No need to know the vocabulary first
A few words, explained
- Overhead
- Everyday business costs, such as rent, that need to be covered by the work you sell.
Start with the full annual cost of operating
Include owner and employee pay, rent or home-shop allocation, insurance, software, utilities, maintenance, consumables, taxes, and an appropriate profit buffer.
Use realistic billable hours
Not every hour is billable. Setup, cleaning, quoting, purchasing, communication, maintenance, and slow periods all reduce the time available to recover operating costs.
Review it as the shop changes
A new machine, higher material handling costs, or more efficient workflow can change the rate. Revisit the inputs on a schedule rather than carrying an old rate indefinitely.
Shop 101
Apply this reference to your project
Use your own project measurements and record how the result affects the material, setup or estimate.
- Name the material, dimension, or cost input that affects the decision.
- Use the reference and related calculator to check the measurement or estimate.
- Test or compare the result before committing final material, time, or client scope.
Try it with your own numbers
Common questions
Is shop rate the same as my hourly wage?
No. A shop rate needs to recover the cost of operating the business as well as labor and planned profit.
How many hours should I count as billable?
Use a conservative number after deducting the real time spent quoting, managing, maintaining tools, buying materials, and running the business.
Should installation use the same shop rate?
It may need a different rate when travel, site conditions, insurance, helpers, or specialized equipment make the work cost more than normal bench work.