Quote Costing

What Drives Cost Per Unit in a Manufacturing Quote

A money-first breakdown of the cost buckets in a quote and where estimates quietly lose margin.

A defensible quote is a stack of cost buckets, each traceable to a source. Per unit cost in a machined or fabricated part breaks into material, direct labor, machine time, scrap allowance, and allocated overhead, then a margin sits on top. The estimating error that sinks shops is not the margin percentage; it is a soft input two layers down. This guide walks the money, not the formulas, and shows where the Quote Revision Cost and Cost Model Confidence Score tools catch the leaks before they reach the customer.

Material is usually 40 to 60 percent of piece cost in metal parts, so it deserves the first hard number. Price the raw stock at current mill or distributor quotes, not last quarter's, since bar and sheet can swing 15 to 30 percent in a year. Include the buy weight, not the finished weight: a part that nets 2.1 pounds may start from a 3.4 pound blank, a 62 percent utilization. Add drop and cutoff loss, typically 3 to 8 percent. Material cost per part equals buy weight times price per pound, divided by parts per stock length, plus mill test and cut fees.

Direct labor and machine time are separate rates that people wrongly merge. A CNC cell might run a 42 dollar per hour machine rate plus an 8 dollar per hour operator attendance if one person tends two spindles. Cycle time drives both: a 6.5 minute cycle is 0.108 hours, so machine cost is 4.54 dollars and labor about 0.86 dollars per part. Setup is amortized separately: 2.5 hours of setup at 50 dollars spread over a 400 piece run adds 0.31 dollars each. On a 40 piece run that same setup adds 3.13 dollars, which is why small lots price so differently.

Overhead is where quotes quietly go wrong because it is allocated, not observed. Shops recover indirect cost through a burden rate applied to labor or machine hours, commonly 120 to 250 percent of direct labor, or a blended shop rate of 65 to 110 dollars per hour that already bundles it. If your true annual overhead is 1.8 million dollars across 22,000 sellable machine hours, the burden alone is about 82 dollars per hour. Undercount sellable hours by 10 percent and every quote is 8 to 9 dollars per hour light, which erases margin on high volume work first.

Scrap and yield turn a clean cost into a real one. If first pass yield is 94 percent, you must make 100 parts to ship 94, so every good part carries the cost of 1.064 attempts. Multiply your rolled up material, labor, and machine cost by 1 divided by yield. A 12.00 dollar part at 94 percent yield truly costs 12.77 dollars before margin. New processes or tight tolerance jobs can run 80 to 90 percent early yield, so quoting them at a mature 98 percent rate understates cost by 8 to 18 percent on exactly the jobs most likely to have problems.

Revisions are a cost bucket most shops never price. Each time a customer changes a drawing or you requote, engineering touches the file again, and that time is real money. If a revision averages 3.5 hours at a 95 dollar loaded rate, that is 333 dollars, and a job that cycles through 4 revisions has burned 1,330 dollars before winning anything. The Quote Revision Cost tool multiplies revisions times touch hours times rate, so you can see when a churning account is unprofitable to serve even at a healthy piece price. Cap free revisions at 2, then quote change fees.

Not every line in a quote is equally solid, and pricing all of them at face value is how estimates miss. Score each input by confidence: a firm supplier quote is high, a historical actual is medium, an engineer's guess is low. The Cost Model Confidence Score tool weights the quote and suggests contingency. A model that is 70 percent firm data and 30 percent estimates might carry a 4 to 7 percent contingency line; one that is half guesswork needs 10 to 15 percent or a range quote. Put the contingency where the uncertainty is, not as a flat pad across the whole number.

Assemble the quote in the open so it survives a customer audit. List material, setup, run labor, machine time, tooling amortization, outside processes, scrap uplift, overhead, and margin as separate lines with their source and date. The three most common money leaks are stale material pricing, setup spread over an optimistic lot size, and overhead built on inflated sellable hours. Reprice material within 30 days of any firm offer, quote setup at the actual minimum order quantity, and reconcile your burden rate against actuals quarterly. A quote you can defend line by line also negotiates better than a single lump number.

Published 2026-07-02.