Shop rates

Hello. I am estimating my 1st machining job for a paying customer. I have broken down each part to be made into specific tasks so I could determine aproximately how long the part would take to make, but I am not sure what rate per hour to charge. I am in Western Michigan, and the job I am quoting is currently being made by a shop in Eastern michigan. The customer is a long time aquaintance, but I am sure his motivation to change shops is price. What are shops around the country charging per hour? Thanks.
Barry Brock

First shop I work at was $40 hr in 2001,auto dealerships charging $100 hr so I guess somewhere in between those two!

Hey Barry, I was not successful in the job shop biz. Many many things contributed to this......... one of the many was...... worrying about what someone else might charge..... bid the job so you make a profit, get the job and are able to keep the doors open to do this all again. Another mistake I made was......... I listened to far too many well meaning advisor's. Bid the job so you get it....do a great job,. ship early if you can or add more value than your customer is expecting. This will make him come back and maybe he will tell others..... although I never tell other people where my best fishing hole is. Build a good foundation of work and relationships and experience will come. Then you can start to get some of the money you may have left on the table. But remember I failed at this game so maybe do the opposite of me. But good luck we are hoping for your success. Also ....... how could we give you an answer to this question since we have no idea what kind of work you are talking about..... shop rates in Los Angeles are $15 - $500 per hour probably not too helpful. -matt

I broker machinery & forklifts and we charge $175 an hour on the work we do and we are backed up 2 months

Here's my take on the subject.

Whether or not I'm working full time I think it makes sense to base my hourly rate on a “reasonable” yearly work schedule of 40 hours a week, with two weeks off for vacation. That’s 50 weeks @ 40 hours, or 2,000 hours a year.

If I know what income I need at the bottom line, I can work backward to calculate an hourly rate.

First, I need to know my general “efficiency,” the number of hours I spend actually working at the bench rather than talking to customers, schlepping materials and parts, tool maintenance, cleanup, book work and other functions that keep my shop going. Working strictly alone, I figure that I spend somewhere near 50% of my time doing the bench work, and 50% doing all that other stuff.

Now I have a 1,000 hours at the bench to generate my income for the year.

For example, if my fixed expenses - rent, utilities, insurance, supplies, insurance, etc. - amount to $50,000 for the entire year - I need to deduct that from my gross income to know what I’ll actually make.

In this example, then, if I want to have an income of $50,000 for the year, I’ll have to include my expenses which are also $50,000, for a total of $100,000. Dividing by my billable hours (1,000) I’ve arrived at an hourly rate of $100.

AND, with that $50,000 income, I’ll have to pay Federal and state income taxes, my own health care, and try to save for my own retirement. . .

Cheers,

Frank Ford
FRETS.COM
Gryphon Stringed Instruments
My Home Shop Pages

shop rates

Let me give some more information: I am a packaging engineer and have a full time job. I would like to do some machining work to add hours to my week. I work available overtime at my job, but sometimes there is no overtime. I would like to work in my shop for pay when there is no xtra at my job. The parts I am quoting are 304 Stainless steel. They are mostly flat 12" stock with some drill holes, some boring bar holes, some tapping, some countersink, and a couple of lathe parts. There are 7 parts all together. The customer claims there should be six to 9 sets needed in 2008. I used to bring part work to the current shop in Detroit when I worked ove there, and although back then ( 12 years ago ) he charged $50 / hour, I figured I actually paid $100 / hour when I looked at the part work and looked at the total bill. I know of a production shop guy that recently retired that told me his rate was $50 / hour. I could see this if he was competing for high volume work to supply a manufacturing company, but small order must be more than that. The auto repair shops all charge $75 / hour, and they don't have the equipment layout that a machine shop does. I was thinking around $65 / hour rate for my shop - 55 for me and 10 for up-keep of the shop. Does this sound reasonable?

Frank, that's an excellent way to look at it!

Also, being the cheapest guy in town is not really the rep you want.

Someone else might be able to charge less by producing these parts as "filler" work when things are slow. But if the customer is always waiting, they could be willing to pay more for a more prompt delivery schedule. You need to see if you can make a profit at what the customer is already paying - because we know he's willing to pay at least that much.

When people start shopping for new vendors, it's usually because they're unhappy with something in their current situation. It very well could be bottom line related. It also could be that the relationship they're in is unhappy for whatever reason. Sometimes you have to read between the lines on that one.

I turned down a $40K opportunity because of the terms the client wanted. They were flat out unrealistic. Now I know this client, been friends with them since I was 5, know they have LOTS of money... 40K is a drop in the bucket, etc. Getting paid, eventually, was guaranteed. They were having problems with their vendors, so they said.

Turns out, they were a pain in the butt to deal with on the other end. So, the shops started making really simple QC errors to get my friend, possible client, to go elsewhere. They didn't want to quit, so they made a bunch of stuff that needed re-work so that the phone would stop ringing on its own.

