actual quoted numbers and balanced approaches to arriving at a fair price for the shop.

I empathize with you Jeff, but the holdback would be who, or by what system, are (fair) prices established? No doubt, $75/hour is a good median shop rate, but how much can you do in that hour?

Would you be willing to disqualify yourself because you don't have the perfect equipment to do a particular job? This is what the flat rate mechanics tell me, that unless you have every special factory tool, and the car was assembled only last week with antiseize on every bolt, will you meet flat rate times :D Their solution, bump up the shop rate until flat rate works out to be a livable wage, for that shop equipped with the tools that it has. Other shops will have a different shop rate, but they all look at the same flat rate book, so the customer may not be paying exactly the same price everywhere, anyway.

I've gone searching a time or two for custom made tubing. From maybe a dozen different shops, all claiming that 'tubing is their business', the difference in price for the same part has a range where the higher bidder is 4 times what the lower bidder was. I have no clue how hard it is to fabricate custom tubing, so I don't know what the 'correct price' should be. I try the lowest first, to see what I get. Turns out it was fine, even excellent, so I couldn't ask for more from another supplier, nor would I be willing to pay 4x as much.

An economy is an incredible thing when you stop to think about how it checks and balances itself. Tough though it may be to swallow, I think it is necessary to force customers to shop around, because otherwise, a 'guaranteed comfortable rate' for machined goods will kill the drive for improvement within the shops themselves.

If you've ever gone fishing, sometimes it doesn't matter what kind of bait you use, the fish just won't bite. If we shop owners were all guaranteed a fair return per part, we just might have no customers willing to bite at those prices.

In my limited experience already, 8 months, I've come to learn, that with my one machine, the shop rate will vary according to the job. Simple ally work is cheap especially in production quantities. There's no head aches, and tooling is dirt cheap. Some complicated tricked out stainless stuff is gonna work out to more. Quoting jobs is an art. Especially if you are new to the game it's almost a dark art. You can anticipate problems and try to eliminate them before hand.(This is easier when they guy quoting is actually running the job). I worked in a shop where they let the guys on the machines quote to the owners, this way we had an idea how we were going to meet the times.

Quoting will never be an exact science. Unless you are Geof, and develope your parts standing infront of the machine.;)

It's something that has to be learned. Hell all those high quotes can be from a shop that is too busy to take the work. They don't want to say no, so they price high. Done it myself, and seen some of those jobs. Doesn't work, but then your return per hour will be pretty comfortable.

Like Hu says. When you start out, you will ineveitably take everything that comes your way. While you are paying the bills, find a niche in the market you are comfortable with and go after it. If you aren't setup for full tilt production, then you may want to stay away from things like mass produced bike parts and such. If you have a $1,000,000 FMS(Flexable Manufacturing System), then you may be able to go after that sort of thing cause your man $$$$ are significantly lower.

All I can say is Good Luck with your endevour. And don't get frustrated on here if you are quoting and not getting anything. If you are a shop owner. You are possibly competing with Hobby guys who charge enough to pay for their tools and such.

I've done some jobs through here, and I got them because of my location, simple. I wasn't the cheapest, my shop was the best fit for the customer. And I was willing to take a chance on a kid, that most local shops priced so high it was like a kick in the nuts.

......Quoting will never be an exact science. Unless you are Geof, and develope your parts standing infront of the machine.;)....

Not an exact science even then. My advantage is I do production so I can recover a lot of time spent up front, in the continuing production of the part.

I meant, that by the time your R & D is done, you've usually got a decent grip on what it's going to take you to make it.

when us Jobber Guys quote, we generally don't get the sort or intimate familiarity of the parts up front. Generally a crappy underdefined sketch or drawing leaving a ton of unanswered questions, or an electronic model with no dimensions on it.

Back to the whole price fixing thing....

