Guides · 23 October 2026
How to work out a CNC machine hourly rate
Most quoting mistakes start with the hourly rate. If the rate is a number someone picked years ago, every quote built on it is a guess. Here is how to work out what one spindle hour costs you, with a worked example you can copy.
Cost rate first, charge-out rate second
There are two different numbers people call "the machine rate":
- Cost rate: what an hour of the machine costs you, before labour, overhead and margin.
- Charge-out rate: what you bill a customer for an hour, with labour, overhead and margin on top.
Keep them apart. If you put a charge-out rate into a quote and then add overhead and margin again, you charge them twice and lose jobs you should have won. If you put in a cost rate that already includes the operator and add labour separately, you count the operator twice. Decide what the machine rate includes, write it down, and stick to it.
What goes into the machine cost rate
Six things, most of them yearly costs divided by the hours the machine is actually billable:
- Depreciation: purchase price, installed, minus what you expect to sell it for, spread over the years you will run it.
- Interest on capital: the money tied up in the machine costs something, whether it is a loan or cash that could be elsewhere. A fair figure is your interest rate on the average capital, which is half of (price + resale value).
- Maintenance and repairs: service contracts, spindle rebuilds, way covers, coolant system parts. Use what you actually spent last year.
- Floor space: square metres the machine and its working area take, times your rent including outgoings. Leave this out if rent is already in your overhead percentage.
- Electricity: connected load in kW, times the average share of it the machine draws while cutting, times your price per kWh.
- Tooling and consumables: inserts, end mills, holders worn out, coolant. Easiest as a dollars-per-hour figure from last year's spend divided by cutting hours.
The number that matters most: billable hours
A machine that costs $30,000 a year to own costs $15 an hour if it cuts 2,000 hours, and $40 an hour if it cuts 750. Use the hours you can actually bill, not the hours the shop is open: shifts per day, times hours per shift, times working days, times utilisation. Utilisation is the share of those hours the spindle is making parts you charge for. Setups, waiting for material and quiet weeks all lower it. Small job shops are often between 50% and 70%.
A worked example
A vertical machining centre bought for A$165,000 installed, expected to sell for A$40,000 after 8 years, financed at 7%. One 8-hour shift, 230 working days, 65% utilisation. 15 kW connected load averaging 40% at A$0.30/kWh, A$4,500 a year maintenance, A$6 an hour tooling, and 20 m² of floor at A$150/m² a year.
| Item | Per year | Per billable hour |
|---|---|---|
| Billable hours: 1 × 8 × 230 × 65% | 1,196 h | |
| Depreciation: (165,000 − 40,000) ÷ 8 | A$15,625 | A$13.06 |
| Interest: (165,000 + 40,000) ÷ 2 × 7% | A$7,175 | A$6.00 |
| Maintenance and repairs | A$4,500 | A$3.76 |
| Floor space: 20 m² × A$150 | A$3,000 | A$2.51 |
| Electricity: 15 kW × 40% × A$0.30 | A$1.80 | |
| Tooling and consumables | A$6.00 | |
| Machine cost rate | A$33.13 |
Notice how much utilisation moves it. The same machine at 40% utilisation costs A$48.97 an hour; at 80% it costs A$28.38. If your quotes use one fixed rate, check it against the utilisation you really had last year.
From cost rate to charge-out rate
Add the operator: with an operator costing A$65 an hour including on-costs, running one machine, that is A$65 per machine hour (A$32.50 if one person runs two machines). Then add manufacturing overhead, say 12%, and your margin, say 25% on cost:
(A$33.13 + A$65.00) × 1.12 × 1.25 = A$137.39 an hour
That is the number to compare with what you charge today. If you have been quoting A$110 an hour on this machine, every hour you sell is earning far less than you think.
Common mistakes
- Dividing by open hours instead of billable hours. It makes the rate look low and the shop look profitable until the year-end accounts arrive.
- One rate for every machine. A five-axis machine and a manual lathe do not cost the same to own. Price each machine on its own rate.
- Counting the same cost twice. If rent is in your overhead percentage, leave floor space out of the machine rate. Write down what each rate includes.
- Never updating it. Electricity, rent and interest change. Look at the rates once a year.