Suggestions needed for a non-profit organization to charge for machine time.

I have a rather unique issue that our office is dealing with at the moment in relation to CNC work. I am being tasked with the configuring of a machine time cost. I have seen threads that deal directly with this, but our situation is different in the fact we are a non-profit museum office. From what can gather the general machine time costs take into account programmer/operator salaries, utility costs, machine payments, maintenance and such, which are all the usual business operating costs.

We currently have 2 CNC machines, a mill and a router, both of which were paid for in cash completely. The depreciation value of the machine is handled by another office that deals with organizational capitol investments. We as an office are not responsible for paying any building rents or utilities either, and our salaries are covered by general organizational funding. So it makes it a bit difficult for me to identify the costs we incur for running the machines, so that's where I need some help/suggestions on what to plan for.

The scenario is as follows:

The material costs of the parts cut are directly estimated into the job we are running, and billed accordingly. Cutter costs are also billed as disposables on the job and billed to each. Since we are not responsible for paying any type of overhead, what type of costs can we plan for on a yearly basis? Some of the things I was thinking of are the maintenance costs, to have a tech come in on an either an annual or biannual basis to do PM Service, yearly cost for coolants, and grease.

Currently, any additional tooling like collets and such, we either bill to a job or wait till year end funds are available. In the past acquiring accessories like a 4th axis or other bigger ticket items, we have had to look into grants. So far this has worked out somewhat successful. But what we are looking to do, is be able to charge on per hour basis for the machine in order to build a pool of funds that we can use for machine upgrades or replacement.

Any suggestions would be greatly appreciated.

Chris

Work it out on an hourly rate.

You have no overheads like lecci or premises rent, water, salaries etc. You're on easy street.

Anyway, once you get your hourly rate sorted, estimate the job by how long it'll take and add between a quarter and a half. That'll cover when things go wrong.

After a few years you'll get your hourly rate down pat, then it's easy. remember you are in this to make money though, so always, always overestimate without pricing yourself out of the market.

Always ensure you have a contingengy fund that is never touched for major disasters and add to it each year, it may never happen, but if it does you and the accountant will say "thank fuk we planned for that!". [Edit] You can use this to secure loans. [/Edit]

Beware! your department will attract PhD's and MsC's that want to drink tea all day without actually doing anything apart from postulating that their head is up Uranus.

Are you doing research or production?... cos I've done both and they are totally different...

ImanCarrot,

Thanks for dropping me a note to comment on this. I did specifically mention that our salaries are not part of the equation. From my first post, ...."and our salaries are covered by general organizational funding." So for an example to clarify this, I'll use this:

Yearly Funding = 100% for the office at X dollars, comes from the large organizational pool alloted for our office.
Salaries account for 90% of the budget. Staff include admin, production, and support staff. 10% accounts for misc. project staff not on permanent duty, or for general costs, which typically do not include the operation of the CNC or any other equipment. This includes the small ticket items like travel, office supplies, etc. we have no central pool that funds this for our office so we pay the cost.

Other funding beyond the operational funding for the office, comes in on a project per project basis, for that specific project. So that money covers materials on the job and any additional staff resources that are needed to complete the job. what we are trying to do is figure out a way to gain a pool of money that is earned by the CNC equipment. But in order to do so we need to figure out an hourly rate for the machines, and that is where I am having trouble.

The only way I can figure to explain it mgt outside of our office is that these machines would be like 2 very diligent employees working for a set number of hours per day. So in essence we are trying to figure out what the employees (machines) cost per hour for a wage that we can build into our budget.

Chris

You didnt give the details of the machine, tho I assume its a Haas mill? Haas has a PM plan, factory sponsored that costs $995 per year, or $1195 per year with a Renishaw ball bar test, per machine. This yearly PM will likely keep your machine in near perfect working order for many years. As far as coolant, this depends on part qty, material mass removed, spindle rpms chip load, etc. I have to think that $1000 a year for oil and coolant per machine will suffice. I dont think the machine itself will cost much more than $2500 per year to run and maintain.

The cost comes when the machine goes out of warranty due to the cost of parts and labor. Ex. We just had a spindle motor go out. Motor was $5400 with $2700 returned as a core credit upon shipping our damged one back. Labor for the install was $130 an hour for 7 hours. So as you can see, repairs can be costly. Keep the machine maintained and clean and you will significantly reduce your repair bills.

Also, feel free to ask any questions, I have many years in cost analysis of CNC;s and associated run time.

Cathch me,

Yup it's a Haas Mill, TM-1 to be exact. We also have an Onsrud in the woodworking shop. Thanks for the info on the PM plan. I was unaware of the plan and this helps.