I live in New York City... and there's this thing called the Actors Union. It's not really price fixing.. OK well maybe it is, but it was started to keep producers from brutalizing their actors with crappy wages and promises of being a star, which is roughly equal to the ass clown customer that says something like "I can get you a lot more work" to guys like us. Here's the thing though - The actors themselves are essentially sole proprietors, but they're in a union, and when they do a union gig (which they take major heat if they do non-union stuff) they get paid a livable wage. Same thing with voice over work, scenery building, etc.

Anyway, in this day and age of douche purchasing people, and the shatty economics of running a small business, it's worth giving this problem some serious thought.

Back to the whole price fixing thing....
Anyway, in this day and age of douche purchasing people, and the shatty economics of running a small business, it's worth giving this problem some serious thought.

What do you suggest we do??? If there is some kind of loop hole in the system maybe it can be done. This way shops can get paid fair wages on parts and thus the trickle down affect.

It would be nice to see.

Please correct me if I am wrong, but I do not see a section on educating shop owners. Many guys on here at least dream of owning their own shop, but unknowingly they increase the difficulty. I own a brick & mortar shop and it is getting more difficult to survive. You know all the points about overseas competition, so I won't kick that dead horse. If I have a "REPEAT or HIGHVOLUME" customer, I can work very cheap,but guys on here are giving away the farm on 10-100 part runs. I think there needs to be an educational section to the forums or main page with pointers on general business practices and pricing. It would be more financially valuable for all of us. If you go to any car repair shop, they look in "The Book" to see how many hours any given repair task pays and charge accordingly. Virtually every other industry has some type of pricing standards. We do not! I am not suggesting price fixing, but we need to at least be in the same book if not on the same page.

I've said almost the exakt same thing over here in Sweden and people just look strange on me. Small shops sets clueless prices because pricing just isn't funny enough, or they say they can't charge for setting price on things. Then they whine and wonder why there is no money in their business.
For some time ago I stumbled upon a program called eMachineShop. Something like that would be very handy to set a standard for pricing things made in a metall-shop.

I do not know about other countries but in Australia we have many small business ventures.
Many are very successful some not.
From years of experience I learned that if you are gong to start up a small enterprise to make a living then you should know what you are going to charge before you start.
The simplified formula I use is basic.
Overheads or burden, this is converted to an hourly rate.
This includes rent, power, machine running costs and depreciation etc. These are fixed costs that apply regardless of the business.
Then there is labor, how much are you worth per hour, or how much must you get to justify the venture.
I then apply direct cost of materials and any other job related cost plus a profit margin on these.
Then you can calculate how many hours work you must have each month to be viable.
If you base your pricing on what the competitors are charging then your accounting may never add up to a profit.
Most small business has an edge over big business because of small overheads, but only if you are getting enough hours to apply your overheads to. The less hours the more burden must be applied and the less advantage you have..
Most small successful small business I know have a niche market or their own product or a unique service.
They are not in competition with the big boys, and have built a reputation based on quality and reliability and
and charges are often less important to their clients. I had a client once that suggested that they would pay a premium for my work.
RGDS
WJF

You are only missing an 'l'. :)

There is something about people getting together to fix 'prices' that has always amused me. But maybe amused is the wrong word??????

If you own a company and get together with other company owners to set the prices that you charge you are accused of 'price fixing', 'collusion; 'conspiracy', etc, etc. This sort of thing is forbidden by most governments.

However, if you are an employee and get together with other employees to make demands regarding how much you should be paid, etc; i.e., colluding to set the price you charge for your labor, you will often get support from many governments.

There seems to be a double standard here.

Very interesting point. Hmmm Are unions illegal? ;)

For a bunch of optimists, I am hearing all negatiaves. "That's price fixing." "Your equipment drives your quote". "Find a nich."

One more time..... We need a set of practices and standards to approaching quoting. And we need educational sources for our industry as a whole. Try to tell me, "when the plumbers,electrical, and HVAC unions have their required weekly or monthly training, they do not discuss quoting and pricing." I will say you are naive at best. I am not suggesting a union. I reference that merely as an example. In construction, Builders have annually produced books listing the going rates of every phase of building a house. Roofing, siding, drywall all pay "X" amount per Sq.Ft.

