To zero my Z axis, I had been using a touch plate, requiring a clip to connect to the router collet (the rest of the router is insulated) and an aluminum plate. (if curious, see it at www.liming.org/cnc, page 5) This worked well until one day as I clicked Mach3 to set the Z, it touched the plate all right, and just kept right on going. Luckily I was close the the e-stop and it didn't do much damage, but it did ruin the tip of the V bit I was using. I attributed this to my own carelessness in attaching the clip, until it happened a second time - this was getting expensive. I spent some thought about how to make better electrical contact with a collet without much luck.
On the cover of winter 2009 Digital Machinist is shown another way, so I built one shown below. Works great. I built mine from aluminum (instead of steel in the magazine) but that doesn't seem to matter. Best news is the HF dial indicator is $10, unless you have a 20% coupon, in which case it's $8. The rest of the stuff is aluminum I had left over from my CNC build, and some 6-32 screws.
The way you specify the new offset height to Mach 3 is on the first time you use it, simply lower a milling bit to read zero on the dial, and then cut something and measure the resulting cut with a caliper. Once this measured height is in Mach 3, you don't need to re-cut anything - just slide it under the bit and lower it until its says zero, and click.
Anyone see a problem with this?