"What should my machine's hourly rate be?" is the question every job shop asks, and most answer it with the number the shop next door charges. This machine hour rate calculator derives it from your own costs instead: the machine's current value or loan payment, a maintenance reserve, shop rent, the electricity bill, oils and coolant, the operator's burdened cost and overhead are added up per month and divided by the hours the machine is actually productive. The result is the machine hour rate before profit: a machine that runs below this figure loses money on every hour.
The calculator does not ask for kilowatts or square footage. It asks for the electricity bill you receive and the rent you pay, and divides shared shop costs by the number of machines on the floor. Cutting tools, material and profit are not in this rate; they belong to the price of a specific part and are added when you quote it.
1. Machine
This tool works out what one hour of the machine, and of the operator standing at it, costs you. Cutting tools, material and profit are not here; they are added in the CNC Machining Cost Calculator when you price a part. Pick your currency, then tell us how the machine is owned.
2. Shop
Shop costs are shared by every machine on the floor. One shop may hold one machine or five, so the calculator asks how many.
3. Electricity, compressed air, oils and coolant
No kilowatt calculation here: you enter the bill you receive. Amounts are the shop's monthly totals and are divided by the number of machines.
4. CNC operator
The cost of the person running the machine. Enter the fully burdened cost to the employer, not the wage; a shop that uses the take-home pay believes its operator is 30–40% cheaper than they are.
5. Working hours
How many hours do the monthly costs get divided by? A single 40-hour shift is about 173 hours a month; many shops run 45–50 hour weeks or two shifts. Enter your own schedule.
Monthly cost breakdown
Hour rate at different utilization levels
The same monthly cost divided by fewer productive hours gives a higher hour rate. The longer the machine waits, the more each of its hours costs.
What is a machine hour rate, and who is this calculator for?
The machine hour rate is what one hour of a machine costs its owner: the machine's own depreciation or loan payment, the reserve for maintenance and repairs, its share of rent, power and consumables, overhead and, in most shops, the operator standing at it. It is the base of every machining quote, the answer to "how much work does this machine have to bring in each month" and the figure you compare when deciding whether a new machine is worth buying. This page is for the one-machine shop and the ten-machine contract manufacturer alike, and for students learning how machining costs are built up.
The result comes in two versions: the machine-only hour rate (machine, maintenance, rent, power, consumables and overhead) and the machine hour rate with operator (the same plus the operator's burdened cost). The second one is the figure to quote with. The calculator also shows how much cost keeps running per day, month and year when the machine stands idle, and how the hour rate changes with utilization.
Machine hour rate formula
The textbook definition divides the cost of running a machine for a period by the hours it is productive in that period:
Machine hour rate = (fixed costs + variable costs + operator cost) ÷ productive machine hours
Cost accounting splits the numerator into standing charges and running charges. Standing (fixed) charges accrue whether the machine cuts or not: depreciation or the loan payment, rent and building costs, insurance, software licenses, supervision and overhead. Running (variable) charges grow with the hours worked: power, oils and coolant, maintenance and repairs. Some methods keep operator wages out of the machine hour rate and add them as a separate labor rate; this calculator lets you do either, because a job shop quoting a customer needs both in one figure while a cost accountant may want them apart.
The denominator is the important part and the most common mistake. Productive hours are not the hours the shop is open. They are the hours the machine is available multiplied by its utilization: the share of that time in which it is actually cutting and earning. A machine staffed 173 hours a month at 80% utilization has 138 productive hours, and every cost above is divided by 138, not 173. Skip that step and the rate comes out too low, and every quote quietly loses money.
How to calculate the machine hour rate step by step
The formula is simple; the work is in listing every cost that belongs in the numerator. The calculator collects these items:
- Machine share: the machine's current value spread over its remaining years of use and 12 months. If a loan is running, the monthly payment replaces it; if the machine is rented, the monthly rent does.
- Maintenance and repair reserve: the amount set aside each month; there is a separate section on this below.
- Other machine costs: machine insurance, CAM and DNC software, calibration, service contracts.
- Shop rent and building costs: rent, property tax, service charges, heating and water, divided by the number of machines.
- Overhead: accountant, office, phone, vehicles, marketing and the owner's salary, divided by the number of machines.
- Electricity, compressed air, oils and coolant: the monthly bills and consumable spending, divided by the number of machines.
- Operator: the monthly burdened labor cost, divided by the number of machines the operator runs.
