Doing work on your CNC router takes time, money, and effort on your part.
Correctly pricing your work is an essential skill for anyone running a business with a CNC.
Charging too high a price can turn off good customers while charging too low prices can result in you losing money.
This guide will show you how to price your CNC work by walking you through each factor you need to consider in your pricing.
I have also shown a simple example to demonstrate the pricing process.
Pricing CNC Router Work- Quick Summary
For pricing a CNC work, first estimate the fixed costs (machine cost, tool, power, interest ), the variable costs (material, labor), and other costs (design). Add a markup of 10-30% to the total cost (fixed costs+ variable costs + design cost) to get the price for your CNC work.
In the next sections, we'll go into the detail of how to do this.
Part 1-Estimating the Fixed Costs in CNC Router Work
Fixed costs are those costs that are applicable for producing the first unit of the work.
Making additional units does not change these fixed costs.
1. Machine cost
Cost of a CNC machine is an essential factor that you should account for in your calculation.
The money you invested into buying the CNC machine should be recovered within a particular period.
A good rule of thumb is to plan to recover the cost of the machine in a year.
Machine cost has to be borne regardless of the number of units you produce.
As an example, if you run your machine for an hour every day and you run it for 5 days a week, the total number of hours of machine time in a year is 240 (hrs).
However, you should estimate the daily/weekly hours you intend to run your machine based on your plan or expectations.
Next, you need to calculate the cost of your CNC machine.
This is the sum of the price you paid during purchase plus the average maintenance cost you are likely to spend for the machine in a year.
A good rule of thumb is to use 10% of your machine's price as the maintenance cost.
The maintenance cost is to account for the wear and tear, repairs, and part replacement you'll need to do on the machine.
If you have purchased your CNC by financing, consider the total interest you will be paying and add it to the machine cost.
Once you have the total cost of your CNC machine, dividing it by the machine time in hours (one year) will give you the cost of the machine per hour.
2. Tooling cost
Different materials and cuts require different types of tools. In addition, some projects may require tools with special coating, all of which adds to the tooling cost.
Even though the tool remains with you after the project, the tool's life is reduced due to wearing effects.
The cost of the tool per hour can be calculated by dividing the price of the tool by the total expected life hours of the tool.
If the tool life and price of the tool are near the average for all tools, you can use the same tool cost for all the tools and avoid calculating the cost for each type of tool.
3. Overhead costs
This is the amount you pay as rent, water, insurance, and any similar charges. It also includes any certification charges you paid for quality assurance.
Calculate the hourly rate of the monthly charges you pay as overheads and use the hourly rates for calculating the price of your work.
Part 2-Estimating the Variable Costs in CNC Router Work
Variable costs are those costs that change depending on the number of units that need to be produced.
1. Material costs
Procuring materials is a risky task as there are several overheads involved. Unexpected delays can cause major setbacks in the cost that you quote to your customer.
To prevent such risks you can ask the customer to ship the materials to your shop.
In the case of woodworking projects, lumber prices fluctuate a lot.
However, if you need to procure materials yourself, you must design the product on your CAD software and determine how much material is required for the project.
Once you determine the amount of material required add a buffer to it for compensating for errors and breakages. The buffer should be determined by the size and quantity of the project.
Add to it the costs for transporting the material and other overheads to get it delivered to your shop and you'll arrive at the material costs.
Choose the right kind of wood for CNC routing work, as customers might not know the differences between the types of wood.
2. Power costs
Machines require power for which you have to pay.
Some people tend to classify the power cost as a fixed cost.
However, in the case of a small home business or a hobbyist, if you are not running your machine, there's no power charge for you to pay.
The more the number of units you make, the more the power bill you need to pay., therefore it is a variable cost.
For hobbyists where projects are irregular, an excellent way to work out the energy consumed for producing the part is to install an energy meter.
Typically an energy meter will cost around $20 on Amazon and is a helpful tool for determining the operational cost.
Do not forget to add the power consumed by all the equipment that is needed for the project. For example, pumps, dust collectors, and CNC machines are significant energy consumers.
