How to use this calculator
- Enter the direct wage and burden. Use the wage paid for the operator or machinist, then add payroll burden for taxes, benefits, insurance and paid time.
- Add monthly overhead. Enter machine ownership, facility, admin, tooling, maintenance and routine consumable costs allocated to this rate.
- Set available and billable hours. Use monthly shop hours and the realistic percentage that can be billed after quoting, idle time, rework and maintenance.
- Choose target margin. Use gross margin on quoted revenue, not cost-plus markup.
- Carry the rate into job costing. Use the quoted shop rate as the machine-rate input in the machining cost calculator.
How it works
A useful shop rate starts with cost per billable hour, not total shop hours. First load the direct wage with payroll burden:
labor_hr = wage * (1 + burden/100)
Then add the monthly overhead buckets and spread them across billable hours:
monthly_overhead = machine + facility + admin + tooling_maintenance
billable_hours = available_hours * utilization/100
overhead_hr = monthly_overhead / billable_hours
The breakeven rate is loaded labor plus overhead per billable hour:
breakeven_rate = labor_hr + overhead_hr
The final shop rate uses target gross margin on quoted revenue:
quoted_rate = breakeven_rate / (1 - margin/100)
This margin step is different from markup. A 20% gross margin
requires price to be cost / 0.80, which is the same as a
25% markup on cost.
Worked example
Verified against the live calculator
Suppose a small CNC shop pays an operator $32/hr, carries
30% payroll burden, allocates $2,800/mo machine
ownership, $4,200/mo facility overhead, $2,400/mo
admin overhead and $900/mo tooling/maintenance. Monthly overhead
is $10,300.
At 173.3 hr/mo available and 70% billable utilization,
billable time is 121.3 hr/mo. Loaded labor is
$32 x 1.30 = $41.60/hr. Overhead is
$10,300 / 121.3 = $84.91/hr, so breakeven is
$126.51/hr. With a 20% target gross margin, quote
$158.13/hr.
Frequently asked questions
How do you calculate a machine shop hourly rate?
Start with loaded labor cost per hour, add monthly overhead spread across billable hours, then divide by one minus the target gross margin. In formula form: rate = (loaded_labor + overhead_per_billable_hour) / (1 - margin).
What is payroll burden?
Payroll burden is the cost above base wage: payroll taxes, benefits, workers compensation, paid time, insurance and similar labor-related costs. A $32/hr wage with 30% burden becomes $41.60/hr loaded labor.
Is margin the same as markup?
No. Markup is applied on cost: price = cost x (1 + markup). Gross margin is profit divided by selling price: price = cost / (1 - margin). A 20% margin needs a 25% markup.
Should the shop rate include labor?
Usually yes for a loaded machine rate. Include operator labor, machine ownership, facility overhead, administration, maintenance and routine consumables unless your quoting process keeps those as separate line items.
Does this set the market price for a CNC shop?
No. It is a transparent cost floor and rate screen. Real quote pricing still depends on local market, risk, tolerance, material, schedule, capacity, customer fit, inspection burden and the value of the work.
Method & assumptions
- This is an estimating screen, not accounting, tax, legal or pricing advice.
- Use realistic billable utilization. Quoting, programming development, maintenance, training, idle time, rework and admin time reduce sellable hours.
- Do not double count overhead. If a job quote has separate admin, tooling, maintenance or inspection lines, keep the shop rate consistent with that structure.
- Use the resulting hourly rate in the machining cost calculator, then add job-specific material, setup, tooling, secondary work, scrap and markup.
- Use the machining time calculator, CNC speeds and feeds calculator and metal weight calculator to improve the cycle-time and material assumptions behind the quote.
- Market pricing can be above or below the cost-derived rate because of schedule pressure, capacity, specialization, inspection requirements, tolerance risk, region and customer mix.