The total is divided by the monthly staffed hours multiplied by utilization. The hours that count are the hours the machine is busy on paying work, not only spindle-on time and not the whole shift.
Machine share: paid off, financed, leased and old machines
This is the item most shops get wrong. A machine whose loan is finished is believed to "run for free". It does not: every hour wears it a little more, and one day it will be replaced. That is why the calculator asks for the machine's value today, not its original price: the purchase price if it is new, or what you would get for it if you sold it today if you bought it years ago. This value is spread over the years you still expect to use it. A $50,000 machine used for 10 more years carries $416.67 a month; a ten-year-old machine worth $15,000 today with 5 years left carries $250 a month. Nobody sends this money to the bank, but if it is not in your price there will be nothing in the account when the next machine is due.
With a loan or lease running, the monthly payment is the machine's monthly cost. Interest is already inside the payment, so it is not added again. The calculator also shows where the machine share drops once the last payment is made; recalculate with "paid off" at that point. A rented machine carries its monthly rent as the machine share; if maintenance is included in the rental contract, leave the maintenance budget at zero.
Tax depreciation is a different subject. Your accountant writes the machine off over the period the tax code allows, often 7 to 10 years for machine tools depending on the country. The years of use in this calculator are a business decision: if you plan to replace the machine in 5 years, enter 5 and the machine has to pay for itself in 5 years.
Maintenance and breakdowns: nobody budgets, everybody pays
Most small shops keep no maintenance reserve. When something breaks it is paid from that month's profit, and that month is written off as a loss. Breakdowns on CNC machines are not small: a spindle bearing replacement with labor runs $7,000–8,000, an axis bearing change $500–1,000, and a ball screw, servo drive, hydraulic unit or control screen lands in the same range. On top of that come yearly oil changes, filters, way lube, coolant replacement and service visits.
That is why the maintenance reserve is a separate item in the calculator and why it warns when you enter zero. Take last year's spending on service, parts and consumables and divide by 12; if you have no record, 2–3% of the machine value per year is a reasonable start, about $100–125 a month on a $50,000 machine. It looks like small change in the hour rate, but it is the reserve that pays for a spindle rebuild every few years. A shop without it loses several months of profit at the first major failure.
Rent, electricity and splitting shop costs between machines
One building holds one business, and rent, electricity, compressed air and overhead are shared by every machine in it. The calculator divides these costs equally by the number of machines. It asks for the electricity bill rather than kilowatt figures for a practical reason: a shop owner rarely knows the machine's power draw, but knows exactly what the bill was. In a one-machine shop the whole bill belongs to that machine; with three machines it is split three ways.
Equal splitting works when the machines are similar. If a large 5-axis machining center sits next to a small CNC lathe, the big machine takes more floor space and burns more power. Rather than asking for square footage and kilowatts, the calculator suggests a simple fix: count the big machine as two. Enter 3 machines, take two shares when calculating the 5-axis and one share for the lathe. The result is close enough to a proportional allocation and the tool stays simple.
Operator: burdened labor cost, not wages
A shop that enters the operator's take-home pay underestimates the cost of labor by 30–40%. The right figure is the burdened labor cost, what your accountant would call the total cost of employing this person: gross wage, employer taxes and social contributions, insurance, benefits, paid leave and bonuses. If one operator runs two machines, the cost is split between them. If you run the machine yourself, give yourself a monthly wage; entering zero prices your own work at nothing, and you will never understand why your quotes come in below everyone else's.
Monthly hours and utilization
A single 40-hour shift is about 173 hours a month; a 45-hour week gives 195, a 50-hour week 217 and two shifts about 346. Enter your own schedule, because the same monthly cost divided by 173 hours gives one rate and divided by 260 a very different one.
The second question matters more: what share of that time is the machine actually cutting? Setup, tool measurement, inspection, programming, waiting for the next job, breakdowns and maintenance earn nothing while rent, loan payments and wages keep running. The calculator assumes 100% by default; well-run job shops typically land between 75% and 85%, and many small shops lower. Enter 90, 80 or 70 if you know your numbers. The comparison cards under the result show the effect: at a monthly cost of $8,792 the hour rate is $50.82 at 100% utilization, $63.52 at 80%, $72.60 at 70% and $101.64 at 50%. An idle machine is an expensive one, and finding work is the fastest way to lower the hour rate.
Why overhead is asked separately
The accountant, office staff, phone and internet, vehicles and fuel, marketing, bank charges and the owner's own salary are not tied to any machine, but they are paid every month. A shop that leaves them out of the hour rate adds 20% profit to the result, quotes, and finds out at year end that the office, the accountant and the owner were never in the price. The calculator therefore asks for overhead in its own field, divides it by the number of machines and warns when it is left empty.
