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.
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 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.
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.
You can easily quantify if a "job" is making money or not:
Material
Perishable tooling
Hours
But when you figger the overall overhead (just like you are asking that last guy) that is a big variable.
Fixed overhead:
Payments on Real Estate and Personal Property. (building, machines, and tooling)
How much payroll is gunna be [min].
If you are by yourself, you likely aren't going to take more for overtime, but you likely aren't overly able to take less either, so that is sorta fixed for you.
Then there is the "other" costs that just seem to roll in that are easily forgotten:
Property taxes
Electric bill
Repairs
Some of these are fixed costs and some are variables per how busy that you are. (hourly overhead)
But trying to determine how profitable that you are at the end of 2Q is only a view, b/c that is ass_u_me-ing that you will stay on the same path through the next 2 qrtrs. But if things slow down, your variable costs will still follow, but those fixed costs are always there! Every month!
So things can look good on June 30, but you could still end up on the other side come 12/31.
But again, unless you are a C corp, you aren't going to "lose" money, just that your annual income got a demotion.
(maybe next year will be better?)
But then again - you could be just keeping your head above water on 6/30, and still finish the year well ahead of expectations.
If you set your income level low, well then you have a bunch of :"profit" at the end of the year.
If you like to live now, pay later, then you could end up not git'n any paychecks the last 6 weeks.
Until you have zero fixed costs, you're really not making any "profit".
You could be dooing well the last cpl of years, and then lose the whole thing next year. (2009 anyone?)
Lots of folks lost it all in 2009, only to have been living and looking well for the last 10 year prior.
You have to decide what the term "profit" means to you, and go from there.
Personally, I wouldn't spend much time pondering that issue, and just make sure that you are dooing the best that you can. The rest will likely take care of it'self.
With that said tho - One thing that I doo see that I personally don't like - and that is that S7 job, at 2/3 material costs.
Not saying that I never take jobs that are over the 50% threshold, but they better be awfully simple and forgiving!
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