I am unsure about your statement that you don't add your machine and infrastructure into your hourly rate. I mean why is my excavator guy charging me $200 per hour when he could just depreciate the machine cost and only charge me $100?
Thanks for the link but it didn't directly address this issue. I do , like you, charge of course for any custom tooling for jobs. But that doesn't really address consumable tooling that is not custom, i.e. planer/jointer blades.
Most other tooling in the shop is so cheap it would be hard to track and is easiest to toss in with annual over head, like circular blade sharpening, bandsaw blades, etc... let's say that's $1k per year, that's easy. It's the larger ticket items like a set of carbide tersa that unless your doing large millwork jobs that eat up 50% or 100% set of knives at a time that become hard to track. That why I tried to come up with a number for cost per square ft. of surfacing, tooling cost only. Electric is affected by milling. I can look at my planer 10KW and know that at a running working 6~7KW @ $.56/KW it's costing $4/hr for the planer and probably another $1.25 for the DC.
I am just trying to find a fair price for millwork.
If your not including in your hourly rate a bit for machines then where is the money coming from when you need to replace them ? The IRS? Machinery has gone up nearly 50% in the last 5 years. That needs to be accounted for as well.
And no I didn't find anywhere in the knowledge base anything that directly responds to these questions...

Where did I say anything about infrastructure? As far as machinery depreciation. You buy a machine for your company, not particularly for a specific job. At the end of the year you add that machine to your depreciation schedule and it comes off your profit for the year and for years to come, not paid for on a single job or overhead.

I strongly suggest you talk to an accountant.

Or take a couple of small business classes at a community college.

Some how that is mystifying....
None of your hourly is related to the investment you made into your shop acquisitions?? How is this possible? Every service seems priced to reflect the cost of the gear that is being used for the service. Dump trucks to boom trucks and countless other services are all hourly based upon capacity. Different tasks in the shop are usually billed differently. i.e. bench labor , machine labor.
I get that it lessens your tax liability over the 5 year spread. But how are you figuring the value of your machinery in use on top of your fixed cost that are in the least, lease, utilities, insurance, and your salary. If I only generated my hourly based on that, where does all the money come from for all the big machines?? The depreciation is just tax credit. Doesn't it just mean your not paying taxes on your machine purchase, but they force you to drag it out over 5 years? It doesn't make it a free machine.
Do you get what I'm getting at?

We could chat back and forth for weeks at a paragraph at a time. Buy text books or speak to a professional. There must be 20 pages of links on Google when you ask for calculation shop overhead calculations. I'm no accountant, and I was just a fare businessman. I'm not a bookkeeping teacher.

You should charge as much as you can and still keep enough work coming in the door.

All pricing is based on supply and demand. It makes no difference your investment. This is why real estate has doubled in the last five years. Low supply high demand and wads of cash for people to spend from PPE money stimulus etc..

Price as high as you can and drop prices if you stop having enough work . You made a huge investment like we all did on getting your shop up. Your experience is worth more than the machines. If your shop disappeared tomorrow it's your knowledge that would build back the business not the machines .

Don't show your prices by the hour even if that's how you calculate it so customers can't tell what your rate is use another metric .

honestly Quick trim, that is probably the most relevant of any formula. Ultimately we can only charge what the market will bear. And the only rational one. It is also a formula that quickly decides weather you can actually make it fly at all. LOL
.I know I charge the top end of what my market will bear. I keep it pretty niche so there's not a lot of options when someone wants what I do in my area. Just for my own sake I wanted a way to figure what I need before profit to cover my machine use. I know I make more than whatever figure that comes to. But in general would your hourly rate reflect the whole stable of machines and investment or only the machine used for a specific billable task. I know this still falls into what the market will bear. But getting to this number would show a forecasted profit margin more clearly for hourly machine work? Using Depreciation as a guide, some businesses are told by accountants to retool every 5 years, it seems you would divide the cost of a machine then by 5 and add that into your annual fixed cost. Of course claiming the sale of the old machine if not decommissioned. The business should be buying the machine not the owner out of pocket. And somehow I think if it was expected that you cover everything with profit there literally wouldn't be any profit. I include scheduled maintenance into my annual fixed costs. Regardless of what the market will bear it would be good to know what the business needs for the use of a machine, so when a machine needs to be replaced or and upgrade needs to happen the machine has paid for itself.
Some of the shop rates in CA used to really blow me away. I heard that millwork was up to $200/hr for simple thicknessing. Until I wrote it out in the first post it never sunk in how much a planer could cost per hour. In theory you could burn $50/hr in tooling especially if you had someone catching and stacking. Add your hourly and millwork, for less that $125 seems silly (in my area). $175 if with second guy.

I agree it's a worthy exercise, calculating actual cost with margin . But it doesn't always translate into the real world.

