chance to be a deticated shop

jayhawkman · Jul 26, 2005

I have a chance to be a deticated shop to a company that is doing R&D work on some new products. I would have to do it full time so my boring job with great benifits would have to go. I would keep the customers that I already have. My question is what is the use of my shop worth? I have about $40000 in equipment I do both welding and machining. I also do portable welding. I know what I want just for full time employment but how do I factor in the infestment I have in the shop?

Wild West · Jul 26, 2005

Am I to assume that they what 100% of your capacity? You mentioned other customers so how much of your time does this customer actually want?

I would be very careful about depending on one customer. The most I would let them have is maybe 25% of your capacity. I can tell you from experience that the people (customer) making those decisions have great intentions when they say it but when things go south (project cancellations etc.) they say "sorry" and your up a creek.

If you are comfortable with the arrangement then I would get whatever I can. Check local shop rates for comparable services and go from there. Based on an eight hour day for five years $40K worth of equipment costs you about $5 hour. Figure what you need to live on plus other costs (rent, utilities, perishable supplies etc.) plus any benefits you have to replace and then figure all of these cost are 80% of what you should be getting. But check around, you don't want to under sell yourself.

Jim
www.pivotlok.com
Professional Bench Top Positioners

jkilroy · Jul 26, 2005

I suggest you figure a flat hourly charge plus materials, tooling, etc. A salary type situation will pressure you to work weekends, nights, etc without extra compenstation. Do not fall into that trap. Suggest to the customer that it will save them money as they are only paying for the time they use. And that you are going to give them a rate based on a minimum hours per year commitment, say 1500.

precisionworks · Jul 26, 2005

I'd also approach hourly, especially on R&D work. These jobs often are unusual, requiring custom fixturing, perhaps exotic tooling, etc.

The benefit of a boring job IS health insurance, matching 401-k, paid vacation, paid sick leave, etc. Unless you have a spouse who can provide health insurance for you, be prepared for a shock.

You'll also need either significant savings or a disability insurance policy - you'll still have bills if you're sick or injured.

A shop that's occupied and used eight (or ten, or twelve) hours per day has higher utility bills. Plus you'll need a commercial insurance policy, easily costing $50-$100 per month, or more.

I do the same type of work that you do - machine shop, welding (and woodwork). And have a similar equipment investment. Until you have a number of steady customers (two dozen?) it may be an uphill struggle.

Mike K · Jul 26, 2005

I wouldn't risk that unless they guarantee a parachute package (in writing!) in the event of them backing out. I learned the hard way that companies do not behave like individuals when you negotiate with them. No matter how well things seem to be going with your contact in the company, you are ultimately at the mercy of numerous people elsewhere in the company that you don't even know and probably never will. The bomb just drops all of a sudden and there you are, all alone. Your former contact may not like the situation but he won't be able to do anything about it. Even if the CEO is your brother there is nothing that says he will be there next year.

Sorry to sound so negative, but after my experience I can't recommend putting all your eggs in one basket like that. Fortunatly, I was diversified and didn't loose everything. It doesn't sound like you would have anything to fall back on.

Mike

Access Db Guy · Jul 27, 2005

After a few years the Navy decided to commission me and I became a Fiscal & Supply officer (Medical) so I've done a lot of (Federal) contracting.

I had a friend that does exotic welding (former nuclear-qualified) and he asked me to review a "6-year" contract he was offered. Based on the value of the proposed contract, he was thinking of investing in additional machinery.

After analysis, what he actually had was a one-year contact with five one-year options. So after I told him that 30 days before the end of the first year, his proposed "partner" could just send a letter saying they were not going to exercise the second year option, and he'd be out of luck. He decided then to invest in a good contracts lawyer so he would be protected by writing his own contracts.

Lesson: Hire your own gun-slinger. Don't depend on 'them.'

Billy Boy · Jul 27, 2005

I would seriously consider a retainer!!!! Sounds like it might be the perfect situation for one.

Basically, they guarentee you a certain number of hours at a given rate every month. That is a flat rate. This is the amount of money that they need to pay you just to keep you around and responcive to thier needs, and not looking activly for other work.

If they don't use up all the hours, that's on them. If they go over then you charge them by the hour for the additional time.

The great thing about a retainer is that you are not on salary so the company doesn't have a whole lot of headaches, but they've got you under contract to be around when thier needs do arise.

Gives the flex both you and they need, but also promises not to leave either one of you in the hole if their is a extra slow or fast month that comes along.

Talk to a lawyer about how to structure somthing like this. A good contract is best for both sides.

B

jayhawkman · Jul 27, 2005

Thank you for your replies. As far a having something to fall back on im okay there. I have serveral good contacts for full time employment if thats what I was after. What I really need now is what dollar amount would be resonable for the use of my shop equipment and tooling. As far as contracts I doubt I will go that route. I have been using hand shakes this long I will proablly continue.