Shop rate versus machine hour rate
The two terms are often mixed up. The machine hour rate from this calculator is a cost: what the hour costs you, with or without the operator, before any profit. The shop rate is a price: the hourly figure you bill the customer, which is the machine hour rate with operator and overhead plus your profit margin. A shop with several different machines often quotes one blended shop rate, the average of its machine rates weighted by hours, and uses individual machine rates only for very different equipment such as a 5-axis center or a large boring mill. Whichever you use, the shop rate must sit above the machine hour rate with operator; a shop rate below it is a loss on every billed hour.
Worked example
A one-machine shop in rented premises: machine worth $50,000, to be used for 10 more years; $125 a month maintenance reserve; shop rent $2,500; electricity $800; oils and coolant $150; operator burdened cost $4,800; 173 hours a month at 100% utilization.
| Item | Per month |
|---|---|
| Machine share ($50,000 ÷ 120 months) | $416.67 |
| Maintenance and repair reserve | $125.00 |
| Shop rent | $2,500.00 |
| Electricity | $800.00 |
| Oils, coolant, water | $150.00 |
| Monthly machine cost (machine only) | $3,991.67 |
| Operator | $4,800.00 |
| Monthly total | $8,791.67 |
| Machine-only hour rate (÷ 173 h) | $23.07 / h |
| Machine hour rate with operator (÷ 173 h) | $50.82 / h |
Even if this machine never stood idle, any job billed below $50.82 an hour loses money; overhead and profit come on top. At 80% utilization the same machine costs $63.52 an hour, at 70% $72.60.
What this calculator leaves out, and why
The tool is deliberately simple; a shop owner wants a result in three minutes. These items are left out on purpose:
- Allocation by floor area or kilowatts: shared costs are split equally by machine count. If your machines differ a lot, count the big one as two; a spreadsheet can do a proportional allocation if you need one.
- Cost of capital: the return the purchase money would have earned elsewhere is not included. If you want it, add it under "other monthly machine costs".
- Cutting tools, material, scrap and rework: these change from job to job, so they belong to the part price, not the machine hour rate. The CNC Machining Cost Calculator handles them as tooling cost, scrap rate and risk allowance.
- Profit: the hour rate comes out without profit; profit is added as its own line, separate from the risk allowance, when a part is priced.
- Tracking tariffs and rents: electricity prices, rent and wages are entered by hand. Run the calculator again when they change; it takes a few minutes at the start of the month and keeps you from pricing this month's work with last month's costs.
Frequently asked questions
My machine is old and paid off. Do I still enter a machine share?
Yes. Enter today's resale value rather than the original price, and the number of years you still expect to use it. That value is the money you lose if the machine fails tomorrow, and every productive hour has to set a little aside for its replacement.
I am paying off a loan. Do I enter both the payment and depreciation?
No. With "loan or lease running" the monthly payment replaces the machine share; the two are never added together. The calculator shows separately what the machine share becomes once the loan is paid off.
The electricity bill already includes the compressor. What goes in the compressor field?
The compressor's power is already in the bill; use the field only for extra costs such as compressor service, filters and the dryer. If there are none, leave it at 0.
I have no idea what maintenance costs. What should I enter?
Divide last year's spending on service, parts and consumables by 12. With no records at all, start with 2–3% of the machine value per year, about $100–125 a month on a $50,000 machine.
How do I measure utilization?
For one week, add up the time the machine spends in Cycle Start and divide by the staffed hours. If you are unsure, leave 100%; the result is then the most optimistic case, and the real rate rises as utilization falls.
How much profit should I add to the result?
This calculator adds none. When you price a part, the risk allowance and the profit are added as separate lines; the machining cost calculator does that and shows how much profit really remains after rounding the price.
Is this the same as a shop rate?
No. This is a cost figure. Your shop rate is the price you bill, which should be this rate with operator and overhead plus your margin. A blended shop rate for several similar machines is common; keep separate rates for machines that differ a lot in size or value.
Mentor CNC note and disclaimer
This calculator produces a cost estimate from the monthly figures you enter; it is not an accounting record or a tax calculation. Results change with electricity tariffs, rent, wages and utilization; recalculating at the start of each month is recommended. Consult your accountant for tax depreciation. Mentor CNC accepts no responsibility for prices based on this calculation or for their commercial consequences.