Cost & Quoting

What Drives Cost Per Part in Contract Manufacturing Quotes

Where the money actually goes in a job shop quote, how to build one a buyer will accept, and the estimating gaps that quietly erode margin.

On a typical machined make-to-order part, cost splits roughly into material 25 to 45 percent, direct labor and machine time 30 to 50 percent, and overhead plus SG&A 15 to 25 percent. The mix shifts hard with volume and part class: a titanium aerospace bracket can be 60 percent material, while a simple aluminum production run may be 20 percent material and dominated by cycle time. Knowing your own split matters because it tells you which input to sharpen. Guessing a material number wrong on the titanium part costs far more than a labor error, and the reverse holds for the aluminum run.

The single most under-recovered cost in job shop quoting is setup spread across too few parts. A 3 hour setup at a $110 burdened rate is $330, which is $0.66 per part at 500 pieces but $13.20 per part at 25. Estimators who bury setup in a flat shop rate systematically underprice small lots and overprice large ones, then lose the profitable big jobs to competitors and win the money-losing small ones. Use the Setup Amortization calculator to expose setup per part on every quote, and set a per-order minimum of $250 to $500 so a 10-piece order cannot slip out below its true floor.

Your machine hour rate must be fully burdened or the quote is fiction. Build it from equipment depreciation, floor space, power, tooling, maintenance, and the operator's loaded wage, then divide by realized productive hours, not calendar hours. A machine available 2,080 hours a year but actually cutting 1,250 hours has a spindle utilization of 60 percent, so a $180,000 annual cost recovers at $144 per hour, not the $87 you would get assuming full utilization. Shops that quote off an optimistic rate lose the utilization gap on every part and only discover it at year-end.

Scrap and rework are cost drivers, not accidents to ignore at quote time. If a process runs 4 percent scrap, you must buy and machine 100 parts to ship 96, so divide your per-part cost by 0.96, a 4.2 percent uplift. On first articles and tight-tolerance work, first-pass yield can sit at 85 to 92 percent, which adds 9 to 18 percent to true cost. Material buy-to-fly compounds this: a 3:1 ratio means two-thirds of your purchased metal becomes chips at scrap value, often 5 to 15 cents per pound against 2 to 4 dollars per pound purchased.

Build the quote as a stack, not a single markup. Direct material, plus direct labor and machine time, plus setup amortized over the lot, plus outside processes like heat treat, plating, or anodize with a 10 to 20 percent handling markup, plus inspection and packaging. Then apply overhead as a factor, commonly 1.15 to 1.35 on direct cost, before margin. The RFQ Response Cost calculator captures the estimating labor itself, which for a complex multi-part RFQ can run 2 to 6 hours; if you win one quote in four, that cost multiplies by four and belongs in your overhead recovery.

Margin and markup are not the same, and confusing them is a quiet 5 to 10 point profit leak. A 30 percent markup on $100 cost gives a $130 price and only a 23 percent gross margin. To hit a true 30 percent margin, divide cost by 0.70 for a $142.86 price. The Contract Manufacturing Margin calculator keeps this straight and the Job Shop Quote calculator lets you set target margin directly. On production work, gross margins of 20 to 35 percent are typical; prototype and low-volume work should carry 40 to 60 percent to cover its heavier estimating and setup burden.

Rush and small-lot work should be priced up, not absorbed. An expedite that forces overtime at 1.5 times labor and bumps a scheduled job carries real cost, so a 15 to 40 percent premium on standard price is defensible and a 50 to 100 percent premium for halving lead time is common. Use the Expedite Premium and Small Batch Premium calculators to quote these as explicit line items rather than hiding them, because a buyer who sees the standard price and the rush adder side by side is far more likely to accept the number or reschedule.

Estimates go wrong in predictable places: optimistic cycle times that ignore load/unload and tool changes, material priced at finished weight instead of purchased stock, forgotten secondary operations, and no allowance for scrap. Close the loop with the Job Costing Variance and Order Profitability calculators after each job. If your quoted-to-actual variance trends above plus or minus 10 percent, your estimating standards are stale. Shops that review variance monthly and feed it back typically pull quote accuracy inside 5 percent within two quarters, which is worth more than any single price increase.

Published 2026-07-01.