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Calculating Profit

$40k gross in a month is 533 hours, with 3 machining centers is 177 hrs per month, per machine, or 44 hours a week per machine. That's incredible. How many hours do you work in a week?
I work 40hrs a week , But I also like to stay ahead, currently we are 1.5 months ahead on our PO's, We usually get 6 months worth at a time on larger stuff.
Yeah see, you do tool and die work, and only have 1 CNC, In my opinion as a prior tool and die guy, you cant make money like that. You may live but that's about it.
You need to get machines to make you money, then employees to run the machines to make you money, then invest that money in stocks and real-estate and have your money make you money, your still exchanging life/time for money.
And as far as tooling work, I charge $100Hr for injection mold work.
Want to try a more marketable exchange, if you know how to engineer the molds not just machine them, you can offer up Aluminum 7075 injection molds,
I worked at a place that is all we did, I could make on average, just me and 1 machine a mold in 1-4 weeks, and that is making the entire thing every plate, all except for the pins and spru.
You can make a couple bucks doing this. But again, still exchanging your time for money at a equal level.
You really need to scrap the tool and die crap, get more machines, and go after production, not even job shop crap, parts for OEM's.
 
And truth be told, as a prior tool and die guy(tool only) I now have friends that own businesses in injection molding, and the same scenario is there, more machines make more parts makes more money.
but they all have told me and I have witnessed there is far more money in an injection mold shop, I will head down this road eventually, machines are expensive but less employees, less skilled employees,
higher profit/cost ratio, you can make more parts per time, and plastic parts are more prevalent in our society, so just more work. Make the molds in house and even more so.
 
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If I recall correctly one of the guys that was on here alot started out doing tooling he found out that the tooling work that he really liked to do was not there for him. He then chased the job shop work for awhile before him and his wife decided to do something else. He found that he just had a very hard time making it with a lathe and mill and himself to do it. He's now completely out of the mfg/machining world and seems to be doing well and happier.

From what I have seen on here over the years, it seems to me the guys that are still in it and not talking about being broke are running multiple machines at a time and possibly even paying an employee as well. I am in the same boat as you, the type of work I do keeps me chained to the machine while it's running so there isn't a chance to double up, so I have to charge accordingly. I think you'll need to find work that you can do that allows running multiple machines at once or raise rates or both.
I consider where I am at to be a pretty depressed poor area compared to many and I don't know of any trade that is less than $75/hr here. Auto mechanic is, HVAC guys are, plumbers and electricians I think are higher than that. They are also not giving the parts or materials to the customer for their cost, lots of times it may be double or more plus adding any surcharges etc.

In a past job I worked at the profit was an actual line item as a percent in the spreadsheet on a quote, customer didn't see it, but we did inhouse. This was on residential and commercial cabinet jobs.
 
As another said, its a
I think this is a bigger can of worms than you think.
Agreed. I have jobs that matl is several hundred dollars ea just in matl, then holework etc, can be $400 into a part before its even on a machine, then 2hrs work in it. Profit, as a percentage, would be very low, despite making or beating shop rate. Other jobs are $20 in matl and an 30 min machine time. So I just run the numbers at the end of the year of total sales minus total expenditures. When I was just one guy it was practically impossible to calculate, but now that Im salary, pretty easy. And its pretty easy to take $150k as salary and bonuses and the company making zero profit. Im sure an accountant can work through it all, but I cant.

On edit, now I just look at my taxes at tax time and what I pay taxes on, I say is profit. CPA runs those numbers.
 
As another said, its a

Agreed. I have jobs that matl is several hundred dollars ea just in matl, then holework etc, can be $400 into a part before its even on a machine, then 2hrs work in it. Profit, as a percentage, would be very low, despite making or beating shop rate. Other jobs are $20 in matl and an 30 min machine time. So I just run the numbers at the end of the year of total sales minus total expenditures. When I was just one guy it was practically impossible to calculate, but now that Im salary, pretty easy. And its pretty easy to take $150k as salary and bonuses and the company making zero profit. Im sure an accountant can work through it all, but I cant.

On edit, now I just look at my taxes at tax time and what I pay taxes on, I say is profit. CPA runs those numbers.


Yeah, really, if you wunna show more "profit" (for whatever reason) then you just set your salary lower.

If you are S corp, I'm not sure that there is any difference anyhow?

Now, if you are a C corp (and possibly LLC?) like apparently Mike is, then you would write yourself a weekly check, and the rest (if there is a "rest") would show up in your P&L statement.

