Machine hour rate: A machine hour rate is the cost of running one machine for one hour, combining its depreciation, energy, maintenance, floor space and a share of overhead.
The machine hour rate is the number most job shop prices are built on. Multiply it by the time a part spends on the machine and you have the machine cost of that part, before material, labour and margin.
A rate usually includes the purchase price spread over the machine’s useful life, maintenance and spare parts, energy, the floor space it occupies and a share of the shop’s overhead. The key input is how many hours a year the machine actually runs, its utilisation.
Example: a printer that costs €6,000, written off over 3 years, with €600 a year of maintenance and parts, running 3,000 hours a year:
- depreciation: €6,000 / 3 = €2,000 a year
- maintenance: €600 a year
- total: €2,600 / 3,000 h = about €0.87 an hour, before energy and overhead
If the same printer only runs 1,000 hours a year, the rate triples. That is the most common mistake: setting a rate from an optimistic utilisation figure and then wondering why the work never pays.
A machine hour rate is not the same as a burden rate, which spreads overhead over labour hours. Many shops use both. Work out your own with the machine hour rate calculator, or read the machine hour rate guide.
Go deeper: How to calculate a machine-hour rate