I never talked to any of these other vendors. I didn't have to. I spoke with the shop foreman and gleaned all of this from what he said. Nobody would make such stupid mistakes if they didn't want out. Holes being off .125 so they wouldn't mate with other components that they were also fabricating themselves... Come on!

Watch yourself when you start looking to "steal work away." Someone else might be pushing them off from the other end, with good reason.

$109.00/ hr. Work 60-70 hours per week and have a years + backlog.....

Need a nitch. Hard to compete head to head with the guy down the street who has the latest CAM and fast machines, and expirence. Got to offer something that is in short supply today...Service, Personal relationships, Quality, Speed, and NO BS!!!!!!!! My customers are pretty savy and i always tell them the truth even if it is not to my best advantage. If something goes wrong I make it good on my nickel...no questions.
Cheers Ross

We do job shop work in West Michigan also. Our shop rate varies depending on what machines it will run on (CNC vs manual), and also who is going to be doing the work. Much of our work is time and material(no quoting), so the customer actually gets charged by the hour, not by the part. Some employees time is worth $60/hour, some only $45/hour.

How much you can charge per hour will depend on how much you can get done in that hour.

Aaron

I have 100+ machine shop customers.

The only ones who charge less than $75/hr have all their machines paid off. I know of only one guy who charges $50/hr and he owns his building, machines, and is a CHEEEEAAPSKAATE!!

Then again this is Southern California, where most of us bend over to cover our mortgage/rent.

metalbizonline said:

The only ones who charge less than $75/hr have all their machines paid off.

Click to expand...

Besides being a bad way to figure labor rates, I don't believe "having machines paid off" is possible is it??
Yes, the note may be paid, but you'r wearing out these machines daily, you'd better be setting aside a portion of the labor rate for future replacement, essentially paying off your next machines in advance.
Therefore, you're machines are never really "paid off"

Something to add into your calculations............

Some good responses so far. Thanks guys! Td Kart, I feel the same way about the machine wear and tear. I was figuring $55 / hour for my labor and $10 / hour for wear and tear / up-keep of the machines and tooling.

It can be a bit hard figuring a proper shop rate. Mine ends up varying quite a bit. I have a certain type of work that I can do fast/good, etc and is what I tooled up for and I get to charge a pretty decent shop rate for it and I should likely charge more still. Then other times theres some jobs I can't charge as much per hour for, just because I think " if I had this other machine it would go so much faster ". It can be a little tough. When quoting a price per part, you need to know your competition. Now if you end up undercutting just to get the job and it doesn't cover overhead (like so many do) then its no good.. so its important to know the minimum you need to make, and the maximum you can squeeze out haha

Another important part is that you at least feel satisfied with it in the end.

When I did work for others 20 yrs ago, I billed by the hour, based on how long I thought it would take me to do. It was in my garage and was side work. Lost money on most as Mr.Murphy always came knocking.That was a learning curve I did not want to repeat. Since then I figured my hourly rate based on the formula that includes overhead as well as profit. What is the going rate for leased space in your area? How much is your time worth (include cost of benifits)? What portion of your utility cost is used by your shop space? How much upkeep cost is for your shop space (normal bldg. maint.)? All of this needs to be factored in before you add in materials and tooling costs and a percentage of tooling cost goes to machine maint.( lube, coolant, shop towels etc.). Some take the machine costs and shop costs and add them in seperate from the tooling cost, whatever works best for you. This is the burden rate that for profit shops need to factor in before a 5-15% profit being added on. A wise man once said to pay yourself first. Unless this is to be a one time job for a friend, you need to find what these costs are for you as they are different for all. Take your burden and divide it into 2080 as this is the normal annual work week without overtime. This will give you an average hourly rate to work with. The average I have found from talking with friends is $75.00 hr plus material unless supplied by the customer. This includes the office time that F.Ford alluded to and is for manual machining only. The rate increases for CNC work and decreases on large volumn screw machine work and frequent repeat jobs where the tooling costs have been covered except for consumables.

A search of this sight will produce multiple versions of this topic with similar takes by all and others.

Barry;

I retired in 5/07 from my full-time job after 30 years. Started a garage shop in 1999. Now I work the garage shop to earn extra money. Everything is paid for and my overhead is almost "0". Most of my work is 1 to 10 pieces. I also build small automated machines such as cycle testers and machines that stamp serial numbers on products.

I tell people my shop rate is $44/hr but I usually make more than that.

Don't waste your time thinking about how much auto mechanics and construction workers make. Those are different markets.

Jim

You will develop a "feel" for estimating if you track your jobs. Even if you are a small shop, assign a number for each job and keep an individual file on every job.

In that file keep:
Original purchase order or request for the job
Copies of material and tooling receipts
Copies of shipping bills and invoices you send the customer
Copy of check stub from his payment
Any photos, notes, or scribbles
Copy of your scratch pad where you figured your quote
Printed email conversations with the customer
Notes about ACTUAL hours that the job took (break it down by operation) You can then compare it to the quote and see how you did.
Anything else pertainate to that job

The history file of a job is priceless and it will amaze you how many uses it has.