In a C corp (and possibly an LLC?) you can set a "reasonable" salary, and then if there is more left over on 12/31, then you could skim that off as dividends. With this - ass_u_ming that your salary is below the IRS top threshold, you can peel the extra off without paying S/S on it, but then you are also in a lower bracket for when you retire as well.


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Think Snow Eh!
Ox
 
I think focusing too much on shop rate is a waste of time...bottom line is what is the customer willing to pay and how quick can you do it. tool n die is a tough market to be in as a one man band as others have stated not sure unless you are in some high margin lucrative work how you make a living.

now what's interesting is you have a bad ace fast as flip Brother doing a little tool n die work? sounds like a prime opportunity to start hunting for some production work if you ask me. figure out how you can keep the spindle running and also be billing for your brain and prepping for the next job or tool work.

There are plenty of customers out there that will pull you under water til your broke as you get more experience and more customers its time to start putting some sort of rank system together and figure out where you can really make money at...more importantly where you are breaking even or losing. Figure out that recipe and find a string of similar customers to the point where the customers on the bottom of the totem pole start disappearing.

Your customers are in different markets, opposite ends of the spectrum cheap to expensive products, different management.....blah blah blah figure out what works for you play to your strengths minimize your weaknesses.
 
I got a good idea when I delivered a plastic mold Id changed the lettering on.......had a look around the plastic shop......five machines making the crappiest ,low end hospital disposable pill cups.......24/7 ....guy on the floor says the machines kept working when the shop was flooded .....compressor was throwing a rooster tail of water .........anyhoo,lesson was my output has to be 100% correct......these millions of plastic cups have about a 2% fail ,which just stays in the production,and gets discarded by the hospital pharmacy if it wont hold pills.......no one cares,and they get the hospital contract year after year.
 
Lately I have been putting a lot of thought into profit. I've seen in countless threads folks mention 50% up to 500% profit on manufacturing products, or preforming customer work. Much of this I have written off to bravado and creative accounting. When I worked in tier 1 automotive, my work cell in the tool room, a Hermle and DMG 5 axis were billed at $28/hr. I consider this creative accounting.

I did some work a couple years ago for a company, providing some very tight tolerance tooling for them. They applauded the quality and after inspection told me they had never seen a nicer tool. However I never did another job for them. When I had the chance to ask I was told that their current supplier, who supplies tooling that rarely passes inspection, was a third of my price.

I was recently contacted by one of my vendors to let me know that it was time for annual inspection of my Rockwell testers. It's $540 for their visit which consists of two hours of driving, and half an hour to inspect and calibrate two testers. That's $216/hr for 2.5 hrs.

I trenched and installed a new service for a friend of mine to his shop last year. The CHEAPEST quote he received was $18,000. Materials cost $3,000, excavator rental was $850, and I logged 44 hrs to complete the job. If the business that quoted the job doubled the material costs and rental, $6,000 and $1,700, that would leave approximately $234/hr. It was also a 6 month wait if they did the work.

Another friend recently received a quote (after waiting 3 months for the quote) to install the boiler/heat pump for his in floor heat. The company is supposedly well known for this type of work and has an excellent reputation. They quoted $8,000 to $10,000 to install the heat pump, inspect and test the system. I have a nearly identical system, only with a water heater and not an electric boiler/heat pump. My plumber took 4 hours to install mine, with me helping to fill the system, bleeding the air, and testing it. He charged me $600. I can't make this quote work in any way shape or form, unless they threw some enormous number out because they simply do not want the job, and instead of telling him this, hopes he won't have them do the job.

Finally I will be spending this weekend replacing a service at the first friends house I mentioned. He called five electricians to quote the job, not calling any that quoted the shop service, three never showed up to their appointments, the fourth lectured him on how unsafe his house was, and refused to quote only replacing the service panel, and instead quoted a minimum of $20,000 to rewire the entire house, the fifth quoted $3,000 to replace the service panel. The service panel is a disaster for sure. Personally I believe his home inspector should be drug by his toes to the city square and publicly flogged with every local home inspector in attendance. The $3,000 is only labor, and I estimate that it will take me about 16 hours to complete. I had my own homes service replaced, as a home owner I am not allowed to replace a service, and my electrician and his helper took about 6 hours including some other work, and including the cost of the new service panel, and all new breakers, charged me $1200. That was in 2016. A licensed, skilled, full time electrician should be able to work much faster than me, and at 16 hours, that is $187/hr.

Back to the topic of profits. It is true that at $187/hr that electrician may still be losing money. The machine shop billing $35/hr may be extremely profitable. That is primarily a function of volume. Like the electrician, I am a one man shop, and bear all the costs. The machine shop billing $35/hr has a multitude of employees, at least two shifts, and several large contracts that are guaranteed work.