So yes, a given part may be able to be produced several different ways and on different machines. Or it may be suited to a multi axis mill/turn beast. What you are ultimatly speaking of is "TIME" . If a MORON quotes his work at $30.00 endlessly, He is ultimately killing the industry and his own ability to survive. Yes! 3 shops may be significantly different on a particular quote. The differance should be in machine time, not because someone is giving away parts.

Jeff,

You are never gonna get away from someone under cutting you, even if it's pennies a part. This is where it starts, then just escalates. If you have a vmc with no 4th axis, and you quote a 6 sided job, and you are competing against a shop with a 3 machine FMS all horizontals, that run unattended, you will get killed in price. If a guy kills you with the same machine as you well you may see him at your shop in a few months looking to work for you. Quote on everything, and get feed back. If you don't get the job do a pat mortem on the quote. I've seen stuff get pulled from shops, because someone is doing them for $20/hr after material casts are factored in even less if you include finishing. That's what happens when you are in competition. If you aren't getting any work, then you have to look at your pricing structure because something doesn't add up. Atleast not maybe in your particular area. Wages for qualified machinists(no button pushers) are high here from $25-30 an hour. I don't expect to compete with China. And I don't expect to compete with them. If someone sells their soul, that's their business, and I'll pick up the work when they are out of business.

If you don't get the job do a pat mortem on the quote

I could not agree more with BigMak's comment on analysing why you didn't get a job. This is often overlooked.

We lost a job about a year ago cos our quote was over double that of the competition. When we contacted the customer he quite rightly pointed this out. Well, we couldn't figure out how the competition could do it for that price and said so...

"How can they get the coating alone for that price?".
"Coating? What coating".
"Sheet 2 of the drawing, note 15... AR coating, 90% transmission at 45 degrees incidence over a Titanium Oxide conductive coating...".
"Oh... erm... can I get back to you?".

If we haldn't done the post mortem we would have thought we were way overpriced and attempted to shave costs perhaps compromising quality. As it was we got every enquiry we quoted for from that particular customer in the future.

Gentlemen, Pricing is simple. It is a function of perceived value, not a function of effort to produce. Whatever value you can create in the market is what you will be able to charge.

Hey I just sold my shop and took a job. Now, I had gotten remarried and was commuting 1.25 hours one way to the shop for the last 3 years and that had a lot to do with it, but we started up March 2002 (remember 9/11?) when there was almost no business to be had. So Jeff, you bring up a good point about learning business in addition to knowing machining. The skill set needs to include; quoting, sales, economics, contacts and marketing.

Quoting - Develop some time standards, like "the book" and use them. Some jobs you shouldn't get!

Sales - For pete's sake don't just sell on price, learn how to bring across your other attributes like delivery reliability, closeness - so you can run over and discuss with their engineers, speed - quotes in three days, etc

Economics - Some serious thought about this subject will shed light on some of the complaints Jeff has - There are "low barriers to entry" - any guy can put a machine in his garage - thus low prices. Lack of differentiation meaning purchasing agents think everyone can give them the same parts - it is the same print and the same due date after all so what's left? - competition on price.

Contacts - Once again, if you don't know the purchasing agent then you have to give him a low price to get him to love you and that hurts us all.

Marketing - Learn to think like a customer! He'd send parts to Michigan to get them specially coated so how can you be special so he sends parts 60 miles to your shop instead of as one fellow (with a shop) told me "its good we're located across from the steel mill, we get a lot of work from them."

Hey when I want to return to the world of 10 hour days and 6 day weeks I'll do it by machining some unique part or using some unique process and that way there will be more pricing power. Until then, keep on cuttin' guys.

From the point of view of someone who hasn't started up yet this thread is very interesting, definately one to come back and read again later on. Thanks for all the comments on your own experiences folks. :cheers:

From the point of view of someone who hasn't started up yet this thread is very interesting, definately one to come back and read again later on. Thanks for all the comments on your own experiences folks. :cheers:

My thoughts too mate....