The example you used about your spindle motor is just the type of thing that we are trying to build a yearly $$ pool to cover. Our financial structure as we know it, is that we are not able to carry over money from year to year. If we do our budget gets reduced. Being a non profit we walk a very fine line with funding to complete our mission. So what we are trying to find out as part of this excercise is if we can set up a pool fund that does not get affected by a carryover. Hopefully we will be able to find someone in our organization that will be able to give this answer to us.

I do have a question about the $2500 per year cost. Is that for the $1195 PM, grease and coolant? I would be hard pressed to think that we use more than 15 gallons of coolant concentrate per year and a case of grease. Our machines get a lot of use, but the mill cuts the biggest variety of materials. One thing we have tried out is using a basic set up fee less than $100 dollars per job, than this covers time to clean the machine between ops. When I say that, it's for when we re say cutting metal with coolant, and then have to do a change over to cut dry for wood, model board, or other plastics. This seems to work out ok.

Since we really have no overhead with utilities or rents, we are focusing our effort more on what we are using with the machines and trying to capture cost for recurring fees.

So the salaries of the programmer operators is not in the equation since that's funded elsewhere. The things that I am looking at are annual software renewals for our CAM software, and trying to set a cost for yearly training. Using some of these numbers, if I spread that out over a 40 hr week X 52 weeks a year as a baseline, the hourly cost is so low that if something did happen we wouldn't have the pool money to cover a major repair. A few months back I was asked to prepare a formal budget request for FY2010. I talked with some of the guys in the shops and came up with a long laundry list of things we could use. The cost of all the stuff came to close to 1.5 persons salary. So just for grins, I am plugging in that total number in over the cost of the entire year and it brings us into an hourly rate of $20 - $25 per machine. If we can sustain this rate it will cover all our new purchases on the list for the year. Then next year we could be able to build enough pool money to purchase another bigger mill. My goal is to have another machine in between the router and the TM-1 as far as capability goes. Probably something like a VF-3 or VF-4.

Chris

you charge the going shop rate in your area NOT A DIME LESS. if you dont when the machine takes a dive or someone crashs, how are you going to pay for it? or if you need a new one.

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Originally Posted by CJH

Yup it's a Haas Mill, TM-1 to be exact. ...

...I would be hard pressed to think that we use more than 15 gallons of coolant concentrate per year...

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At a 10% ratio, that's 150 gallons of coolant. A TM-1 can put that much coolant on the ground in a week (don't we wish that weren't true?)! It's a small cost (depending on the coolant you use) but, I'd keep it in mind.

As a non-profit, aren't you allowed to donate any surplus at the end of the year? Or reinvest it in the facilities / software / equipment? There are always things to buy: collet sets, vise jaws (hard and soft), vises, endmill holders, hold-down clamp sets, etc, etc. There's a never-ending list of things you could add at the end of each year that would simply reinvest in the capability. That would kill off any extra reserves set aside for emergency repairs (crashes).

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Originally Posted by Donkey Hotey

At a 10% ratio, that's 150 gallons of coolant. A TM-1 can put that much coolant on the ground in a week (don't we wish that weren't true?)! It's a small cost (depending on the coolant you use) but, I'd keep it in mind.

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I do have the coolant figured as an ongoing expense. Also I am well to aware of how much coolant a TM-1 can waist. I've lost track of how many times there has been an overnight machine run with the coolant on, only to get a call in the middle of the night by securuty to tell me that the mill is leaking, or to come into the shop in the morning and find the floor flooded. But thankfully that hasn't happened in quite a while.

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"As a non-profit, aren't you allowed to donate any surplus at the end of the year?"

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Not quite sure what you mean here. We typically can only donate unused things (materials) to other non profits or educational facilities. There are very strict rules that govern that, since we get government funding in addition to private donantions, and grants. We try to maximize every scrap of material we have.

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Or reinvest it in the facilities / software / equipment?

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We try to do this as much as possible. The year end money has to get spread out over multiple departments in our office since all of us have wants and needs. As far as equipment goes we get small things like hand tools or small paower tools. Big stuff like mills, lathes, and CNC equipment we have to go higher in the organization to get money for this. At the end of the year there are so many things that the entire organization needs that we end up having to wait to next year. Our mill was the first piece of CNC equipment we got, and that was only due to luck. We had the paperwork ready and were at the right place and right time for money to be available. The router we had to wait. We tried for at least 3 - 4 years, preparing paperwork and requests at year end, and were finallly able to get it.

