Job boxes and billing cutters

For those doing jobs billed as "time and materials", I'm wondering about how most people handle billing cutters to jobs; bill it when it's pulled from new, or when used up? Do you put a used cutter in a job box for next time, or in a customer box for their next job? Do you bill a fraction based on estimated life of the cutter? Or do you just guess at the value of cutter life used for the job and not bother tracking the details?

Thanks

I only bill for a cutter if it's something special that I don't have.

All standard drills, taps, etc, I consider consumables and they are covered under the shop rate.
I replace them when they are too worn to use.

Booze Daily said:

I only bill for a cutter if it's something special that I don't have.

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So a job that takes five machine hours and $200 in cutters bills the same as a job that takes five hours and $2000 in cutters?

your hourly rate should have been different for the more expensive job, do you want the customers demanding the old bits, proof you didn't run a different job with them, try proving a negative, and 2 page written explanations why one cutter lasted longer than the other? then going on eBay and telling you should have bought that bit cheaper, bouracrats have plenty of time and dont value yours. time and and materials jobs are best when it is as simple as possible if your destroying that many consumables slow the job down to make it up in hours. different field I know that welding stainless pipe costs way more per weld than steel but I don't itemize for rod, temp sticks, all that stuff, its just so much per hour. on t&m anything itemized out is an excuse for an argument and a hold on paying.

If you know where to get free bits then dont charge for them, but if you have to buy bits or dull bits you own ...Charge for them...Phil

If we have to get new tooling that is worthless for any of our other work we either ask that they commit to a certain quantity or just factor in the cost on the first batch.

Just don't let them think the tool is theirs. We had an issue where someone wanted the press brake dies we bought for their job, that we charged reduced price for because we could use it on other jobs. They also wanted us to reimburse them for wear on the die (just aluminum smeared on the edges, as happens and is easily cleaned). We told them to get lost, they threatened to call a lawyer, but their boss (this was some weird startup conglomerate. Not sure exactly what the deal was) contacted us and he understood they had not purchased the die outright.

idacal said:

your hourly rate should have been different for the more expensive job

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Ok, so if I'm reading you right, you estimate the value of cutter life consumed per hour and add that to the job rate? That sounds like a lot of guess work.

I'm not listing the cutters when I bill the customer, just adding it to the cost, along with a rate per hour (including programming and setup) and the material. Just wondering if people have a convenient way for keeping track of what 20% used up endmill has been billed to which customer, so they can get the value of the rest of it's life that they've already paid for.

I dont do machining but used to do a lot of time and material work for municipalitys actually stilldo and Had several instances like strostkovy said. Im a hard learner Simple is best. if cutters are more than normal lump sum that In a vague way,Shop supplies something like that. Dont itemize To the customer if you can possibly help it on t and m. if you want to help them out do it on the next job. I have been bit really bad trying to be nice and save money for the client. Usually t&m is figuring out a proccess or a repair so there is a lot of wasted time that doesnt get paid anyway. And they are coming to you because you can figure it out, may as well get paid for your knowledge almost garrenteed if the cliant can have a button pusher do it you dont get the job.

mhajicek said:

Ok, so if I'm reading you right, you estimate the value of cutter life consumed per hour and add that to the job rate? That sounds like a lot of guess work.

I'm not listing the cutters when I bill the customer, just adding it to the cost, along with a rate per hour (including programming and setup) and the material. Just wondering if people have a convenient way for keeping track of what 20% used up endmill has been billed to which customer, so they can get the value of the rest of it's life that they've already paid for.

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I think he's saying something more like this:
Jobs in aluminum bill at X per hour.
Jobs in steel bill at Y per hour.
Jobs with really strange materials or unusual tools bill at Z per hour.

There are three reasons as a customer that I might want to go with time/materials:
1. There's something about it that carries a lot of risk. Rather than you over pricing the risk to avoid coming out negative I accept the risk so I don't have to pay for the over estimate. Might cost me more, might cost me less, but I take on the risk that it might end up being really expensive so that you don't have to quote as conservatively.
2. So that I don't have to think much about it and justify it to my boss. Note, as soon as you start adding more details to it there are more things I might have to justify or explain.
3. Because the cost of quoting, writing a PO, etc. will take too much time relative to the cost of the job. If you and I both know it's going to cost about $50 and you're going to have $20 in margin I'm not going to ask you to send me a formal quote in long form on my custom quote form. That extra hour of paperwork will make it a $200 job.


Having been on both sides of the fence, I understand both positions, but the way shops explain tooling charges often really irks me. For example, say my normal jobs cost X. I RFQ a similar job, but it requires an unusual tool you don't have, so you quote it at X+Y where Y fully covers the cost (plus a bit since it might go wrong) of the unusual tool that won't wear out (say a custom roller burnisher that you don't otherwise need). You specifically tell me it's higher because you had to buy tool Y, and I'm ok with this. That's on me for picking a job with a quantity of 3 that requires a $300 tool. That job is going to run me around $100/part more.

When I send in the same job 2 months later, it should now cost something close to X, not X+Y because you already have the tool.

If there's some other reason (it took longer than you thought, had a high scrap rate, was just a PITA to make, etc.) then just say that, don't keep relying on the tool like someone who needs time off because their grandmother died for the 7th time this year. Bonus points if you tell me what's such a PITA about it so I can adjust.

Very good explanation of the issues directly above and I completely agree; cost of consumables should be buried in the hourly shop rate.