The idea of having a big book like the auto repair industry, whihch has been mentioned, would be a good idea.... it would definitely make for fairer wages and keep shop owner from selling their souls to get work.

There are a lot of factors that could be considered, moreover what I have been discussed, like:

Region: Machinists are paid varying amounts even inside the US. Like I think the Northeast and California have some of the highest labor rates, while the South has some of the lowest. This would effect online job shop quoting if this were considered, but locally wouldn't be a biggie.

Overseas competition: While this might be hard to compete with China/India/Whoever else right now, this is likely to change at a moment's notice. The reason I say this is because there is increasing pressure form the US Congress and other higherups to make China unlock it's currency form the US dollar. Guaranteed that once that happens, expect the US dollar to lose big footing from the lock of the Yaun, which happens to be 8 to 1 right now. Once the IMF/US Congress unlocks this, the exchange rate would become 4 Yaun to 1 US dollar overnight. Given the fact that just lately the US dollar has lost so much footing against almost all other currecies in the world, this could very well work out for the benefit of every single job shop in the US.

While I have been pondering what we need to do to improve our position in the market, it has occured to me that some of our actions must be outside of our wallls. The political class in Washington has been selling us down the river. Maybe we should start to speak our minds more. I do not mean for us to ***** and sound like we have a "sour grape" loser attitude. But, we need to start focusing attention of the real factors that make competition difficult. China and other third world countries, do have horrid working conditions, low wages, no environmental oversight, govt. subsidized industry, and the US gives importers actual tax advantages. Congress is allowing businesses to outsource mistreatment of workers and the environment beacause it would never be tolerated here! I do not have any problem with competition, but do not give the other guy all the cards; then tell us were losers because we can't compete. This is just my 2 cents, because I honestly do not know what to do other than put my head down and keep diggin. I have always believed that "The harder I work. The luckier I get." Well that is my cup of gas for the fire for now. What do you all think? I am interested to here.

Jeff,

I see where you are coming from. Even though I'm from North of the Border. We see it too, especially with our dollar being on the up swing. It used to be our advantage to get work from the seattle area, now we've got to sharen our pencils even more if we want that work, because that money will no doubt stay closer to home.

I do believe that all the work that has gone overseas, will find it's way back. From experience, the Far east has a problem with quality when it comes to precise components(Japan excluded of course, but we aren't worried about competition from them, unless we are Haas). A shop I worked @ had some parts pulled, because the customer was taking it overseas. 2 months later it came back, and they were in a panic, because everything they got from China was not useable.

Keep working hard. Follow up on your quotes especially the ones you lose, to see why you are losing, and by how much. If you are consistantly losing by a bit, then maybe it's time to look at your charge out rates, material suppliers and the whole pie.

I'm not saying it's you, but you may need to review how things are priced in your area. I'm sure there is a difference in charge out rates between louisiana, and suburban New york!

I have some things to add to this. I am not a job shop at all, but I can see the real overlap in what i am doing and the concerns raised here. First, I would not be so sure foreign competition wont just get stronger and stronger. Having worked in a few big companies that have had ongoing outsourcing of work, they actually really enjoy the feeling of being an internationaly operating organization("yeah, i am going to china next week, so we have to do golf the week after") as much as they enjoy shaving a few pennies or dollars off a part. This is a result of management run amok, but that is another story.. they quite likely will pay more for parts if they can continue their asia, or better, eastern european vacations. Additionally there is the fact that many companies get perfectly acceptable parts and services via outsourcing.. however, these are larger companies who can afford to create the sort of communication and relationship needed with these distant suppliers.

in my personal business i think some of the best advice i ever got was 'stop under quoting. do not underquote' - it is hard to accept, but it has proven well. I have had a better response to my quotes since i started being more realistic about what a project will and should cost. these rates can still be less than many competitors in my field because of my unique methods and approaches to my business.

For me a big challenge was even creating a form to use to make quotes look professional and credible. My forms changed allot from project 1 to project 10, and so did my pricing practices.

Keep on truckin!