Shop Rates

[MrWild]

By the time you get done paying Uncle Sam, tooling, chemicals and everything else, what is a reasonable hourly shop rate for a small one man shop? Do you charge low then itemize all the little things so you don't lose your assets, or do you lay out a hourly rate that just includes all the incidentals? Really, the money is per the job, but knowing the amount of time something should take to set up and machine, and therefore an idea of how much to quote given a $ to hour rule of thumb.


Ball park $ per hour of shop time.

When bidding or quoting, do you just lay out the total cost, or itemize the total leaving the itemization in house?

Thanks!

Bill

[yoopertool]

Hourly rate depends on what type of shop it is. If you are just using a saw and a drill press for fab work, then you may only charge something in the ballpark of $50/hr, but if you have a half million dollar machine being used for a job, you are going to want to be in the $100/hr + range. For most of the shops I have worked in and the shop I operate on my own, prices have been around $65/hr for quality work. The Idea is that after paying for all of your tooling, machine wear, electricity, materials, and other consumables, that you still can pocket some good change. There are several things that I look closely at when putting a quote together:

1) Is material supplied or do you have to supply it. If you supply it, then make sure you charge for your time to order, pick-up, and unload it.

2) I usually stick to my set hourly rate unless a job calls for special custom tools or tools that are just expensive. Inserts definately add up on a job.

3) Quantity......Higher quantity usually means lower price, but not always.

4) Programming and planning take time. Dont forget to charge for the hours of time it takes to program and figure out how to make the part.

I found that the best way to really learn is to do a few jobs and closely monitor the amount of time and money that went into them and see how you did on them. You might barely make a profit the first few, but hey, sometimes the learning experience is worth it. I hope this helped!

[mog5858]

well i know in the fab shop i work in i am 100.00 per h for AL welding and fab work. are cnc plazma is done but the sq foot. there is a 15% shop materlas on the total of every bill. grages that fix car have bean doing that for years.

[HuFlungDung]

I've been thinking of how I price stuff, and I think I've been giving myself the shaft, due to hourly pricing.

On the hourly system, the customer gets charged only for your prime time, the time that you have cleared everything away to work on his job. Then, all the work of running the business, fixing all your machinery, etc., doing the shopping and ordering, paying the bills ends up coming out of your profits.

I can barely get much done in a day, that is why I went with cnc, so I could still get a whole day's output, in half a day Minimum time to do anything of significance, is a half a day. So, pick a number, say $400 minimum per day, and stick with that, minimum charge, 1/2 day.

Sure, the odd job comes along where you can really produce a lot of work, but a realistic daily average for doing a variety of tasks (like a repair shop or a job shop) will probably be useful to you.

I think if you quote in tiny amounts, like, price per part or per hour, you just belittle yourself, and give the customer a chance to nitpick your pricing, and he also can then ignore your time and efforts taken to run your business.

So, shake them out of their paradigm, instill your own and get some respect.

[RICHARD ZASTROW]

These $$$$ for that specified job period. Want a discount? I want a premium. Besides, I'm retired and don't want to do it anyway unless you are REALLY nice to me or are an old friend. How's that for a certified Curmudgeon.

[HuFlungDung]

Oh, and ass-kissing, excessive flattery, and compliments on my boots will also get me interested in doing the work

[Geof]

I started out as a one man operation with the same dilemma; what to charge?

I had worked in a variety of shops and knew their hourly shop rate so I used that, estimated how much time a job would take, added materials and gave the total as my price to the customer. If they didn't like it...tough, they could go some place else; I never got into haggling because that is the way to slowly go down the tubes.

This is a piece of advise I give people; don't shave your price when the customer says that if it was just a bit less they would go ahead. As soon as you drop the price you have confirmed to them that you were charging too much in the first place.

I was working out of the basement in my house and because I was charging the same rate as a shop that had to cover rent, electricity, phone, etc, I was doing okay. Eventually I had to move out of the basement and start paying real rent, electricity, phone, etc., and that did cut into my bottomline but by now I was occasionally employing someone and had more business so the total kept climbing.

And this leads to another bit of advice; don't cut your hourly rate because you are working in the garage and not paying some expenses that would be needed in separate rented premises. If you do this and then are successful and get big enough and busy enough that you have to move you are hooped. It is very difficult to suddenly bump your hourly rate up and your prices up; customers get a bit snippy when they come back with a repeat job and find the price is 50% higher. You move and finish up working harder for less money.

If you don't have any idea what other shops are charging per hour then you have to be a bit businesslike and try to come up with a number based on the value of your time, the cost of your equipment and the overhead expenses such as rent, electricity, etc.

Here is a method I have used which totals everything up on an annual basis then divides by the number of working hours in a year. My numbers might be wrong for your location but you can easily plug other ones in. The thing is use good numbers, don't squeeze them down because you want to justify a certain hourly rate, see what comes out of the bottom of the calculation.

Your pay $50,000 (that is only $25/hour)

Rent on 2000square feet of space; $25,000

Electricity, telephone, etc? $500/month; $6,000

Insurance and other things (just a guess); $3,000

Amortization of equipment. This is one a lot of people overlook. They save enough money to buy the machines, or borrow. During the expected lifetime of the machine you need to put aside money to replace it. If you borrow you need to pay interest, pay back the principal AND put aside enough to buy the next time around. If you just keep on borrowing you are working hard just to stand in one place.

So you need to come up with an expected lifetime; for simplicity I use five years so if you have $50,000 worth of equipment this is at least $10,000 a year; if you borrowed it is more like $22,000 a year.

So the total is $94,000 to $106,000

Working 40hrs/week for 52 weeks gives 2080 hours per year so now divide to get $45 to $51 per hour shop rate.

Now for a fudge factor: You are never going to be working all the time on billable jobs so you have to figure out any efficiency factor; this sounds better than fudge factor . This initially has to be a guess; I have used 70% so your hourly rates are divided by 0.7 to get $65 to $73 per hour.

If you look at the numbers people have posted here and in other threads this analysis came out with a believable number, and I did not try to deliberately bias it.

[dertsap]

ive read similar posts here and i notice that the one thing that gets over looked is tool cost ,in my opinion this is a factor that can break away large chunks out of the profits , i work with a lot of steel and the consumption of our carbides is quite high , inserts , enmills , carbide drills are all very expensive by the end of some jobs , the customer should be eating this cost not the company , even on aluminum work that you already have the tools for ,i beleave the customer should be covering those costs within the quote

maybe i'm wrong ,its not my job to quote but it is part of my job to control the consumables , and i hand out a lot of money worth of tools in a day

[Geof]

Originally Posted by dertsap ive read similar posts here and i notice that the one thing that gets over looked is tool cost ,in my opinion this is a factor that can break away large chunks out of the profits ,....

Right, I was going to comment but I forgot, thanks dertsap.

I think a good approach to handling tool costs is to add them on as a premium on the job price. With experience you will learn what to add.

As a crude rule-of-thumb use half the annual machine amortization amount as your annual tool cost; I did a calculation for our shop and it came out fairly close on a per machine basis.

[WA Toolman]

Tool usage, and other costs are usually charged separately under "Materials and Consumable Tooling." Note that it is not always shown separately on the quote.