[Lord Phat]

Hi, I work in purchasing for a factory in upstate NY. We recently had one of our best CNC programmers retire and only have a couple left so operations outsourced some g-code to a third party, particularly for programming our large mills.

I do not have a machinist background but have been asked to evaluate the prices they are paying. We are using a firm with a top notch programmer they are pretty much loaning us but we are paying $80/hr when he is onsite working here and $60 when he is offsite. In addition, we are kind of remote so we are wrangling over travel expenses.

I have no idea of benchmarks for this. Are we getting screwed? Should I force the rate down by about $20/hr or so? Thanks.

[Joe Miranda]

The prices you are paying ($80/hr onsite and $60 offsite) are entirely reasonable. That is simply a reasonable rate for a company if they are to stay in business. What do you think your burden rate is? I'll bet if you asked your accounting department what each employee's burden rate is you will find that you fall right in there. If you are making $20/hr that is NOT your burden rate. Your burden rate is going to be 2-3x that when you factor in operating costs. It is impossible to STAY in business and not charge those kinds of rates.

"Should I force the rate down by about $20/hr or so?" Are you kidding? What do you pay the kid next door to cut your grass?

Lowest dollars per hour often translates into a false economy. You may find someone to do the job cheaper but they may be slower or less skillful or less reliable. You have someone producing a good service for you - don't mess with it!

Hi, I work in purchasing for a factory in upstate NY. We recently had one of our best CNC programmers retire and only have a couple left so operations outsourced some g-code to a third party, particularly for programming our large mills.

I do not have a machinist background but have been asked to evaluate the prices they are paying. We are using a firm with a top notch programmer they are pretty much loaning us but we are paying $80/hr when he is onsite working here and $60 when he is offsite. In addition, we are kind of remote so we are wrangling over travel expenses.

I have no idea of benchmarks for this. Are we getting screwed? Should I force the rate down by about $20/hr or so? Thanks.

[harryn]

I have worked on the sales side of service contracts for many years. I did several pretty detailed analysis projects of what our costs were for 2 yr technicians (large group) and a process engineer (1) we had on staff from our office.

I concluded that our COST for a 2 yr degree tech with extensive training was about $ 85 / hr, and the 4 yr degree engineer with solid training was about $115K / hr. That was with very low burden, just 1 manager per 20 techs, 1 vp for every 150 employees.

For customers that purchased "as needed", we charged $ 180 / hr, and for those with longer term, high use hours contracts, we charged $ 125/ hr (for both the engineer and techs). In the analysis, I determined that these prices were reasonable, because:
- Our competition was charging even more
- We had well trained techs and engineers
- Our goal was to "break even" on service so that we could keep our techs even during down times
- The efficiency of the "high use" contracts vs "as needed" contracts was a virtual wash from a $s / tech hour coming in.
- I discounted the engineer's price to help the customers optimize the equipment we sold to them - so that they would buy more.

edit - I forgot to mention originally that at these rates, the group ran at no cost to the company for as long as I was there, through good and bad times, and we were able to provide excellent customer service. It did not contribute directly to our company profit, but I rarely lost an equipment order. If my "service" needed to be profitable, of course I would have had to charge more.


I did offer to our customers something that most of our managers did not agree
about though, I did not charge the customer until our guy arrived on site, especially for our better customers who were located in the area.

It did get to be a very interesting situation when our techs had to travel to the customer site for longer distances. We were certainly feeling the cost burden, but the customer's did not like paying for the travel time. I finally worked out a deal with the customers to pay us for a flat 4 hours travel if they were in more remote areas, which was sort of splitting the difference.

BTW, that analysis was done about 1995.

[Joe Miranda]

Harryn,

I don't know what my most recent employer considered our burden rate to be but back in 1994 I was running a large CNC DeVlieg Jigmill and my previous employer was billing my work at $110.00 per hour. I was making $15.00 per hour plus benefits. It's just the cost of doing business.

So many times I have guys try to beat me up over the prices I charge on something and they claim they had the same job done for 10 or 20 or 30 percent less someplace else and when I ask them why they didn't go back there they say the place went out of business. Duh, no kidding.

But our culture has been "Walmartized". The kids coming out of school think that the bottom line price is all that is important and they have no concept that you need to develop relationships with people that are lasting in order for everybody to succeed.

OK, rants over.

[CaptainVee]

Question from a non native speaker: What is the burden rate?

[Joe Miranda]

The burden rate equals your hourly rate plus benefits plus all other operating expenses including total overheaded divided by number of employees.

[CaptainVee]

thanks!

[Dualkit]

It all depends, if the guy is fast and efficient he could be a bargain at those prices. You could pay someone half as much and they could be 3 times as slow
with tons of mistakes. If you hire someone who will work for $30 an hour I guarantee he will be no bargain. The average pay for a tech around here is $95
an hour plus travel time, I would think to be top notch they require the same skills.

[kling8]

Im a programmer in minnesota, and where the figures you have seem in reason, If you are looking for a programmer I'm interested to talk to you. 10 plus years machining, can take parts from blueprint to final product.