I was talking to the architect today on a custom feature wall that we were installing and they said they had told the customer that the said wall would run 30,000.00 .

I was at 17,000.00 and 5000 for c tops so about 8,000.00 less than the architect expected.

Job before that Did for 62,000.00 , a lot of what was dictated by the GC and I went along with it . Long story short I had it priced by two other shops in my area because it didn't seem right . They came in at 135,000.00 and 126,500.00

Them I realized that I was undercharging even though I was able to stay in business with those prices . I base pricing at 125.00 hour for shop work and 95.00 for install hours . Denver Metro , so I think as you build your network and experience base you make more on that then the machines you have , basically I believe it is more your experience and ability that dictates price than the machines you have so price should be based on ability , not machines . The machines are just a means to an end .

I have the exact same spray booth as the guy down the street , we can perform the custom bleached walnut kitchen the designer wants , therefore we can sell a kitchen for 150k whole the other guy does painted for 65k experience trumps machinery every time .

Have a great day , I respect everyone that achieves greatness on this trade , the skill is hard earned.

Am I weird? I buy equipment so I can charge less, not more.

If I purchase something it's usually so I can be more efficient, or to step up quality (which is kinda the same thing)

If you're basing your shop rate off equipment, what do you charge for idle equipment? Some stuff gets used daily, I've got shapers that don't get turned on for months at a time. CNC hasn't been kicked on this week.

Another line of thought I have, that might not make sense. I paid for the first one, the customer pays for the next one. That tool will only do so many operations before it's upkeep exceeds it's value and it'll need to be replaced. Every single job needs to have a little tucked away for that day.

I also don't really have a shop rate either, if something is wonky, and I don't have a price for it. I take a edumicated guess at how long it'll take, and silly $200/hr to it. But, I can get a lot done in an hour. 15 years ago, I would've felt guilty charging $25 an hour because of what actually got done in that hour

Quicktrim nailed it though. Charge what you can.

Machinery is a capital investment, not overhead.

Hi Karl. Agreed.
If I was creating a product that had to compete with another product, locally available, of a similar quality, yes, a machine investment would be intended to reduce cost so that you could get a competitive edge on the competition. This will be true for any product manufacture.
Different is charging by the hour for services.
Smaller businesses will look to the big guys and match them because they have little to no overhead and they can always take less. It's pretty busy here. The cabinet shop down the street is always 6 to 8 months out with 12 guys making basically a very typical "cabinet". Markets like that are a boon to the small shop sole props.
When your selling a service it's different than selling a product. Yes , it's what the market will bear. But if you were starting a brand new biz, service oriented, billed hourly, you would need to come to a number that represented an hourly rate that paid for your investment with profit on top. Only then can we see if the market will bear the rate. I think the big distinguishing aspects is one is a product and one is a service billed hourly. You might find investing in a business type in your area won't support the hourly you need.
At the end of a day, my quotes are generated from an estimate of my hourly rate plus materials ++. I don't care what the guy down the street is doing. He doesn't do what I do and I don't do what he does.

If you can work T+M, more power to you. I have to create set numbers so a budget can be created and adhered to

There has never been a woodworker that started a business thinking he wasn't special and the most talented woodworker in his region. And with that knowledge, why couldn't he make a great living? That's good because it means there is a passion. But marketing and selling that impression to new customers from a new business is expensive and often not successful for years. That's why you need at least a year or two of financing in the bank to start.

"I mean why is my excavator guy charging me $200 per hour when he could just depreciate the machine cost and only charge me $100?"

Because in one scoop, you can't fit enough shovels and bodies in the hole to accomplish what he does. If you spread them out, so they aren't on top of one another, and you have ten people with shovels costing $20/hour, you still aren't going to accomplish what the hoe is in productivity.

Take away the shovels, the discrepancy makes the hydraulic option even more of a bargain.

It's really good to know and think about your inputs, and how they affect your bottom line, but my opinion is your thinking and approach to a pricing structure is flawed. The end goal can be achieved a lot of different ways in this business. If you need a rip from a board, you can cut it with a handsaw, or you can do it with a gang rip. The gang rip cost you a lot more than the handsaw, but the customer doesn't care. The sharp handsaw in the right hands takes minutes. The gang rip makes three or four of those cuts in seven seconds.

Those capital investments to improve your process are made under two conditions.
1. You can justify the risk and interest and you borrow to acquire equipment.
2. There is adequate capital in the war chest you can pay cash and offset income.

Something to think about though, idle equipment still has a cost. You're paying for floor space, you're paying to light that floor space, you're paying taxes on that floor space, and you're paying to heat and cool that floor space.

That is overhead. Most of us are probably in a similar boat, where the majority of the equipment we have sits idle because we don't have full blown factories where there's a man at every piece, and they run continuously.