You can connect all these devices to a single energy meter and then record the value on the meter at the start and end of a project to know how much power the project consumed.
You can use this to calculate the cost of power based on the charges you pay your power company.
For shops that produce parts regularly, you can calculate the per hour power costs based on how much you pay your power company.
Divide the monthly power charges you pay by the total number of hours the machines run in a month, and you will arrive at the hourly rates for your CNC machine.
3. Cost of Consumables
Consumables are materials that are used up while doing the project. Some examples of consumables are lubrication oil, coolant, work holding apparatus like double-sided tapes.
You need to add the total cost of consumables used up for completing the product to the project's net cost.
4. Labor costs
Calculating labor costs can be tricky. However, you could determine it by finding out how much your time is worth in monetary terms if you decide to work on the project on your own.
For perspective, say you charge $30/hr for your labor and you work 40 hours a week.
You would be making ~$60,000 per year at that rate.
If you charge $40/hr, you would be making ~$80,000 a year if you work 40 hours every week.
Some people tend to ignore this cost and count the labor cost as profit instead.
However, this is not a good way to look at labor costs.
If you want this to develop as a real business, you should be able to employ someone to do this for you, and the cost to employ a person should be the labor cost.
Part 3-Estimating Other Costs in CNC Router Work
These are costs that are not fixed but vary depending on the project.
However, these costs do not change even if additional units are made, therefore they are not a variable cost either.
1. Design cost
The Design task is unique for each product, and you need to play it carefully here. You can calculate the design cost based on the number of hours you spent on generating the tool path for the project.
Your time is the most critical factor here, and the designing cost is the cost you deserve for your time.
Sometimes, it is good to waive the designing costs if it is a simple design that takes very little time.
It is also important that you consider the subscription fee you pay for the software each year and include a fraction of it in the designing cost.
You can also use free CAD/CAM software for designing your projects which will help keep the costs down.
Do not charge the design cost per product, always add it as a lump sum for the entire order because the designing cost is the same for a single product and any number of products.
An easy way to work out the designing cost is to determine the fee charged per hour by a person doing the same designing work as you in the industry.
2. Miscellaneous costs
Some customers may request a faster turnaround time. In such cases, you might consider pausing other projects and works.
Additionally, you may run your machines for longer durations than recommended which will cause added wear and tear to your machine.
Therefore, in such situations, you should levy additional costs according to the adjustments you need to make.
Total Cost of the CNC Router Work
Calculate all the fixed costs and add them up to get the total fixed costs.
Similarly, add up the variable costs to get the total variable cost for the work.
Add up the fixed costs and variable costs, and add markup for your profits.
This markup will essentially be your profit if you did the rest of the calculation correctly.
You need the profit because you're a business. You'll also need to invest in equipment and tools down the line.
The markup can vary between 10% and 30%, and it is something which you need to decide.
Sample Calculation for CNC Router work (wood sign making project)
In this section, I'll demonstrate everything that was discussed in the previous sections with a simple example (a wood sign project)
Say you are creating a 16" x 19" sign in a 3/4 inch thick wood workpiece on Shapeoko 4 XXL. The sign is edge banded, with a clock face. A french-cleat is used for wall mounting, the carved portion has a black infill, and the finishing is done with lacquer.
1. Fixed Costs Calculation
Machine cost: Shapeoko 4 XXL costs around $2,300, but the shipping and additional accessories required take the price to around $3,200. Assume that you need to recover this cost in one year. Working the machine 5 hours a week will give you 260 hours in one year. So the cost of the machine per hour becomes ($3,200/260 hrs) which is around $12.3 per hour. Now add 10% as maintenance cost, this brings the machine cost to $13.54.
The machine needs to run for an hour to make the product, which means the machine's cost is $13.54.
Tool cost: For calculating the tool cost assume the average cost of the tool to be $30, and it has a life expectancy of 80-100 hours. That puts the cost of the tool at around ¢35 per hour.
For one hour of machine operation, the tool cost will be ¢35.
For this project, the total fixed cost will be ~$14.
2. Variable Costs Calculation
Material cost: The wood will cost around $25, the other materials required will cost around $5. That brings the material cost to $30.
