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Answers · Machine shops

How Do You Quote Machine Shop Work and Know the Job Made Money?

You quote machine shop work by pricing every hour a job will take, from programming and setup to run time, at a shop rate built from the shop’s own last year of costs, then adding material, outside processing, inspection and paperwork as lines of their own — and you know the job made money when the hours it actually used are set beside the hours the quote assumed, at the same rate. Neither half needs new software. This guide covers the shop rate, the lines of a machining and a fabrication quote, quoted against actual hours, who should quote, and what a twelve-week backlog should change. It prints no average shop rate: a rate copied from another shop carries that shop’s costs, machines and hours.

By , founder of Lumina Business Advisory · Updated · Sources checked · Editorial standards

How to calculate a shop hourly rate, blended or by machine

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Hand-off 1 of 6 · Inquiry → Quote

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A shop rate is the cost of one hour the shop can sell: last fiscal year’s cost of running the floor and the office, divided by the hours of that year that landed on customer jobs. Leave out what each quote carries as its own line — material, outside processing, freight, tooling bought for one job — and count everything else once. The federal cost principles, written for government contracts rather than job shops, state the rule against counting twice: under FAR 31.202(a), no final cost objective, a job in shop terms, “shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose in like circumstances have been included in any indirect cost pool to be allocated to that or any other final cost objective.” Inspection time sits in the rate or on the quote, never in both.

One blended rate works when the machines cost about the same per hour to own and run. When one costs far more — a five-axis machining center next to manual mills, a saw and a lathe — the blend makes its hours look cheap and the others look dear. FAR 31.203(c) describes the trade-off: costs are grouped “with due consideration of the reasons for incurring such costs,” and “when substantially the same results can be achieved through less precise methods, the number and composition of cost groupings should be governed by practical considerations.” That can mean two or three rates rather than one per machine: the expensive group’s machine costs divided by its own hours, plus the shared labor and office cost per hour.

  • Floor wages from payroll, paid time off included, and what the shop pays on top of them. Per the IRS, the employer pays 6.2 percent of wages for Social Security, up to that year’s wage base, and 1.45 percent for Medicare; add unemployment tax, workers’ compensation, health coverage and retirement from the shop’s own payroll register.
  • The machines: loan or lease payments, or the yearly depreciation already on the books, on one basis every year. Then tooling, inserts, coolant, supplies, maintenance and repairs.
  • The building and the office: rent, utilities, insurance, estimating, purchasing, quality, shipping, bookkeeping, software, and a market wage for the work the owner does.
  • The hours: hours that landed on customer jobs, from job time records or rebuilt from the schedule, not the hours payroll paid for.

Illustrative example: a hypothetical shop with eight machinists spent $1,345,000 last year on everything above, including $180,000 in machine payments. Divided by the 12,800 hours that landed on jobs, the break-even rate is about $105 an hour; divided by the 16,640 hours payroll paid for, it would have come out near $81, about $24 short on every hour quoted. Now split the machines. One five-axis machine carries $90,000 of the payments and sells 1,800 hours, or $50 an hour of machine cost; the rest share $90,000 over 11,000 hours, about $8. The blend charges every hour about $14, so each five-axis hour is underpriced by about $36 and each saw or lathe hour overpriced by about $6. A shop that wins its five-axis quotes easily and keeps losing lathe work may be reading its own blend. Profit is a separate decision added on top, and this guide prints no target for it.

What goes into a machine shop quote, line by line

A quote is hours at the rate plus what the shop buys for the job. Each line below is a number someone can check after the job closes, which is what makes it possible to know whether the job made money.

  • Programming: CAM hours for a new part number, charged once on the first order or spread over a quantity the buyer commits to in writing.
  • Setup: hours to load fixtures, tools and the program and prove the first part, per lot and per operation. It does not shrink with quantity, so it gets its own line.
  • Cycle time: minutes per part for each operation, from the CAM estimate or a past run, times the quantity, plus handling, deburr and in-process checks.
  • Material: the bar, plate or casting, with saw kerf, unusable drops and the supplier’s minimums and cut charges, priced on the quote date.
  • Outside processing: heat treat, plating, anodize or passivation at the vendor’s price, with its lot charge, freight both ways and the days it adds.
  • Inspection and paperwork: first-article inspection, CMM time, material certs and a certificate of conformance. The guide to shipped jobs waiting on certs covers why they belong on the quote as lines.

Illustrative example, with invented numbers: a 200-piece aluminum bracket carries 3 hours of programming, 2.5 of setup and 2 of first-article inspection — 7.5 hours that do not change with quantity, or $930 at a hypothetical selling rate of $124 an hour. Over 200 parts that is $4.65 a part; over 50 it is $18.60. A $450 anodize lot charge adds $2.25 a part at 200 and $9 at 50. A quantity-break table that uses the 200-piece price for a first order of 50 leaves about $21 a part uncovered, about $1,035 on the order.

