Monthly overhead
Fixed costs your shop pays whether machines run or not.
Labor
Only the people who charge hours to jobs.
Reality adjustments
This is where most shops undercharge — nobody bills 100% of clocked hours.
Portion of hours actually charged to jobs. Typical: 65–80%.
Markup on top of true cost. Typical: 20–40%.
How the formula works
Your shop rate has three ingredients: the true cost of an hour of labor, the share of overhead that hour has to carry, and the margin you keep on top. The trap is the middle one.
1. Loaded labor cost
An operator making $28/hr doesn't cost $28 — payroll taxes, workers' comp, insurance, benefits, and paid time off add roughly 25–35% on top. Multiply the wage by (1 + payroll burden %) to get the loaded wage.
2. Overhead per billable hour
Every fixed monthly cost — rent, utilities, insurance, software, tooling amortization — has to be paid out of hours you actually charge for. Divide monthly overhead by billable hours per month. For a 3-operator shop working 40 hrs/wk at 75% utilization, that's roughly 390 billable hours/month.
3. The utilization multiplier — the sneaky one
An operator is on the clock 40 hrs/week, but they don't bill 40 hrs of jobs. Setup, tool changes, meetings, cleanup, waiting on material — call it 20–35% loss. To earn one billable hour, you pay for 1 / utilization hours. At 75% utilization, that's 1.33 hours of labor cost for every billable hour. Shops that price labor at raw wage without this correction lose money on every job without knowing why.
4. Add your margin
Cost per billable hour × (1 + your target margin) = shop rate. That's the number that goes on your quote.
FAQ
What is a shop rate?
The hourly price you charge customers for machine time and labor combined. It should cover true cost per billable hour plus your target profit margin.
What is a good billable utilization rate?
Most small job shops bill between 65% and 80% of clocked hours. The rest goes to setup, meetings, cleanup, and downtime. Assuming 100% is the most common reason shops undercharge.
What margin should I add?
Small shops typically target 20–40% over true cost. Specialized work (aerospace, medical, tight tolerance) commands higher; commodity work sees lower.
Should I have different rates for different machines?
Yes, if the machines have very different overhead loads. A $200K 5-axis mill should carry a bigger overhead share than a manual drill press. Run this calculator once per machine type with the relevant overhead split, or just use a shop-average rate for simplicity.
Now put that rate to work
JigBoard uses your shop rate on every quote and tracks estimated vs. actual hours per job so you can see when the math is off — before it eats your margin.
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