Job shop work, contract work, and product work of course all vary with a myriad of differences necessitating different profit schemes. My question to the many you, that own a wide variety of types of shops, servicing a multitude of industries, is how do you calculate and plan for profit?
I couldn't tell what my profit was going to be in the first years of biz, because I didn't have enough data to create a forecast. However, now after several years of being in business I can figure a range of what profit will be. To be clear, I consider profit as whatever is leftover after all expenses have been paid including my pay.

I run a production job shop so every year's profit is slightly different. I can't say that I plan to use profit in any specific way other than buying what's needed for the shop and typically saving the rest.

Calculating profit is done on a job by job basis and I don't track yearly profit as I go along. I wait until it shakes out at the end of the year. However, you can just look at your business bank account every month and see what direction things are going in and that will tell you if you are profiting or not. Adjust accordingly.

As far as figuring out how much profit should be made on a job depends on many things. I don't really look at a job and say that there should be this much profit in terms of dollars, because jobs are different and some you just can't eyeball that way. It's always best to calculate things out and determine what will be made on a job. Some people look at it from an hourly perspective and some people look at it from a margin (% profit) method. Once you pick your method, then you can tweak your hourly or % margin to better adjust your profit in $.

One last thing. Not all customers are the same and you can't always expect the same kind of profit across the board.
 
Lately I have been putting a lot of thought into profit. I've seen in countless threads folks mention 50% up to 500% profit on manufacturing products, or preforming customer work. Much of this I have written off to bravado and creative accounting. When I worked in tier 1 automotive, my work cell in the tool room, a Hermle and DMG 5 axis were billed at $28/hr. I consider this creative accounting.

I did some work a couple years ago for a company, providing some very tight tolerance tooling for them. They applauded the quality and after inspection told me they had never seen a nicer tool. However I never did another job for them. When I had the chance to ask I was told that their current supplier, who supplies tooling that rarely passes inspection, was a third of my price.

I was recently contacted by one of my vendors to let me know that it was time for annual inspection of my Rockwell testers. It's $540 for their visit which consists of two hours of driving, and half an hour to inspect and calibrate two testers. That's $216/hr for 2.5 hrs.

I trenched and installed a new service for a friend of mine to his shop last year. The CHEAPEST quote he received was $18,000. Materials cost $3,000, excavator rental was $850, and I logged 44 hrs to complete the job. If the business that quoted the job doubled the material costs and rental, $6,000 and $1,700, that would leave approximately $234/hr. It was also a 6 month wait if they did the work.

Another friend recently received a quote (after waiting 3 months for the quote) to install the boiler/heat pump for his in floor heat. The company is supposedly well known for this type of work and has an excellent reputation. They quoted $8,000 to $10,000 to install the heat pump, inspect and test the system. I have a nearly identical system, only with a water heater and not an electric boiler/heat pump. My plumber took 4 hours to install mine, with me helping to fill the system, bleeding the air, and testing it. He charged me $600. I can't make this quote work in any way shape or form, unless they threw some enormous number out because they simply do not want the job, and instead of telling him this, hopes he won't have them do the job.

Finally I will be spending this weekend replacing a service at the first friends house I mentioned. He called five electricians to quote the job, not calling any that quoted the shop service, three never showed up to their appointments, the fourth lectured him on how unsafe his house was, and refused to quote only replacing the service panel, and instead quoted a minimum of $20,000 to rewire the entire house, the fifth quoted $3,000 to replace the service panel. The service panel is a disaster for sure. Personally I believe his home inspector should be drug by his toes to the city square and publicly flogged with every local home inspector in attendance. The $3,000 is only labor, and I estimate that it will take me about 16 hours to complete. I had my own homes service replaced, as a home owner I am not allowed to replace a service, and my electrician and his helper took about 6 hours including some other work, and including the cost of the new service panel, and all new breakers, charged me $1200. That was in 2016. A licensed, skilled, full time electrician should be able to work much faster than me, and at 16 hours, that is $187/hr.

Back to the topic of profits. It is true that at $187/hr that electrician may still be losing money. The machine shop billing $35/hr may be extremely profitable. That is primarily a function of volume. Like the electrician, I am a one man shop, and bear all the costs. The machine shop billing $35/hr has a multitude of employees, at least two shifts, and several large contracts that are guaranteed work.

Job shop work, contract work, and product work of course all vary with a myriad of differences necessitating different profit schemes. My question to the many you, that own a wide variety of types of shops, servicing a multitude of industries, is how do you calculate and plan for profit?
The actual profit is more funds in the bank than when you started. If you want more analyze the elements one by one to see where you can improve.
Sounds simple...
 
