Shop Rate Calculator for Manufacturers

Your numbers

Use annual figures for the part of the plant you're pricing. The numbers shown are an example; replace them with yours. Nothing you enter leaves your browser.

Labor

Direct labor wages ($/yr)Wages for people who work on jobs.

Labor burden (%)Payroll taxes, benefits, workers' comp and paid time off as a % of wages.

Overhead

Manufacturing overhead ($/yr)Rent, utilities, supervision, maintenance, depreciation, tooling, indirect labor.

Selling & admin to include ($/yr)Optional. Include it if you want a full-cost rate.

Hours

People or machines charged out

Paid hours each per year2,080 = 40 hours × 52 weeks.

Utilization (%)Share of paid hours actually billed to jobs.

Target margin on the rate (%)Margin, not markup.

Annual cost–

Billable hours–

Cost per hour–

Rate to quote–

How the shop rate is calculated

The calculator adds your burdened labor and overhead, then spreads that cost over the hours you can actually bill:

Annual cost = direct labor wages × (1 + burden %) + manufacturing overhead + any selling and admin you include.
Billable hours = people or machines × paid hours each × utilization %.
Cost per hour = annual cost ÷ billable hours.
Rate to quote = cost per hour ÷ (1 − target margin %). A 20% margin needs a 25% markup, not 20%.

Where shop rates usually go wrong

The most common miss is dividing by every paid hour instead of billable hours. Setup, waiting on material, maintenance and training all eat hours your customers never pay for. The second is a rate that hasn't been updated since wages, rent or the mix of work changed.

If some machines cost far more to run than others, one plant-wide rate will overprice simple work and underprice complex work. That's when separate rates by department or machine group pay off. See pricing and margin analysis for how we build them with clients.

Frequently Asked Questions

What is a shop rate?

A shop rate is what one productive hour in your plant costs, including labor, payroll taxes and benefits, and the overhead that keeps the floor running. It is the number your quotes should start from before you add margin.

Should I use available hours or billable hours?

Billable hours. Your costs are spread over the hours you can actually charge to jobs, not every hour the doors are open. Using available hours makes the rate look lower than it really is, and that gap shows up as lost margin.

How often should I update my shop rate?

At least once a year, and any time wages, rent, utilities or your mix of work changes in a meaningful way. A rate set years ago is one of the most common reasons quotes lose money.

Should I have one rate or different rates by machine or department?

One plant-wide rate is a fine start. If some work centers use expensive equipment and others are mostly manual, separate rates by department or machine group usually price the work more accurately.