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    Default Rate discount for quantity?

    Hi folks. I'm a one man shop, business has been slowly growing with my skills and as word gets around. I bought a new machine this last year and am starting to go after larger jobs. In the past I was mostly doing one off complete builds of machines/tools or assemblies and prototype parts. Starting to move more into production oriented work now, but still doing some of the prototype odd job stuff. Never having worked in another shop, I don't have a good sense of common/best practice for job quoting when it comes to larger quantities. I've put together a pretty good spreadsheet that lets me amortize all my setup, CAM, and fixturing costs out for a bunch of quantities along with machine time.

    But here's the real crux of the question. Do you reduce your rate for run time in exchange for quantity, or just let the costs amortize out and let the price lands where it does?

    I think I have some work to do in how I calc my machine rate, for now I'm just using a basic hourly. And I'm sure something could be done there knowing that the machine will be running more and that effectively it's hourly rate will be reduced. But for the moment just using a base rate what I've been finding is that I get a steep drop in price up to say 100 (depending on complexity of setup, etc) parts, and then after that the changes are very slight as all the setup costs are a pretty small piece of the cost per part and it's just run time and material cost, which aren't changing much if at all. It seems like I've been seeing some surprise from customers that the price for 1000 parts isn't that different from the price for 500 parts. So in some cases I've been doing a 10% reduction in machine rate, or something along those lines to sweeten the deal. But it kinda rubs me the wrong way.

    Anyhow, curious what the more experienced among you have to share. And thanks!

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    Runtime is runtime, whether it's 5 parts or 5,000. The machine doesn't care one way or the other. Why would you bill the machine out differently for 1,000 parts than for 100? It's still going to wear out and need replacement parts and consumables at the the same rate.

    Now, you might have a different machining strategy for 100 parts than for 1,000, like higher-density fixtures for the 1,000. Still, I would be billing the machine runtime out at the same rate.

    Regards.

    Mike

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    Yeah, that makes sense. For some reason I'd taken it for granted that there was a rate discount for quantity, I'm not sure where I got that idea. I think really what I need to be doing is breaking out handling time better in my quoting process.

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    This thread will get a lot of lying sacks of crap posting, I cannot wait. No one ever admits to lowering their shop rate for longer run jobs, yet I have admitted to having a variable shop rate and lowering it for long run jobs that don't require a lot of attention. With that in mind I still don't get high quantity simple jobs, so someone in here is a lying sack of crap.

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    Stirling,

    I let the prices fall where they may. When I was first starting, I thought as you. I would offer a (slight) discount on spindle time for high qty orders.
    That was 21+ years ago. Today, the price for spindle time is the same for 1,100,1000....
    I will decrease (small percentage) my markup on materials and/ or secondary services, if it helps to win the job.

    Though, I must admit, 2000 is the highest qty of parts run on a single line item of the PO. So, maybe if we were talking 10,000 or 100,000 pieces of a gravy part, I probably would ~consider~ it seriously.

    Doug.

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    Quote Originally Posted by Dualkit View Post
    This thread will get a lot of lying sacks of crap posting, I cannot wait. No one ever admits to lowering their shop rate for longer run jobs, yet I have admitted to having a variable shop rate and lowering it for long run jobs that don't require a lot of attention. With that in mind I still don't get high quantity simple jobs, so someone in here is a lying sack of crap.
    escalated-quickly-300x300.jpg


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    I think where it makes a big difference is if the quantity is high enough to have dedicated, specialized tooling, more efficient fixturing, and maybe it's own machine, that make the whole process more efficient. If you run 1000 the same way you run 500, the cost each minus setup and programming will be the same.

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    I dont do quantity jobs, no sense in me competing against guys pinching dimes. YMMV

    But I DO have a few jobs that run on their own for anywhere from 20-60hrs.

    I tend to lower my machine rate for those, as I dont mind losing a few bucks if I can sleep, go fishing with the kids, or hit the beach for the day.

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    Don't discount so much that you hate to run the job, at which point other work begins to look more attractive because you can get full rate.

    Substantial discounts usually might require a completely different way of making the part (casting, laser cutting, etc). If you can't get those kinds of quantities, then the highest discounts cannot be offered. But that is up to the customer to decide if he wants that much risk.

    I do amortize the cost of programming and setup over an initial quantity order. Don't ever count on the second order. Best case, you offer a discount but also find a better, quicker way to do the job to actually beat the discount into negative territory.

