How to Calculate Your Machine Shop Hourly Rate

machine shop’s hourly rate

Calculating your machine shop’s hourly rate is a critical aspect of business profitability. Accurate hourly rate determination ensures that you cover all costs while remaining competitive in the market. In this article, we will provide a step-by-step guide on how to calculate your machine shop’s hourly rate, taking into account direct and indirect costs to achieve optimal pricing and profitability.

  1. Direct Labor Costs:

Begin by calculating your direct labor costs, including wages, benefits, and any additional compensation for your machine shop employees. Total all these costs over a specific period, such as a month, and divide the sum by the number of productive hours worked during that period. This will give you the average direct labor cost per hour.

  1. Overhead Expenses:

Identify and add up all the overhead expenses for your machine shop. These may include rent, utilities, insurance, administrative costs, and other indirect expenses. Divide the total overhead costs by the number of productive hours worked in the same period as before to calculate the average overhead cost per hour.

  1. Machine Utilization:

Estimate the number of productive hours that your machines are operational during the specified period. Sum up all machine-related costs, such as maintenance, depreciation, and other expenses, and divide this total by the machine’s productive hours to determine the machine cost per hour.

  1. Desired Profit Margin:

Define the profit margin you want to achieve for your machine shop. Add the desired profit margin percentage to the total of direct labor cost per hour, overhead cost per hour, and machine cost per hour to get the total hourly rate.

  1. Flexibility and Competitiveness:

Regularly reassess your hourly rate to ensure it aligns with market trends and remains competitive. Balance your desired profit margin with market demands to attract customers while maintaining a healthy profit margin.


Understanding how to calculate your machine shop’s hourly rate is essential for business profitability. By factoring in direct labor costs, overhead expenses, machine utilization, and desired profit margin, you can arrive at a competitive and sustainable hourly rate. Regularly reviewing and adjusting your hourly rate ensures that your machine shop remains profitable, attracting more customers and securing a prosperous future in the competitive manufacturing industry.