Calculating Machine Shop Rates

Machine Shop Rate Calculator

This calculator helps you determine a profitable hourly rate for your machine shop services by factoring in all your operating costs.

Understanding Your Machine Shop's Hourly Rate

Setting the right hourly rate for your machine shop is crucial for profitability and sustainability. It's not just about covering your costs; it's about ensuring you can invest in new equipment, retain skilled employees, and generate a healthy profit margin.

Key Components of Your Hourly Rate:

• Direct Labor Rate: This is the wage you pay your machinist or operator for the time they spend directly working on a customer's job. It should include base pay, payroll taxes, and any benefits.
• Overhead Costs: This encompasses all the expenses not directly tied to a specific job but necessary to run your business. This includes rent, utilities, insurance, machine maintenance, tooling depreciation, administrative salaries, software subscriptions, and general supplies.
• Billable Hours: This represents the actual hours your machines and personnel are actively working on customer projects. It's important to be realistic about how many hours in a month can be truly billable, accounting for setup times, maintenance, breaks, and non-billable administrative tasks.
• Desired Profit Margin: This is the percentage of revenue you want to keep as profit after all costs have been covered. A healthy profit margin allows for business growth and reinvestment.

How the Calculation Works:

The machine shop rate calculator uses a standard formula to arrive at a fair and profitable hourly rate:

1. Calculate Total Monthly Costs: Add your direct labor costs (Direct Labor Rate * Billable Hours) to your total monthly overhead costs.
2. Calculate Cost Per Hour: Divide the Total Monthly Costs by the Estimated Billable Hours per Month. This gives you your break-even cost per hour.
3. Add Profit Margin: Multiply the Cost Per Hour by (1 + Desired Profit Margin / 100). This adds your desired profit to the cost, giving you the final billable hourly rate.

By accurately inputting your figures, you can gain a clear understanding of the rates needed to ensure your machine shop's financial success.