Thirty years ago I started our product line by having injection tooling I designed built by contract shops, and had much trouble getting quotes due to the amount and complexity of non-repetitive surface detail. I quickly made my peace with agreeing to T&M for the reasons stated above. That was fine until I got a bill for thousands of dollars of graphite for EDM electrodes; something I considered to be a consumable. What was worse; they were all blanks sized for tiny details but 3" long. It was at that point I realized the shop had never invested in any electrode holder more sophisticated than an angle block. When negotiations wouldn't reduce the charge, I said, "Fine, box them up, I'm taking them," and the shop lost a customer that day. Within a year or two we started our own shop in-house, and I made sure we acquired System 3R electrode chucks. It's taken twenty five years, but I'm just now coming to the last of those carbon blanks.

Dennis

You can not bury the cost of cutters in the shop rate, every job needs are different, you have to add the cost to the job. Shop rate is the cost of rent,heat and lights, taxes, PROFIT and labor...Phil

Phil in Montana said:

You can not bury the cost of cutters in the shop rate, every job needs are different, you have to add the cost to the job. Shop rate is the cost of rent,heat and lights, taxes, PROFIT and labor...Phil

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You'll lose time and money trying to cost analyze every little job to get the exact hourly rate. So what if one customer pays an extra $10 and another pays $10 less, when they both save $20 in quoting and calculation time.

Or, consider that any job returning over, say, $50 an hour in profit is worth taking. Then, when you average actually making $70, it doesn't matter if that average comes from making $80 on low consumable cost jobs and only $60 on high consumable cost jobs. Numbers are of course only examples here.

A better way to handle this is to have different hourly rates for different pieces of equipment and jobs. If something is known to involve additional expense you can fudge the number a bit higher, but don't waste your time calculating pennies. That's for quoting in quantities, not one offs.

Strostkovy, do you charge for material? or is that in the hour rate as well.Most shop don't make a 10% profit across the board, My Dad always said if you watch the penny's the dimes and dollars stay home...After 75 year in the machine shop game he was 100% right...Phil

Phil in Montana said:

Strostkovy, do you charge for material? or is that in the hour rate as well.Most shop don't make a 10% profit across the board, My Dad always said if you watch the penny's the dimes and dollars stay home...After 75 year in the machine shop game he was 100% right...Phil

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We charge 30% on top of raw material to cover handling, plus machine time. Hence time and materials. I do not consider consumables to be part of materials.

We are an offroad business making our own product lines, so don't farm out work all that often (maybe 10% of machine time). But when we do, we get the files, load them into the machine and time the process. We then bill for whatever material it took up.

No quoting, no file editting, no nothing. We give them a go/no go on the files, then we cut them and/or bend them as needed. It's cheaper for them because there is no overhead, and it's easy for use to make more profit while staying competitive because we bill for no overhead. Allows for rapid turnaround too, often same day or within three days if we have to order material. In some cases we will warn them that their parts will require extra unloading labor, and give them the option of taking the web cut into quarters on a pallet and they can separate the parts and count them themselves. For repeat work we take what we billed, divided by the sets of parts yielded, and that's what they pay per set in the future. We make it clear that purchase orders have at least 10% tolerance on quantity. We nest however many fit and don't bother recutting parts if we lose one.

Granted, we really only do laser work and brake work for people, but the operating cost of lasers varies wildly with the material being cut, and we just average it and call it good. Honestly the office costs more to operate than the machinery. Also, special brake tooling is horrendously expensive, but useful, so if someone needs something special we just make sure they commit to enough sets to cover the punch or die costs.

A penny pinched is a hand that's busy pinching pennies instead of making billable product.

You and I are in different worlds, you sell a product, I sell a service, every job is a stand alone, It has to be priced out fairly and not under priced, I add the tooling cost with the material, then the shop rate, including clean up, and then a bookkeeping fee....Nothing is free, now if there is a snag or a wreck the bill will be discounted so the cust does nt pay for my mistake. Next time you have your car fixed look at the bill, there is no charity there...Phil

Phil in Montana said:

You and I are in different worlds, you sell a product, I sell a service, every job is a stand alone, It has to be priced out fairly and not under priced, I add the tooling cost with the material, then the shop rate, including clean up, and then a bookkeeping fee....Nothing is free, now if there is a snag or a wreck the bill will be discounted so the cust does nt pay for my mistake. Next time you have your car fixed look at the bill, there is no charity there...Phil

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Again, the cost of billing everything *exactly* as opposed to billing an average is significant, and makes everyone pay more.

We are able to undercut local shops to keep our machines busy without overworking our operators or office staff. Often we will just use a previous quote they've gotten from other shops and just use it as a do not exceed.

We are not giving anything away. We just don't perform the service of pricing tighter than 20% or so, which would require labor amounting to over a 20% increase.

So somebody may buy $100 of machine time, but based on operating costs we should have only billed $80. If we do the math to determine that we would be out $30 of shop rate in office work, so they would pay $110. The overhead to balance the budget at such a minute level just doesn't pay.



The only time I've seen such tight billing used was when a company I worked for (that made a lot of mistakes, due to lack of maintenance or training) would lose a big customer and suddenly have to drum up more work, and used all of the available office labor to calculate the exact cost of parts to provide the lowest possible cost to customers to drag them in. This office work was never billed for, and was a last ditch effort. Granted, they've done these last ditch efforts at least 7 times and managed to survive with only 50% layoffs each time, but it's no way to work.

If your machines are busy 100%, your operators are busy 80-90% and customers are happy, there's no reason to do more office work so long as you turn some amount of profit on every job and a good average profit overall.