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    Quote Originally Posted by Dualkit View Post
    This thread will get a lot of lying sacks of crap posting, I cannot wait. No one ever admits to lowering their shop rate for longer run jobs, yet I have admitted to having a variable shop rate and lowering it for long run jobs that don't require a lot of attention. With that in mind I still don't get high quantity simple jobs, so someone in here is a lying sack of crap.
    It sounds to me like you:

    A) Didn't understand the OP's question
    -or-
    B) Don't know how to quote

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    there is rational to a lower price, in the sense that a run that takes 1000 hours of machining time should take less total time than 10 100 hour runs..... if you take into account set up, material ordering, quoting, order processing/invoicing, etc. There's has to be some ratio of total time spend to time the machine is running and you'd think that would be higher for longer runs

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    Does your hourly overhead get cheaper if your customer orders more parts at a time?

    Nope.

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    Quote Originally Posted by [email protected] View Post
    Does your hourly overhead get cheaper if your customer orders more parts at a time?

    Nope.
    It certainly doesn't. I do feel like somewhere in there should be some accommodation for the fact that with a big order you know the overhead is being covered for a while, whereas with a small order after it's done you don't know if your overhead will be covered at all. So really maybe there should just be an hourly rate increase for small jobs.

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    Hi All:
    Here's my take on it:
    The first question to ask yourself (the one I always ask myself) is;
    Do I really want the job and the customer?

    Obviously I want the job if it will make me a decent profit.
    If it's a great customer I want to keep them loyal too.

    Second question: If I take the job and piss off another great customer because I can no longer meet my commitment to them reliably, is it worth it?
    Not just for the short term profit (the plus), but also for the reputational hit with the screwed over customer, I'll take for reneging on my prior commitment.(the minus)

    All of that determines whether I want a job badly enough to make a price accommodation in order to try to secure the job.

    Some jobs are great unassisted jobs requiring a minimal up-front investment and are worth discounting quite severely if they can just run and consume little in the making.
    After all, profit is profit and if it's easily come by it's worth grabbing even if you can't pick up every crumb.

    Some are hair tearing nightmares that cannot be left unattended for a heartbeat; those are never worth discounting, and are often not worth doing.

    Some purchasers have ridiculous expectations of price breaks; if I can't meet those expectations we can't dance together and for me, they are not a great customer.
    They need to find someone else who's better equipped or more eager than me or whatever.

    Some purchasers assume they're number one always, and are cheap bastards on top of it...they get shown the door sooner or later (sooner and sooner as I grow older and less tolerant of assholes).

    So ask yourself every time you quote a job:
    How much of my time will it take?
    How much of my resources will it take?
    How badly do I want it?

    That will tell you EVERYTHING.

    Cheers

    Marcus
    Implant Mechanix • Design & Innovation > HOME
    Vancouver Wire EDM -- Wire EDM Machining
    Last edited by implmex; 03-29-2019 at 11:18 PM.

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    Quote Originally Posted by StirlingMachine View Post
    ...So really maybe there should just be an hourly rate increase for small jobs.
    Good, repeat customers get more consideration than the guy that walks in with a bracket that needs some holes stuck in it. I always discount quantity based on the setup and material costs, and I'll give my best customers a break on the hourly rate when I can.

    I charge my hours. If I'm sawing material or running the mill, it's all the same to me. And if the job has the lathe dropping parts in the bucket while I'm running a mill, I don't charge full shop time for both machines. I price out my time, and I try to get my rate. Sometimes I beat it, sometimes I am a little shy, it all works out.

    Good customers, build the relationships. That's what keeps you going.

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    Quote Originally Posted by StirlingMachine View Post
    Hi folks. I'm a one man shop, business has been slowly growing with my skills and as word gets around. I bought a new machine this last year and am starting to go after larger jobs. In the past I was mostly doing one off complete builds of machines/tools or assemblies and prototype parts. Starting to move more into production oriented work now, but still doing some of the prototype odd job stuff. Never having worked in another shop, I don't have a good sense of common/best practice for job quoting when it comes to larger quantities. I've put together a pretty good spreadsheet that lets me amortize all my setup, CAM, and fixturing costs out for a bunch of quantities along with machine time.

    But here's the real crux of the question. Do you reduce your rate for run time in exchange for quantity, or just let the costs amortize out and let the price lands where it does?