I spent several years estimating for 2 different larger shops before going full time on my own. Those shops had bigger, newer, faster machines but their large overhead kept their prices even higher than mine are now.

Most of my work is fabrication but the machined parts get charged the same way.

$40- an hour is the base. To that I add the cost of any consumables ( wire, punches, bits, end mills, gas) Those items get marked up 20% to cover my expense of replacing them. Raw materials (steel) get a reasonable markup also.

Some machines get a premium for any time spent on them. Face it, you are wearing them out and will have to do maintenance and/or repair sooner or later. My job history has shown me what I need to charge for certain machines.

For example:
A bandsaw cut on a large part is $5-. On a smaller part it may be $3- or even $2/part.
Multiple punched holes may be as little as .15/each while larger holes in small quantities might be $1 or $2.
The same goes for drilled holes.

My customers know that they get the most bang for the buck if they trust me to do "time and material". If they have to have a quote I am going to make an educated guess and then add 10% to cover unexpected problems.

Always remember; If you aren't making any money it is better to let your competitor do the job. He will go broke faster.

SCOTTIE

brock said:

....broken down each part to be made into specific tasks...

Click to expand...

Doing that is almost imposible.
You don't have enough experience with that job to think of all the tasks.
That will come much later in you business experience.
There are so many tasks that will eat you up.
Cleaning up sweeping the floor.
Wearing out machines.
That big printer you neeed to print the jobs some customer wants to send you electronicaly.
Ordering tools....
On and on.
Try the value based pricing that has been discussed here recently.
How much are these parts worth to them.
Figure out if price is their only consideration.
If they are only looking for the lowest price get rid of them. The job is a looser.
I know I have been there. For a long time I did the same method you are doing. Years of work, little to show for it.
You may be thinking "If i can just get that job and proove to them how good I am, they will have lots more work."
No they won't.
They are thinking " He was cheap let's keep using him until we can find someone even cheaper.
You must give them something they can not get anywhere else, like reliability, quality etc.
They can get cheapest price anytime because there is an endless supply of guys that will go out of business selling cheap.
Do not try to get every job. It's hard. It hurts your ego to see a job get done by someone else that you could have had.
Doesn't It.
But if another shop gets a looser job it will only speed their demise. Good riddance to it.
Read RancherBills recent posts.
I think MobileBob had some posts about value based pricing, too.
Of course you will have to think about hours and tasks at some point but this is not that time. Your time is best spent finding out what the job is worth to them and what they really need, reliability etc. If it's just price let it go.
Good luck.
SM

i think its unrealistic to figure $55 for yourself and $10 for the shop. ultimately as your just starting out thats going to be the other way around. i left my full time job as an engineer to start my own company and we do engineering and machining. or should i say i do engineering and machining. i finally cashed my first paycheck after about 9 months. between getting tooling, moving machinery etc it all costs money.

nobody really mentions what your doing... machining 304 stainless is a bear. i don't know how complex your parts are or what you have for machinery but spending extra money for the right inserts and drills and taps is money well spent as you won't prematurely wear out tooling or worse yet break it and have to scrap the material.

good luck with your endeavor.

shop rates

Brock,
In estimating or quoting prices on a job, I have always used the method you describe for arriving at shop hours to do the job. The only thing is, before multiplying the shop hours by the hourly rate, I always add 40% to 50% to the shop hours and then multiply by whatever the hourly rate is. Maybe this reflects my wishful thinking quotient or maybe it reflects coffee breaks and other non-machining time. At any rate it always comes out pretty close to reality for me in the end. Do I drink too much coffee?
lwbates

Being located in Michigan will effect your shop rate significantly. I would like to have a shop rate of no less than $50 an hour, but I have found that getting customers is so hard here, that you have to find out what customers are willing to pay and try to fit in somewhere if you want enough work to survive. I have heard people here say that customers should be lining up at your door for $50 an hour or less, but that's just not so here in Michigan. Times are very tough. This is my seventh month in business, and I have been able to land just 7 customers in that amount of time. I have quoted work for 5 other customers that I have been unable to get jobs from yet, even at $50 an hour. One of these places is consistently getting work done for less than $35 an hour by someone. As badly as I need new customers, I'm not going to go that low, as I won't survive. I already have a customer that I rarely make any money on his work, but he's a super guy to work for, supplies all materials and pays promptly within 30 days. Quite honestly, without his steady supply of work to help pay overhead expenses, I would be out of business by now. Still, if I had a steady stream of good paying jobs to do, I would find it extremely difficult to keep working for him. So......I guess I'm saying that your shop rate may end up being whatever you can get, depending on what your customers are willing to pay and how badly you want or need the work. In my case, I'm trying to do whatever it takes to live another day, so that I can eventually build a large enough base of good paying customers that I don't have to go under my ideal shop rate.