What a Shop Rate Is
Your shop rate is what one billable hour must bring in to pay the people and keep the doors open. It's a floor, not a price. Materials, machine time and profit go on top.
Many new shops guess. They copy a number they heard somewhere, or charge what feels fair. Then they get busy and still come up short. The fix is three numbers: what you need to earn, what the shop costs to run, and how many hours you can actually bill.
Step 1: Decide What You Need to Earn
Start with pay, including your own. Write down what you want to earn in a year as the owner. Add everyone else you pay.
Then add payroll costs on top of wages. Depending on where you are, that can include government pension and employment insurance contributions, workers' compensation, vacation pay and benefits. The rules differ by province or state, so check yours, or ask an accountant for a percentage to use.
If you work alone, don't skip this step. If your own pay isn't in the rate, you're working for free.
Step 2: Add Up Your Overhead
Overhead is what the shop costs whether or not a job is on the bench. List a full year of it:
- Rent, or the share of your home used for the shop
- Insurance
- Utilities: power, heat, water and internet
- Software and subscriptions
- Phone, vehicle, accounting, bank fees and advertising
- Small tools and shop supplies
Use last year's bills if you have them. If you're new, use estimates and update them after a few months.
Leave out machines. Machine time is charged by the machine hour, from what the machine cost, how long it lasts and the power it draws. Counting it here as well would charge your customers twice. Leave out materials too. They go on each job.
Step 3: Count Your Billable Hours
This is where most rates go wrong. You don't bill every hour you work.
Start with the hours you work in a year. Take off holidays, sick days and slow weeks. Then take off the hours no customer pays for directly: quoting, email, buying material, cleaning, maintenance, bookkeeping, deliveries and learning.
What's left is your billable time. Write it as a share of the hours you work. Be honest with yourself. If you do your own sales, buying and admin, a big part of your week goes there. Track a few normal weeks to find your real number.
Step 4: Do the Math
Shop rate = (pay + payroll costs + overhead) ÷ billable hours
Here is a worked example for a small shop:
| Item | Amount |
|---|---|
| Yearly pay, including the owner | $60,000 |
| Payroll costs (10%) | $6,000 |
| Rent | $12,000 |
| Insurance | $2,400 |
| Utilities | $2,400 |
| Software | $1,200 |
| Other overhead | $3,000 |
| Hours worked in a year | 2,000 |
| Billable share | 60% |
| Billable hours | 1,200 |
- Labour: $66,000 ÷ 1,200 hours = $55.00 an hour
- Overhead: $21,000 ÷ 1,200 hours = $17.50 an hour
- Shop rate: $55.00 + $17.50 = $72.50 an hour
That's break-even. At $72.50 everyone is paid and the bills are covered, but the business makes no profit and has nothing put aside for a slow month or a new machine.
Try your own numbers in the free Shop Rate Calculator. It runs in your browser and nothing you type is saved.
Step 5: Add Profit and Check the Market
Profit is not your pay. It pays for new equipment, a cushion for slow months and growth. Add it as a margin on each job, not by padding your hours.
| Target margin | Price of one $72.50 hour |
|---|---|
| 20% | $90.63 |
| 30% | $103.58 |
| 40% | $120.84 |
Then compare your price with what customers in your area pay for similar work. If yours is far higher, look at your billable hours and overhead before you cut the price. If it's far lower, you've found money you were leaving on the table.
Rate Mistakes to Avoid
| Mistake | What happens | Fix |
|---|---|---|
| Leaving out your own pay | You work for free | Put your pay in Step 1 |
| Counting every hour as billable | The rate is too low and you're short every month | Use your real billable share |
| Adding machines to overhead | Customers pay twice for machine time | Charge machines by the machine hour |
| Never updating it | Rent and insurance go up, your rate doesn't | Review it every year and when costs change |
| One rate for all work | Light work pays for heavy work | Set a rate per department when the work differs |
How to Talk About Your Rate
Most customers never see your hourly rate. They see a price. For custom work, keep it that way. If someone asks, you can say:
"Our shop rate covers the people, the space and the equipment it takes to do the work properly. Your quote is the time your job needs, plus materials."
If they push for a lower rate, change the scope, not the rate:
"I can't lower the rate, but we can bring the price down. If we skip the powder coat and you paint it yourself, that comes off the quote."
Do It in Customakr
- In Settings, open Calculate My Shop Rate. Enter pay, payroll costs, overhead, the hours you work and your billable share. Customakr fills in your labour rate and your overhead per labour hour.
- Not sure what power costs you? Take a photo of your power bill. Customakr reads the usage and charges on your device, without uploading the bill, and works out your real rate per kWh. You check every number before it's used.
- In Rates, Margins and Location, set your target gross margin, the lowest margin you'll accept and a minimum order charge.
- In Services and Departments, give a department its own hourly rate when its work costs more, like welding compared with packing.
- Add your machines in Machines and Printers. Each one gets an hourly cost from what you paid, how long it lasts and the power it draws, so machine time stays out of your overhead.
If the rates you've entered add up to less than your calculated shop rate, Customakr warns you. All of this is on the Free plan.
Checklist
- I know what I need to earn in a year, including my own pay.
- I've added payroll costs for everyone I pay.
- I've listed a full year of overhead, without machines or materials.
- I've counted my real billable hours, not every hour I work.
- My shop rate covers pay and overhead for each billable hour.
- I add profit as a margin on each job.
- I've compared my prices with similar local work.
- I review my rate every year and whenever costs change.