What the hourly rate has to cover
A machine costs money whether it runs or not. Split its costs in two groups and add them up per productive hour:
- Fixed costs (per year): depreciation, financing or the return you give up by investing the money, maintenance contracts and planned parts, and the floor space, insurance and other costs assigned to the machine.
- Variable costs (per running hour): electricity, assist gas, and consumables such as nozzles, lenses or tooling wear.
The operator can be included in the rate or charged separately as labor. Either works, as long as it isn't counted twice.
Step 1: annual fixed costs
Depreciation spreads the purchase price, minus what you expect to sell the machine for, over the years you'll use it. Financing is usually estimated on the average investment over that period: half of the purchase price plus the residual value.
Add the maintenance you actually pay per year and a fair share of rent, insurance and other overheads that exist because of the machine. Use your own figures: quotes, invoices and contracts.
Step 2: count productive hours, not opening hours
This is where most rates go wrong. Fixed costs must be divided by the hours the machine actually produces billable work, not by the hours the shop is open. Setup, waiting for material, maintenance and idle time all reduce them.
Start from your available hours per year (shifts × hours × working days) and apply a realistic utilization. If you have a machine log or job records, use them; if not, be conservative and review the figure after a few months.
Step 3: variable cost per running hour
Use the average electrical draw while cutting, not the nameplate power, multiplied by your energy price. Add assist gas (from your consumption and gas invoices) and consumables per hour. Your electricity bill and gas supplier's invoices are the best sources.
Step 4: use the rate in your quotes
Enter the rate in the laser cutting cost calculator as the hourly rate, together with your cutting speed and setup cost. To see how many jobs you need to cover the machine's fixed costs, use the break-even calculator, and set your selling price with the margin calculator.
Review the rate when energy prices, utilization or maintenance costs change.
Formula
- Depreciation = (Purchase price − Residual value) ÷ Useful life
- Financing = (Purchase price + Residual value) ÷ 2 × Interest rate
- Productive hours = Available hours × Utilization
- Fixed per hour = (Depreciation + Financing + Maintenance + Space and insurance) ÷ Productive hours
- Variable per hour = Power (kW) × Energy price + Gas + Consumables
- Machine rate = Fixed per hour + Variable per hour (+ Operator, if included)
Worked example
Illustrative example: a sheet metal laser (figures are made up for the explanation)
- 1Depreciation: (150,000 − 30,000) ÷ 8 years = 15,000 per year
- 2Financing: (150,000 + 30,000) ÷ 2 × 6% = 5,400 per year
- 3Maintenance 6,000 + space and insurance 3,600 → fixed costs 30,000 per year
- 4Productive hours: 2,000 available × 60% utilization = 1,200 h → 30,000 ÷ 1,200 = 25.00 per hour
- 5Variable: 20 kW × 0.15 = 3.00 energy + 6.00 gas + 2.50 consumables = 11.50 per hour
- 6Machine rate: 25.00 + 11.50 = 36.50 per hour (54.50 with an operator at 18.00)
- 7Same machine at 40% utilization: 30,000 ÷ 800 h = 37.50 fixed → 49.00 per hour
36.50 per productive hour without the operator. Utilization has the biggest effect: dropping from 60% to 40% raises the rate by more than a third.
The example is illustrative. Its numbers are checked by automated tests.
Assumptions and limitations
- Straight-line depreciation and financing on the average investment are simplifications; your accountant may use other methods.
- Figures are in any single currency and exclude taxes. They are not accounting or tax advice.
- The example numbers are illustrative only: they are not quotes or costs from a real shop.
- Energy should be the average draw in production, which is lower than the machine's maximum power.