How fabrication quotes differ: cutting, fit-up, welding, finishing

A fabrication quote uses the same shop rate, but its hours follow different counts: how many pieces are cut, how many are fitted together, how much weld goes on them and what finishing follows. A price per pound, where a shop uses one, is a cross-check rather than the quote, because two assemblies of the same weight can hold five pieces or fifty.

  • Cutting: saw cuts, or length of cut and pierces on a plasma, laser or waterjet table, plus nesting drops and brake hits for each bend.
  • Fit-up: laying out, fixturing, squaring and tacking, counted by the number of pieces and how hard they are to hold. It is an easy line to guess low, because nothing about it shows on the material list.
  • Welding: length and size of weld by process and position, from the drawing, plus any procedure, welder qualification or inspection the customer’s specification calls for.
  • Finishing and handling: grinding and blending, then paint, powder coat or galvanizing as outside processing, and crane time for large weldments.
  • Drawings, delivery and installation, each as its own line, with exclusions written out.

Illustrative example: a hypothetical steel platform and a stair weigh about the same. The platform is a dozen pieces with long, simple welds; the stair is more than fifty pieces with short welds in awkward positions. Priced by weight, they cost the same. Priced by fit-up and weld hours, the stair costs far more. Record fit-up hours on their own line of the traveler, and the next stair quote is built from them.

How to track actual hours against quoted hours on every job

Knowing whether a job made money takes one comparison: the hours the quote assumed against the hours the job used, operation by operation, at the same rate. The quote holds the first half; the traveler and the time records hold the second.

  • At order entry, the quoted setup and run hours go on the traveler next to each operation, so the floor and the office read the same numbers.
  • On the floor, each operator records start and stop against the job and operation — on an ERP terminal, a barcode or a line on the traveler — with setup and run kept apart, because they go over for different reasons.
  • Each week, job hours plus indirect hours should add up to the hours worked that payroll recorded, leaving out paid time off. For employees covered by the federal minimum wage and overtime rules, 29 CFR 516.2(a)(7) already requires a record of “hours worked each workday and total hours worked each workweek,” so the control total exists.
  • At close, the job’s result is its invoice minus actual material, outside processing and freight, minus actual hours times the break-even rate. Use the rate without profit, so the answer is the job’s profit rather than profit minus a profit already counted in.
  • In a weekly review, whoever quotes reads last week’s closed jobs that ran over by more than a threshold the owner sets once, and writes a reason next to each: setup, cycle time, scrap, a machine that was down, a print that changed.

Repeat work is where those rows pay off. Before requoting a repeat part number, pull its last two runs — actual setup, actual minutes per part, scrap, and what material and outside processing cost — and quote from those at today’s rate and today’s material price, not from the last quote. Illustrative example: a part quoted at 4 minutes has run at 5.5 minutes twice, both times because the floor added a second operation to hold a tolerance. On a 500-piece reorder that is 12.5 hours the old price never carried. Either the price moves or the method does.

Should a machinist do the quoting?

A machinist, or an owner who came up as one, knows how the part will be made, and that is the hard half of a quote. What goes wrong is time and consistency: the person who quotes best is also the one the floor needs when a machine goes down, so RFQs wait, and the rates and setup allowances live in one head, so two people quoting the same print get two prices. The hand-off works when the arithmetic leaves that head and the judgment stays with the floor.

  • Write the rates down — shop rates, selling rate, markup on purchased items, minimum charge — on one sheet used for every quote.
  • Build setup and cycle allowances by machine group and part family from the closed-job rows above, not from memory.
  • Use one quote template with every line from the list above, so a missing line shows up as a blank.
  • For a new part, a new material or a tight tolerance, the machinist or lead reviews the operations and setup count: minutes on the routing, not the whole quote. Quotes above a dollar amount the owner picks, or for a new customer, go past the owner.
  • Whoever quotes reads the weekly list of quoted against actual hours. It is the training.

Quoting software, including tools that estimate cycle time from a 3D model, can speed up the arithmetic, but it still needs the shop’s own rates and allowances, and it does not decide which RFQs are worth quoting. What happens after the quote goes out — expiry dates, follow-up dates and recorded outcomes — is covered in the guide to machine shop quote follow-up.

When the backlog runs 12 weeks: price, lead time, or both?

Change the lead time first, because a quote that promises four weeks from a shop booked for twelve is a late delivery already sold. Read the backlog in hours by machine group: twelve weeks on the five-axis can sit next to two on the lathes, and each quote should carry the lead time of the machines its part needs.