    I think I have some work to do in how I calc my machine rate, for now I'm just using a basic hourly. And I'm sure something could be done there knowing that the machine will be running more and that effectively it's hourly rate will be reduced. But for the moment just using a base rate what I've been finding is that I get a steep drop in price up to say 100 (depending on complexity of setup, etc) parts, and then after that the changes are very slight as all the setup costs are a pretty small piece of the cost per part and it's just run time and material cost, which aren't changing much if at all. It seems like I've been seeing some surprise from customers that the price for 1000 parts isn't that different from the price for 500 parts. So in some cases I've been doing a 10% reduction in machine rate, or something along those lines to sweeten the deal. But it kinda rubs me the wrong way.

    Anyhow, curious what the more experienced among you have to share. And thanks!
    Several good posts with some good information.

    Your "discount" is already built into the pricing that you listed in your post. I recently quoted some parts for a customer 1 part was $400. 10 parts were $46ea. While the part itself is a fairly simple piece, because of how it was designed it requires 5 setups. This costs additional time programming and setting up in the machine. The discount is the repeat parts. It was almost comical when I figured up the quote, so much so that I redid the math. It would take only very little time to run the additional 9 parts. But that first one...

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    Quote Originally Posted by implmex View Post
    ...Some purchasers assume they're number one always, and are cheap bastards on top of it...they get shown the door sooner or later (sooner and sooner as I grow older and less tolerant of assholes)...
    You too, eh? I'm going to be 72 in April and I just don't have the same tolerance for idiots that I used to...

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    Price is based on demand. In this case your demand or need for more work. If your machines are idle you may need to adjust you rate down. If your ears are pinned back and full of drool from running around your not charging enough. Will the gain or loss of the extra quantity push you one way or the other?

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    There are two aspects to hourly rate.

    You have a machine rate, and you have a labor rate.

    When you're doing a one-off, or a tricky low volume job that won"t repeat, the two are essentially tied, because you're watching how the machine runs, making tweaks, hoping nothing shifts with how you're holding it, etc.

    When you're doing a bajillion piece job that's already well optimized and fixtured efficiently, the two may decouple. If it's a nice 30 minute run time, you can go do something else for 25 of those minutes. The machine time is the same and costs the same, but the labor might go way down.

    You don't necessarily have to pass that 25 minute savings on to the customer, but if you don't someone else will and then you can join the chorus moaning about a race to the bottom.

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    IMHO you need to have a solid grasp on the true spindle on time cost, thats not shop rate, thats what it costs you.

    You then need to lose the idea of selling time and realize your selling parts. its none of your customers business how long it takes you. Your job is to charge - price at the point thats as high as the market will bare.

    Qty, theres something to be said for filing machine time. if you have a machine that sits empty half the week, filling it with work for the whole week is worth while so long as you cover costs and make a profit! How much profit is the debatable bit. Again you have the bottom line gotta make number of your hourly costs to run said machine, its then deciding how much your prepared to drop profit per part to earn a larger total profit at the end of the week.

    Hence if the machine would be empty, if you can then run it and make more than your costs so you make more profit by the end of the week, offering some discount is fair to fill that machine time. Generally speaking bigger qty's justify better slicker setups and customers know this and expect some reduction in price do to those efficiencies of scale. Sure on a simple vice part, 1 of has a lot of setup cost, 50 of the setup cost is a lot lot less per part. Get to 500 and the setup cost becomes very insignificant, the process gets dialed you should be running pretty sweaty and efficiently. Get to 10K parts and your no longer running in std vices and the run time should be shaving seconds per part in efficiencies, 100K and robotic loading makes way more sense than manual labour.

    If that machine - process is swamped, your not going to upgrade the tooling etc - yeah the inverse may also be true and to add the capacity means over xxxx units a week price needs to go up. Of the cost per part very much flat lines and do to setup - shop - tooling you have it your limits.

    You need to get away from the shop rate - aka time + materials mentality, it kinda is not how things work in production stuff. Sure development - design - proofing, its time and materials, but for production work weather it be customers parts or your own product its about selling widgets and making a profit on each one. To do that all you need is a firm solid grasp of your cost and also a realistic idea of the market places expectations on your profits. End of the week making a dollar a part on 100 parts is nice, but making 50cents on 1000 parts is way better on top of your fixed costs! Again its understanding your fix costs including labour then deciding on what you want on top of that.

    I know some people that very much approach this the other way, they don't work it out by discounting high qty but effectifly bump the lower qty pricing by a fixed percentage. IE 1000 of shop rate + materials, 500 shop rate plus materials + 10% etc, then simply show the customer the price - qty options and reverse the percentage to show how qty is cheaper, but like this they simply make more on lower qty.

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