A machine-hour rate is the cost of owning and running a machine divided by the hours you can sell on it. Add up the yearly fixed costs (depreciation, cost of capital, maintenance, floor space, insurance), divide by the productive hours you expect, then add the costs that rise with running time, such as energy and coolant. The result is what every hour of cycle time on that machine must recover before labour, overhead and profit.
Key points
- Fixed costs are spread over productive hours, so utilisation changes the rate more than anything else.
- Use the hours you will actually sell, not the hours the machine is switched on.
- Keep the operator out of the machine rate where you can; charge labour for the time each job needs.
- A machine-only rate is much lower than the shop rate customers see, which also carries labour, overhead and margin.
- Recalculate at least once a year, and whenever a machine, a shift pattern or the workload changes.
What goes into a machine-hour rate?
| Component | How to calculate it | Fixed or variable |
|---|---|---|
| Depreciation | (Purchase + installation − residual value) ÷ useful life in years | Fixed |
| Cost of capital | Average capital tied up × interest rate | Fixed |
| Maintenance | Service contracts, spares, planned overhauls per year | Mostly fixed |
| Floor space | m² occupied, including access and storage, × cost per m² per year | Fixed |
| Insurance | Premium attributable to the machine | Fixed |
| Energy | Average power drawn × energy price | Variable |
| Running consumables | Coolant, lubricant, filters, gases | Variable |
Depreciation here is the economic cost of wearing the machine out, not the tax schedule. Use the life you really expect from the machine in your shop and a realistic resale value.
Cost of capital is often left out and should not be. Money tied up in a machine could be repaying a loan or earning interest. A common convention charges interest on the average capital over the machine’s life: half of the sum of the starting value and the residual value.
Floor space includes the area around the machine for access, chip bins, material staging and the operator, not only its footprint. The cost per m² should carry rent, heating, lighting and building upkeep.
Energy is the average power drawn while running, not the nameplate rating. A machine rarely draws its full rated power for long.
Utilisation: the number that moves the rate most
The fixed costs are the same whether the machine runs 900 hours a year or 1,800. Divide them by fewer hours and each hour has to recover more. Utilisation is the share of available hours you expect to sell to jobs. It is reduced by set-ups that are not charged, maintenance, breakdowns, waiting for material or programs, and simply not having the work. Measures such as OEE look at the same losses from the production side.
Take your utilisation from records, not hope: hours booked to jobs over the last year divided by the hours the shop was open. If you are planning a new machine, use what similar machines achieve in your shop, and look at your capacity planning to see whether the work exists to fill it.
Worked example: a vertical machining centre
All figures are an example to show the method, not a benchmark for any machine.
Worked example: machine-hour rate for a vertical machining centre, single shift
| Line | Calculation | Amount |
|---|---|---|
| Depreciation | (€150,000 + €10,000 installation − €30,000 residual) ÷ 10 years | €13,000/yr |
| Cost of capital | (€160,000 + €30,000) ÷ 2 × 5% | €4,750/yr |
| Maintenance | service contract and spares | €5,000/yr |
| Floor space | 30 m² × €80/m²/yr | €2,400/yr |
| Insurance | share of premium | €1,500/yr |
| Annual fixed cost | €26,650/yr | |
| Available hours | 8 h × 230 days | 1,840 h |
| Productive hours | 1,840 h × 70% utilisation | 1,288 h |
| Fixed cost per hour | €26,650 ÷ 1,288 h | €20.69/h |
| Energy | 9 kW average × €0.22/kWh | €1.98/h |
| Coolant and lubricant | €0.80/h | |
| Machine-hour rate | €20.69 + €1.98 + €0.80 | €23.47/h |
That figure surprises people who are used to shop rates several times higher. It covers the machine only. The operator, the share of overhead that is not tied to this machine, and profit are still to come.
Adding the operator
If one operator at a fully loaded cost of €40/h attends this machine full time, the machine and operator together cost €63.47/h. If the same operator runs two machines, each machine carries half the operator, so €20.00/h, and the combined rate falls to €43.47/h. This is why keeping labour as its own line is more accurate: the rate follows how the shop really staffs the machine.
Adding overhead
Rent for the office, estimating, quality, software, management and sales are real costs, but they are not caused by this machine. Most shops add them as a burden rate per machine hour or per labour hour, or as a percentage of cost. The choice matters more than it looks, and allocating overhead for job shops works through it with examples.
How sensitive is the rate to utilisation?