Gar didn't say that he found 2000 hours of that work...


You can plan 'till Tuesday, but unless you have control of what customers that you will have all year, what, and how many parts they will be requiring during that time, how much material is going to be for the year, etc...

... It's all a crap shoot as far as I'm concerned.

If you have time to dwell on this, then you must be slow?

This is the type of quagmire that self help speakers* find a foothold way to try to use circles and arrows and a graph on the back of each one, to dazzle the uninitiated into paying to listen to them, and likely some BS spreadsheet work that makes it seem that you got something for their time and "expertice".

Just git to work, try to figger as high'a price as you think that you can actually get the job (and NOT scare the customer away for the next time) and you will have made a buck this week. Next week will have to take care of it'self.

Matthew 6:34 is “Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.”



* Take note that these people are just speakers. They don't actually doo or make anything.
If they have a history in business, it likely ended in failure, or else they'd still be there.
Not much, if any different than TV Evangelists, just lookin' to pick yuhr pocket...


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Think Snow Eh!
Ox
..maybe open a restaurant in the balcony of an old church? :D
 
..maybe open a restaurant in the balcony of an old church? :D

It's been done:


Really cool place, but the biggest bummer is that they shitcanned the pipe organ to put in brewing kit :(
 
Yeah.

She didn't have a business there.
She had 1000# of garbage where Pete shows everyone dining.

But good grief, Alice lived there 50 yrs ago now....
To think that she sold the place by now, and that these folks moved in, cleaned it up, and are now partying there isn't hard to believe.


-------------------

Think Snow Eh!
Ox
 
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P&L or Income Statement is the universal format.
'Hourly Rate' is only the 'Top Line' of the statement.
Useful as a FORMAT to make you look at all you spent* to get that top line, and
-What's left over.
simple-income-statement-excel-model.png

COGS really should be 'Cost of Sales,' but you get the idea.
Your comments above all include an immense amount of time and money un billed; estimating to machine floorplanning for examples
Unless you work on a Sheldon in your brother's farm shed selling parts for cash, you have have to look deeper than just hourly rate.
Note, this doesn't say you actually got paid, or whether you're underwater.
That's a different statement.

*Insurance company's have a positive interest entry
 
I dunno man, 60 an hour for VMC work
I was quoting at 60 an hour for CNC knee mill work in 1992
You really don't want to know what I quote per spindle hour on my Brother....
Maybe I is stooput, but I figure profit is what you make after expenses payroll etc. When you don't make enough profit you raise your hourly rate.
 
As a note, DanAsm is quoting on screw machines[right?] and I would assume they are fully amortized, and relatively speaking slow[low spindle speed] but friggin reliable you barely think about them until the barrel is filling up, so that hourly rate is understandable. Especially considering how many a person can run at the same time.
 
Now, if you are a C corp (and possibly LLC?)

Ox,
As I understand it, an LLC is more a'kin to an S corp. The primary difference is that for an LLC, the owners can own a different percentage of the company than what their stock percentage is, and thus dividends can be paid out "disproportionately" among shareholders.

Whereas in an S corp, each shareholder's ownership is exactly the percentage of stock he owns, and any dividends he may get will be proportional to his ownership percentage exactly.

And yes, for an S corp, the company always "breaks even" at the end of the fiscal year, with profit or loss "passing-thru" to the owners.

However an S corp owner(s) seldom sets his salary at at level that breaks even with profit/loss at the end of the year. So, the leftover profit (loss) is passed on to the S corp owner(s) as a dividend, subject to only fed and state income taxes.

As an S corp like myself, you gotta be reasonable with this...can't be taking all your income as dividends!

(The IR&S ain't stoopid...and they're about to get 87,000 smarter!)

ToolCat
 
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Of course there is profit on paper and profit in reality. Some companies calculate costs differently and so net's can look different. If you factor in really creative accounting, it can be downright disorienting.

I couldn't tell you the last time my company actually made profit on paper at tax time. In fact when I bought my Brother the bank wanted to see the previous years financials. I had filed a $17,000 loss the previous year, which at my gross (less than $100k), is a significant amount. He looked it over and proclaimed that my financials looked really good and they would be happy to loan me the money. I was rather stunned.

As mentioned, if I take a $800 piece of S7 and spend 6 hours machining it, it's a $1250 die detail, using $60/hr as a shop expense rate, at $75/hr I've made a mere $90.