GGaskill · Jul 27, 2005

Don't get in the position of having to make investments (buying new machinery, etc.) for promised future work which may or may not materialize. Also, be careful that they don't start lowering their price after getting you committed to them. That's a good way to go bankrupt.

metlmunchr · Jul 27, 2005

If you're asking for a number to put on a reasonable shop rate, then I'd say you need to be in the $50 to $60 per hour range. You're selling your skills, and its really immaterial how much you have invested in equipment. The only place equipment comes into play in my shop rate is when I've got to makeshift something for the lack of proper equipment to do it the fastest way when I'm quoting a job. If I know my work-around is going to take 2 or 2.5 hours when the right equipment would do the same operation in 1 hour, then I have 1 hour in the quote for that part of the job. That's just a necessity to end up with competitive prices, but it also points out the need to keep to a minimum the types of work for which one's shop isn't equipped. Too much stuff like that, and you're always working at 15 or 20 bucks an hour and never grossing enough to even consider buying the stuff you might really need.

Joe Miranda · Jul 27, 2005

I do R&D work in the northeast ohio area part time (employed by the company) and I get over $30.00 per hour. If this is your shop and your equipment I sure wouldn't do it for less than $50.00 or $60.00 per hour (that's what I try to get for my part time business that I run from home).

Joe

jfsmith · Jul 27, 2005

I am not sure how much of the equipment you own or depreciated. We are currently stuck in NC, so I visit a guy in a little shop near Bragg, he is $75 to $90 an hour for his work to the gov. Nice shop, good setup.

Jerry

smallshop · Jul 28, 2005

forget handshakes!
Any reputable buisness planning to invest in a single person for the long haul will have no qualms signing a contract specifically detailing the agreement.They will respect you more for not allowing them the opportunity to leverage you.In the type of agreement you are entering into YOU are the major risk taker. Protect yourself.

jayhawkman · Jul 28, 2005

I have done some of my own figuring and believe wild west is pretty close with the $5 estimate. I will get back with you guys when the details are worked out. Thanks

Access Db Guy · Jul 28, 2005

One thing to keep in mind about contracts law in the U.S.

Disclaimer: I'm not a lawyer, only a former contracting officer. Your mileage may vary, etc., etc.

Generally, when a clause in a contact is in dispute, ambiguous, whatever you wish to call it, and the courts have to decide what it "really means" the courts will usually decide in the favor of the party that did NOT draw up the contract.

The concept is that the party that did draw up the contract had control of its structure, therefore was in a better position. Hence, the "other" party was at a (slight) disadvantage and therefore the disputed clause may be decided in their favor.

Handshakes and honorable men are wonderful, but don't mean much in civil court any more. The advantage of a good, specific contract is it can be presented to a banker for consideration of a loan for investing in new/upgraded equipment or a line of credit to help cash flow. Your stellar reputation in the community may help, but a firm, written obligation can be presented to a loan approval committee. It’s an asset.

jayhawkman · Jul 28, 2005

Thanks for the imput but Im not planning on sueing anyone. If I go ahead with this and it doesnt work out that will be it. I would just find something else. But working at home doing R&D work sounds really good right now.

Ryuill · Jul 28, 2005

If your gonna do this, do not forget about liability insurance, particularly with prototype stuff.

L Webb · Jul 29, 2005

If I was going to put everything I own on the line by going with an exclusive handshake contract with a company, I would make sure it is extremely profitable for me.

Find out if you can what kind of wages that company pays. If they pay any employees on the floor $25/hr or more, then that employee easily costs them $50-$60/hr in wages and benefits.
Your starting point should be no less than that.

It is the employee costs that are not seen that add up to a high figure.
What kind of vacation and holidays do you get with your current job? Right there can be 3 to 6 weeks of pay you will no longer receive with that contract.
Medical benefits? 401K? You will also be paying all the Social Security taxes.
You will not have worker's comp protection. You need your own medical insurance.

You will be responsible for all consumables costs as well as repairs or purchases. $5/hr for the investment in your machines maybe fine but your tooling and consumables cost as well as electric service are another $5/hr minimum.

It is up to you Jayhawk and I am sure you are a smart man. Don't sell yourself short on this one. Just remember that employees cost a company real money, 2-3 times that figure on the paycheck.

Good luck

Les

metlmunchr · Jul 29, 2005

I have done some of my own figuring and believe wild west is pretty close with the $5 estimate

Get on the phone and see how many shops are willing to let you come and use their equipment and facilities for 5 bucks an hour. Most of them are going to be laughing so hard they won't be able to answer, but you can safely take that as a no. Call a hundred shops and I'd be surprised if you find even one that bites on that offer.

olddude · Jul 29, 2005

I had some prototype work farmed out because I didn't have the facilites to do the work in-house.
The first quote was 13.50 per copy, jig expenses went up now it was 17.50, then it jumped to
23.50 , Finally I got the call, I will finsh two of the pieces and then that's it, I can't make any money on this job. We parted on friendly terms and I understand his reasoning but after looking at his jig set up I could have done a better and quicker job. The guy wasn't bad but he really didn't understand tool and die or what prototype really is, it's more trying to figure out how to do something than the actual machining.

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