Price is a separate question. An hour costs the same as it did before the schedule filled; what changed is that each new job takes a slot another job could have had. So sort repeat part numbers by what each leaves after material and outside processing, per hour on the busiest machine group. The bottom of that list is where a higher price, a longer lead time or a polite no-quote costs the shop least.

For blanket orders and long-term agreements, cost increases belong in the agreement itself. FAR 16.203-1 lists price adjustments based on established prices, on actual costs of labor or material, and on “cost standards or indexes that are specifically identified in the contract.” A commercial agreement can borrow that structure and name a published index — the Bureau of Labor Statistics, for one, publishes a monthly Producer Price Index for machine shops — but the clause is the shop’s attorney’s to draft, and this is not legal advice. FAR text here is as published on acquisition.gov on October 22, 2026, during the Revolutionary FAR Overhaul; the version in a shop’s own contract is the one that applies.

  • Quote the lead time the schedule supports, counted from the date the PO arrives.
  • Offer an expedite as a priced, written option, so the customer who needs the earlier date pays for the slot.
  • Shorten validity on work that cannot start for months, and say whether material is priced at the quote date or the order date. Under UCC § 2-205, a merchant’s signed written offer that promises to stay open cannot be revoked for lack of consideration during the time it states, or a reasonable time if it states none, “but in no event may such period of irrevocability exceed three months.” Which state’s version applies is a question for the shop’s attorney.
  • Raise prices where the sort says so, at new quotes and reorders, rather than on every customer at once. A backlog can shrink faster than a customer forgets a price letter.

Illustrative example: a hypothetical shop’s five-axis group is booked eleven weeks out and its lathes three. Part A leaves $180 an hour on the five-axis after material and plating; Part B leaves $70. Part B’s next reorder gets a requote at today’s rates and the true lead time; Part A gets the true lead time and the same price. The numbers are invented; the sort is the shop’s own.

When this needs no outside help, and where the Review fits

All of this is meant to be run in-house. A shop whose travelers carry quoted hours and whose operators record time by operation can build the rate in an afternoon and read quoted against actual every week. Where the owner quotes, programs and ships every job, a rate sheet and a notebook of actuals may be all it takes.

An outside look earns its fee when the records do not connect: quotes in an inbox, travelers without quoted hours, time kept by day but not by job, outside-processing invoices that never meet the quote. That is the work of a machine shop consultant who reads records rather than the floor. The Revenue Review takes two weeks. From read-only exports of the quote log, job records, payroll hours, purchase invoices and the invoice register, it sets quoted against actual by part number and ends in a written report with a monthly dollar figure on each gap wherever the records support one. It writes no quotes, sets no prices and leaves prints and anything under a customer’s ITAR or NDA terms where they are. We are not machinists, we do not run a shop, and there is no published machine-shop client on this site yet.

If it is unclear whether that is worth a fee, the next step is a free 20-minute call, which says plainly when a shop is too small for the arithmetic.

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Asked right after

What is the average machine shop hourly rate?
There is no average worth quoting from: an average carries other shops’ machines, wages and hours, so the rate to use is the shop’s own. The federal series closest to it, the Bureau of Labor Statistics’ Producer Price Index for machine shops, tracks how prices change against a June 1984 base of 100, not a dollar rate per hour, and rates posted on forums describe the posters’ own shops.
How do I calculate a machine shop hourly rate?
Add last fiscal year’s floor wages, payroll taxes and benefits, machine payments or depreciation, tooling, supplies, maintenance, building and office costs, leaving out material and outside processing that quotes carry as lines. Divide by the hours that landed on jobs, not the hours payroll paid. That is the break-even rate; profit goes on top, and an expensive machine group gets a rate of its own.
How should a machine shop track time for job costing?
By job and operation, with setup and run recorded separately, against the quoted hours on the traveler. Each week, job hours plus indirect hours should add up to the hours worked on the payroll record. At close, the invoice minus actual material, outside processing and actual hours at the break-even rate is what the job earned.
Backlog is 12 weeks or more: should a job shop raise prices?
Change the lead time first, then price part by part. Quote the lead time the schedule supports for the machines each part needs, sort repeat part numbers by what they leave per hour on the busiest machine group, and requote the bottom of that list at reorder. An increase on every customer at once can outlast the backlog.
How do machine shops raise rates on existing customers for inflation?
By requoting each repeat part number at its next order from the current shop rate and current material and outside-processing prices, instead of copying the last price. For blanket orders and long-term agreements, the adjustment belongs in the agreement; FAR 16.203-1 describes adjustments based on established prices, actual labor or material costs, or indexes named in the contract. The shop’s attorney drafts the clause.

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