In reality this boils down to wanting to gross higher, with a better net, to pay myself more. Currently I pay myself very little, and reinvest in the company heavily. Since 2020 with the gross stupidity of the school system we began homeschooling our kids, I backed off the amount of work I was taking and now work based on what jobs I take. This was a great move, because as many companies moved jobs in house, and the market changed, I was able to be more flexible. My wife provides health insurance, and my company allows us a significant tax deduction every year. We are endeavoring to increase my gross, and increase my pay, so as to allow for her to leave her job. Insurance (with two little kids) is of course going to be a significant sum every month.

Based on my expenses with the company, adding in estimated insurance costs, I would want to gross around $180k, to pay myself a slightly less than comparable wage and cover insurance costs. That means $15,000 a month, $3750 a week, or $93.75 @ 40 billable hours or $75 @ 50 billable hours. However, this leaves little for profit, and I mean genuine net profit.
P&L or Income Statement is the universal format.
'Hourly Rate' is only the 'Top Line' of the statement.
Useful as a FORMAT to make you look at all you spent* to get that top line, and
-What's left over.
simple-income-statement-excel-model.png

COGS really should be 'Cost of Sales,' but you get the idea.
Your comments above all include an immense amount of time and money un billed; estimating to machine floorplanning for examples
Unless you work on a Sheldon in your brother's farm shed selling parts for cash, you have have to look deeper than just hourly rate.
Note, this doesn't say you actually got paid, or whether you're underwater.
That's a different statement.

*Insurance company's have a positive interest entry

I do a P&L statement, but to me that is the score card at the end of the game. I am asking more about strategy and thinking ahead of the P&L in planning for profit. The "deeper" part you are referring, I think based on what you said, is an after action report, or analysis. I'm looking at the front end planning, to make sure on the back end there are positive numbers. In the end, all of the expenses have to be covered by the hourly rate, and that hourly rate is subjective to actual billable hours. As you said, I have a lot of unbilled hours, which is part of the question. Some folks charge for all aspects, some folks charge just for their time machining, some folks have some really weird ways of estimating cost, some folks simply throw a dart at the wall and hope for the best. That was part of asking was to see how different folks did it.
I dunno man, 60 an hour for VMC work
I was quoting at 60 an hour for CNC knee mill work in 1992
You really don't want to know what I quote per spindle hour on my Brother....
Maybe I is stooput, but I figure profit is what you make after expenses payroll etc. When you don't make enough profit you raise your hourly rate.
I would be very interested to know what you quote per spindle hour on your Brother. That is the whole point of this thread.

My grandfathers Tool & Die shop was billing $75/hr in 1992 and paying his tool makers $25/hr in 1992. The last job I interviewed for (2020) I was offered top dollar on their corporate pay scale and was aggressively courted in an attempt to bring me on. Their offer was $26/hr.

I talked to a local company because they were having issues with one of their suppliers. Out of tolerance parts, terrible surface finishes, late deliveries, etc. I have done other, but limited work for them, and they always remarked at how good of quality my work was. When I asked them about doing some more work they casually commented that they would love to have me do the work, but their current supplier is so cheap, they didn't think I could be competitive. Their current supplier makes parts at $35/hr.

I would rather go for a hike with the kids or sit in the back yard and read a book than make parts for $35/hr. Or make whatever I feel like and put it on the shelf and sell it or not sell it at $75-$100/hr.

I think focusing too much on shop rate is a waste of time...bottom line is what is the customer willing to pay and how quick can you do it. tool n die is a tough market to be in as a one man band as others have stated not sure unless you are in some high margin lucrative work how you make a living.

now what's interesting is you have a bad ace fast as flip Brother doing a little tool n die work? sounds like a prime opportunity to start hunting for some production work if you ask me. figure out how you can keep the spindle running and also be billing for your brain and prepping for the next job or tool work.
Part of the reason I purchased a Brother was to grow my own products, and to start bringing on some regular production work and to move away from Tool & Die work. It is very nice for repeat work, however most of that left with 2020.

I agree that at times shop rate can be a misnomer, which is part of the reason I asked about how people plan for profit. Some shops I know do not have a "shop rate", however those that I know well enough to talk to, can't actually explain how they come up with the prices they quote, nor can they usually explain how they know if they are profiting or not other than whether or not the bills are paid and there is money left over. Inevitably, I feel that it boils down to $/time one way or another.

One company I know, I believe I mentioned above, has a very firm grasp of their costs, and each job is quoted as a function of those costs, marked up 30% for profit. As a strictly production company, it is much easier for them to do this. They do not quote jobs based on a $/hr rate, except in relation to the costs incurred for production.
 








 
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