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There are always things to buy: collet sets, vise jaws (hard and soft), vises, endmill holders, hold-down clamp sets, etc, etc. There's a never-ending list of things you could add at the end of each year that would simply reinvest in the capability. That would kill off any extra reserves set aside for emergency repairs (crashes).

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These are exactly the things we are looking to build the reserve for. It is our hope that we either use the pool money over the course of the year or have a bigger lump at year end. But gaining enough for machine replacement is a tall order in our organization. In our machine shop the '04 TM -1 is the youngest machine. All the other equipment dates back to '45 - mid '70's or so.

Delw's reply:

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you charge the going shop rate in your area NOT A DIME LESS. if you dont when the machine takes a dive or someone crashs, how are you going to pay for it? or if you need a new one.

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Hits the nail sqarely on the head. The unfortunate thing is that we can not charge what the going shop rate is, since the "clients" that we work with have limited funding, and we could run the very real risk of pricing ourselves out of existance.

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Delw's reply:

you charge the going shop rate in your area NOT A DIME LESS. if you dont when the machine takes a dive or someone crashs, how are you going to pay for it? or if you need a new one.

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Hits the nail sqarely on the head. The unfortunate thing is that we can not charge what the going shop rate is, since the "clients" that we work with have limited funding, and we could run the very real risk of pricing ourselves out of existance.

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Uh -oh, now theres a very serious problem with what you said., this is why machining is so cut-throat( I dont mean to offend you with my post statement), and machining customers want things so cheap they want to use ohers people money to get what the want for next to nothing( deal or free), hence another reason why china mexico and other 3rd world countries are taking Manufacturing away from the US/Canada and Japan.

the answer for your org question on shop rate would be as "cheap" as you need to.


Delw

its bad enuff i have to fight for work with every home shop guy now i have none profit machine shops life just gets better every day, your machine time is 25 hr i cant hire anyone for under 30bucks an hour. good on you for running a none profit but this cnc world is getting crazy

I'm in a similar situation: There's only about 4 companies in the UK that do what I do and one of them is heavily subsidised by the government (supposedly to create jobs), it's hard to compete with subsidised companies. I manage it, but it is difficult.

Don't forget that these machines will need to be replaced at sometime in the future. I know you are in the public sector without the ability to carry over bu if you get with your accounting folks there are ways to rathole funds for capital purchases, they jsut have to be willing to go beyond the norm to do so. We used to pay for computer workstations and growth with a payment to a trust fund of some sort , it has been 25 years since I was involved with that.

Lowell

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Originally Posted by axis

its bad enuff i have to fight for work with every home shop guy now i have none profit machine shops life just gets better every day, your machine time is 25 hr i cant hire anyone for under 30bucks an hour. good on you for running a none profit but this cnc world is getting crazy

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I may be wrong, but I was under the assumption that this shop is for internal customers within the non-profit, so they likely don't take on outside work. In that respect, you are not competing for the same client pool as the OP.

since ALL of your costs seem to be paid for, anything you charge per hour is 100% profit!!! so, do the right thing and and charge like $1 an hour get as much work as you can from people that have LOTS of overhead and continue to send the american economy into the ****ter. this is whats wrong with the economy. someone form canada even related to this a few posts down. every guy thats been let go from his machine shop job that has good credit or a little bit of money bought a cnc machine and put it in his garage and cuts all of our throats because hes got a ****load less overhead to cover so he can get by by only charging $15 an hour whereas i can survive unless i charge at least 3-4 times that whether its mill time or wleding/fab time.

this also gives the misconception that what we do everyday is easy so it makes easier for customers to demean you because we are all blue collar guys. case in point... i bid on a job a few weeks ago and the guy was way off base on what he wanted to pay. by about 50%. he told me he only thought it was worth $500 plus materials because it should only take me 30-40 hours to do. with that math at 30 hours its only $16 per hour. this piece of **** is the largest CPA firm in indiana. so, i told him that if i went to him to do my taxes i wouldnt tell him that it was only worth half as much as hes charging.

my point to all this rambling is that by shops like yours charging a lot less works for you. not us. i would rather you charge a comparable rate in comparison to your neighbors so its all in the same ball park. i dont give a **** if you make 10 times what i make per year with your company because its government funded and mine comes out of my pocket. but, by only charging machine time based on some coolant and toolng... thats killing the rest of us because people then ASSUME that cnc work is cheap. we ALL need to work together to keep our rates similar so it doesnt create a landslide in the economies of scale. which is one of the reasons our country is in the position it is.

just my $.02, well maybe that was $.04???