What is a machine hourly rate?
A machine hourly rate (also called a shop rate or machine rate) is the amount a shop charges for each hour a machine spends on a job. It has to cover every cost of owning and running the machine, plus profit, spread over the hours the machine actually cuts.
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What does hourly rate mean in fabrication?
In a laser or plasma shop, the hourly rate is the price of machine time. A quote multiplies it by the job's cycle time to get the cutting cost, then adds material, setup and secondary processes.
Tempus Tools' hourly rate guide sets out the formula:
- hourly rate = (total annual costs + target profit) ÷ productive hours per year
The costs fall into two groups:
- fixed costs, paid whether the machine runs or not: machine finance or depreciation, rent and floor space, labour, insurance and software
- variable costs, paid only while it cuts: electricity, assist gas, consumables such as nozzles and protective windows, maintenance and repairs
How is an hourly rate used?
The rate turns machine time into a price. Two quotes at the same rate can still be far apart if one uses slower feed rates, so the rate only works alongside accurate times.
Many shops run more than one rate:
- a separate rate for each machine, since a fibre laser, a plasma table and a press brake cost different amounts to own and run
- adjustments by material and thickness: Tempus Tools' hourly rate guide puts thick stainless on nitrogen at around 15% more per hour than mild steel on oxygen
Why does the hourly rate matter?
Set the rate too low and jobs lose money even when they look profitable. Set it too high and quotes lose to shops with sharper numbers.
The most common error is the divisor. Annual costs have to be divided by the hours the machine actually cuts, which are far fewer than the hours the shop is open. Machine utilisation covers how to measure them.
Depreciation and residual value
Depreciation spreads the machine's cost over its working life. Take off what the machine will be worth at the end, its residual value, before dividing. The hourly rate guide's example: a $250,000 laser expected to be worth $50,000 after seven years should be depreciated by $200,000, or $28,571 a year, spread across that year's productive hours.
The same guide puts fixed costs at about twice variable costs on a laser, and closer to equal on lower-priced machines. Overheads that don't belong to the machine, such as office staff and admin, are added through absorption costing.
Hourly rates and quoting
Review the rate at least once a year, and whenever costs change: a new machine, a rent rise, a gas price increase. In Tempus Tools, each rate table has a base hourly rate, with a multiplier for thicknesses that cost more to cut, so every quote applies the right rate automatically.
Further reading: Laser cutting hourly rate: what should be included?
Work out your real hourly rate
Our hourly rate calculator takes your machine, operators, rent, power, gas, overheads and utilisation, and gives you a rate with a cost breakdown.
FAQs
How do you calculate a machine hourly rate?
Add up a year of costs for the machine (finance or depreciation, rent, labour, insurance, power, gas, consumables and maintenance), add your target profit, then divide by the hours the machine actually cuts in a year. Use productive cutting hours, not shift hours.
What should be included in a laser cutting hourly rate?
Fixed costs (machine finance or depreciation, rent, labour, insurance and software) and variable costs (electricity, assist gas, consumables such as nozzles and protective windows, maintenance and repairs), plus a share of overheads and your profit margin.
Why is my hourly rate too low?
Usually because annual costs were divided by shift hours instead of productive cutting hours. A laser cuts for well under the hours the shop is open, so a rate built on open hours can't cover the year's costs. Measure real cutting hours and recalculate.
Should different materials have different hourly rates?
They can. Cutting thick stainless steel with nitrogen uses far more gas per hour than mild steel with oxygen, and Tempus Tools' hourly rate guide puts the difference at around 15% per hour. Many shops apply a multiplier by material and thickness instead of one flat rate.