Power cost: The average commercial electricity rate in the US is around 10 ¢/kWh. The Shapeoko 4, dust collection systems, computers, and lighting can run off a 20 Amps breaker, which means it will consume less than 2.2 kWh of electricity every hour. This means it will cost around ¢25 an hour.
For three hours of operation with one hour of machine operation, the power cost will be less than ¢50.
Consumable cost: This project does not require any consumables other than a few inches of double-sided tape, which costs less than a couple of cents.
Labor cost: I can charge $30 an hour for labor and this project requires an hour of labor. So my labor cost is going to be $30.
The total variable cost for this project is $60.25.
3. Calculating Other Costs
Design cost: This design will require an hour of designing work which can be charged at minimal rates as there are no software costs for Shapeoko 4. I'll consider the per-hour design cost as $30.
I'm going to assume there are no miscellaneous costs for this work.
The total other costs for the project is $30.
4. Calculating the final price for the work
I can now add the fixed, variable costs, and other costs to find the basic price of the unit which will be $14 + $60.25 + $30, which is $104 (rounded).
$104 dollars is what you need to charge the customer to just break even. To make profits you must markup the price of the product.
Typically a 10-30% margin is used by most makers.
As an average, let's choose a 25% markup.
This gives the price for the work as $130.
This can change depending on the channel you use to sell the product. For example, if it requires marketing and display, the costs increase. Additionally, if the item needs to be shipped, you have to include the shipping costs as well.
Cost for 10 pieces
That was for a single unit, what if you have to make 10 such pieces.
The fixed cost would be $30 (Design Cost) plus $13.54 x 10 (Machine cost) + $0.35 x 10 (Tool cost), which is ~$169.
Fixed Cost = $169
The variable cost per unit would be the same as before, $60.25.
For 10 units, the variable cost will be $602.5.
Variable Cost = $602.5
So the total cost (before markup) for 10 units would be ~$771.
After applying a 25% markup, the price you need to charge for 10 units would be $964.
The price per unit (PPU) in this case is $975 divided by 10, which is $96.4.
You can see that when producing 10 units the price per unit drops down to $96.4 from the $131 for producing just one unit.
If you do the calculation for 100 units, you can see that the price per unit drops to ~$93.
Here's a graph showing how the price per unit drops with the increase in no. of units in CNC work.
As you might have noticed, the price per unit drops rapidly with each additional unit for some time and then flattens after a while.
Having an understanding of this graph is really useful while pricing your work and talking to customers.
Factors affecting pricing of your CNC router work
The number of pieces can affect the per-product cost of the product. This is because the setup and designing costs are divided among the products. It is profitable to do projects with a large number of pieces.
The setup and designing costs are the same for a single product and multiple products.
The tolerances required by the product does not affect the cost directly, but it does have an indirect effect on the cost of production.
Depending on the tolerances needed, you'll have to use different cutting methods and special tools, which will change the cost.
Tolerance also determines the speed at which you can make the parts, as a high tolerance will require precise cuts, which takes time.
3. Material and size
The material of the part determines the tools and processes to be used. Additionally, it also affects the labor costs as more people are required to move heavy or large workpieces.
A large workpiece will also occupy more space on your work floor, making the room unavailable for other works.
Furthermore, if you have to ship the finished products, the type of material and the size of the product will play a significant part in determining the shipping costs.
4. Customer and location
The type of customer plays a significant role in determining the cost you charge them.
If your customer is a business that is starting up and needs simple parts, you can waive the designing costs, which will encourage them to revisit you.
If you are starting up, it is a good practice to keep the profits low and gradually increase your price as you gain reputation.
Location can play a major role in determining the price of your product. In a competitive environment, you will have to price your products lower to beat the competition.
Frequently Asked Questions (FAQ)
Can I make money with a CNC router?
You can make money with a CNC router if you price your products correctly, plan for exigencies, and properly market your products. You need to set the right price for the product for your business to be profitable. Through marketing, you need to make sure your products are sold well.
Do not try to compete with mass-produced products from low-cost countries. Focus on making unique products that are difficult to mass-produce using cheap labor.