How do you calculate a shop rate?

Divide the annual cost of running the shop by the hours you bill in a year to get the break-even rate, then divide by (1 - margin) for the rate that earns your margin. With 1,650,000 of cost, 18,800 available hours and 75% billable, billable hours are 14,100, break-even is 117.02 an hour and a 12% margin needs 132.98, the Shop Rate Calculator's own example.

Why billable hours and not paid hours?

Because only billed hours bring money in. Every paid hour that is not billed (setup you do not charge, waiting, rework, training) still costs the same, so the billed hours must carry it. In the example the shop pays for 20,680 direct hours but bills 15,247: dividing by paid hours would give 79.47 instead of the 107.79 the shop really needs to break even.

Is a 15% margin the same as a 15% mark-up?

No. Margin is profit as a share of price; mark-up is profit as a share of cost. A 15% margin on a break-even rate of 107.79 needs 107.79 / 0.85 = 126.81; a 15% mark-up would give 123.96 and only a 13% margin. The workbook uses margin, like the Shop Rate Calculator.

What should go in the annual shop cost?

Everything it costs to run the shop for the year: wages and benefits of direct and indirect staff, rent or building costs, utilities, machine loans or depreciation, maintenance, tooling and shop supplies, insurance and the office. Leave out material, outside processing and freight you bill to jobs separately, or they are charged twice.

What billable utilisation do I need at my current rate?

Break-even utilisation = annual shop cost / (quoted rate x available hours). In the example, 1,643,400 / (115 x 20,680) = 69.1%: below that billable share the 115 rate loses money. The utilisation table on the Dashboard shows the margin the quoted rate earns at every utilisation from 50% to 100%.

Should every machine have the same rate?

One shop rate is simple and fits shops whose machines cost about the same to run. Where a 5-axis mill costs far more per hour than a manual lathe, set a rate per machine with the Machine Hour Rate template and use the shop rate as the check that all of them together recover the shop's cost.

Manufacturing Cost and Quoting

Shop Rate Excel Template

Shop rate = annual shop cost ÷ billable hours, divided by (1 − your margin target). List what the shop costs to run and the hours your direct people bill, and see the break-even rate, the rate at your target margin, the margin your quoted rate earns and the utilisation it needs.

Free, and a plain .xlsx with no macros to enable. A CSV with live formulas and a printed how-to guide come with it.

Overview

This shop rate template is a working Excel workbook for owners, general managers, estimators and controllers of job shops, machine shops and fabricators. Instead of one guessed overhead figure, it builds the annual shop cost from your own budget lines and the hours from your own direct people, then works out the rate every billed hour must carry. It ships with a year's budget for a fictional 15-person CNC job shop, so every tile and chart is filled in when you open it.

In the example the shop costs 1,643,400 a year to run. Eleven direct people are paid for 20,680 hours, of which 15,247 are billed (73.7%), so the break-even rate is 1,643,400 / 15,247 = 107.79 an hour and the rate at a 15% margin on price is 107.79 / 0.85 = 126.81. The shop quotes 115, which earns a 6.3% margin, about 110,000 a year, and breaks even at 69.1% billable utilisation. Direct wages add 40.40 to every billed hour and indirect staff 17.05.

The utilisation chart shows the other way to the target: at 80% billable utilisation the rate at a 15% margin falls to 116.86, almost the 115 the shop quotes today. The download is a plain .xlsx with no macros. A CSV with live formulas is also included for other tools; the shop rate, charts, dropdowns and self-check are in the .xlsx.

What this template includes

Cost Budget table: one row per cost line, typed per month, per quarter or per year and annualised, under categories you set, with each line's share of shop cost and a Check column
Capacity table: one row per group of direct people with paid hours per week, working weeks and billable share, giving available and billable hours
The shop rate: annual shop cost, billable utilisation, break-even rate, rate at your target margin, and the margin, annual profit and break-even utilisation at the rate you quote, with a status in words
Dashboard with four tiles, a chart of what each cost category adds to the hourly rate, and a chart of the rate the shop needs at 50% to 100% billable utilisation against your quoted rate
Method sheet with every formula, and a Verify sheet that re-checks the formulas against an independent reference and the Shop Rate Calculator (Self-check: PASS)
CSV with live formulas for the Cost Budget table; the shop rate, capacity, charts, dropdowns and self-check are in the .xlsx

Suggested use case

Use it when you set next year's shop rate, when quotes are winning but the year ends without profit, or to see how much a better billable share is worth before you hire or buy another machine.

How to use it

On Setup, type your company, the period, your currency, your margin target and the shop rate your quotes use today. Adjust the cost categories if you like.
On Cost Budget, list every cost of running the shop for the period, per month, per quarter or per year. Leave out material and outside processing you bill to jobs.
On Capacity, list your direct people by group with their paid hours per week, working weeks and the share of their hours you bill.
Fix anything the Check columns name.
Open the Dashboard: the rate you need, the margin your quoted rate earns, which costs drive the rate and how utilisation moves it.

Frequently Asked Questions

How do you calculate a shop rate?: Divide the annual cost of running the shop by the hours you bill in a year to get the break-even rate, then divide by (1 - margin) for the rate that earns your margin. With 1,650,000 of cost, 18,800 available hours and 75% billable, billable hours are 14,100, break-even is 117.02 an hour and a 12% margin needs 132.98, the Shop Rate Calculator's own example.
Why billable hours and not paid hours?: Because only billed hours bring money in. Every paid hour that is not billed (setup you do not charge, waiting, rework, training) still costs the same, so the billed hours must carry it. In the example the shop pays for 20,680 direct hours but bills 15,247: dividing by paid hours would give 79.47 instead of the 107.79 the shop really needs to break even.
Is a 15% margin the same as a 15% mark-up?: No. Margin is profit as a share of price; mark-up is profit as a share of cost. A 15% margin on a break-even rate of 107.79 needs 107.79 / 0.85 = 126.81; a 15% mark-up would give 123.96 and only a 13% margin. The workbook uses margin, like the Shop Rate Calculator.
What should go in the annual shop cost?: Everything it costs to run the shop for the year: wages and benefits of direct and indirect staff, rent or building costs, utilities, machine loans or depreciation, maintenance, tooling and shop supplies, insurance and the office. Leave out material, outside processing and freight you bill to jobs separately, or they are charged twice.
What billable utilisation do I need at my current rate?: Break-even utilisation = annual shop cost / (quoted rate x available hours). In the example, 1,643,400 / (115 x 20,680) = 69.1%: below that billable share the 115 rate loses money. The utilisation table on the Dashboard shows the margin the quoted rate earns at every utilisation from 50% to 100%.
Should every machine have the same rate?: One shop rate is simple and fits shops whose machines cost about the same to run. Where a 5-axis mill costs far more per hour than a manual lathe, set a rate per machine with the Machine Hour Rate template and use the shop rate as the check that all of them together recover the shop's cost.