The same machine, the same costs, different assumptions about how busy it will be:
| Utilisation | Productive hours | Fixed cost per hour | Machine-hour rate |
|---|---|---|---|
| 50% | 920 h | €28.97 | €31.75 |
| 60% | 1,104 h | €24.14 | €26.92 |
| 70% | 1,288 h | €20.69 | €23.47 |
| 80% | 1,472 h | €18.10 | €20.88 |
| 90% | 1,656 h | €16.09 | €18.87 |
Between 50% and 90% the rate moves by almost €13 an hour. If you price at the 90% rate and the work only fills half the year, every hour you sell loses money on the machine alone. Adding a second shift has the same effect as higher utilisation: the available hours double, the fixed cost per hour roughly halves, and the variable cost per hour stays where it was.
A second example: an FDM printer
The method is the same for a 3D printer, but the balance is very different.
Worked example: machine-hour rate for a desktop FDM printer in a print farm
| Line | Calculation | Amount |
|---|---|---|
| Depreciation | €1,200 ÷ 3 years, no residual | €400/yr |
| Maintenance | nozzles, belts, build plates | €150/yr |
| Floor space | 1 m² of racking × €80/m²/yr | €80/yr |
| Annual fixed cost | €630/yr | |
| Productive hours | 8,760 h × 50% | 4,380 h |
| Fixed cost per hour | €630 ÷ 4,380 h | €0.14/h |
| Energy | 0.12 kW average × €0.22/kWh | €0.03/h |
| Machine-hour rate | €0.17/h |
The machine itself is almost free per hour. On a printer like this, the cost that matters is the labour to clear plates, remove supports and pack parts, and the failed prints that have to be run again. A failure allowance belongs in the price, and print farm pricing covers how to set one.
One rate per machine, or one per group?
A rate for every machine is the most accurate, but a shop with forty printers or six similar lathes rarely needs forty or six rates. Group machines that cost about the same to own and run, and that do interchangeable work, and give the group one rate. Keep a separate rate for any machine that stands out: the five-axis machine among three-axis ones, the large-format printer among desktop ones. If a job can only run on the expensive machine, it should carry that machine’s rate; if it could run on any machine in the group, the group rate is fair.
Cutting tools, build plates and other items that wear in proportion to the work are usually better charged per job than folded into the hourly rate, because their wear depends on the material and the part, not only on the hours.
Common mistakes
- Dividing by calendar hours. 8,760 hours a year is the ceiling, not the base, for a machine that works one shift.
- Using the nameplate power. Average draw is usually well below it.
- Forgetting cost of capital. A paid-off machine still ties up money that has an alternative use.
- Leaving out the space around the machine. Access, chips and staging take room.
- Never updating the rate. Energy prices, rent and workload change; a rate from three years ago is pricing a different shop.
From rate to price
The machine-hour rate is one line in a quote, multiplied by the time each part spends on the machine. How to quote a manufactured part shows where it sits among material, set-up, labour, overhead and margin. To run your own numbers, the machine-hour rate calculator does this arithmetic with your costs.
In Quotometry, the machine hourly rate, named labour rates, electricity per kWh and facility overhead are separate settings in the shop’s configuration, which is versioned, so a new rate applies to quotes from the moment the shop publishes it.
Questions people ask
What is a typical machine-hour rate?
There is no meaningful typical figure, because the rate depends on what it includes. A machine-only rate covers depreciation, capital, maintenance, space and energy. A shop rate quoted to customers usually also includes the operator, a share of overhead and margin, so it is several times higher. Compare rates only when you know what each one contains, and build your own from your own costs.
Should the operator be included in the machine-hour rate?
Keep them separate when you can. One operator may run two or three machines, and some machines run unattended at night. If the operator is inside the machine rate, you charge for a person who was not there. A separate labour line, charged for the hands-on time each job really needs, makes both rates more accurate.
What utilisation should I assume?
Use the productive hours you expect to sell, not the hours the machine could run. Look at your own records: hours actually booked to jobs over the last year, divided by the hours the shop was open. Set-up, maintenance, waiting for work and breakdowns all reduce it. Assuming high utilisation gives a low rate that only holds if the work arrives.
How often should I recalculate machine-hour rates?
At least once a year, and whenever something material changes: a new machine, a move to a second shift, a rent increase, a change in energy prices or a lasting change in how busy the machine is. A rate built on last year's utilisation will under-recover if this year's work is lighter.
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