Machine Shops: How to Make the Small Shop Profitable

According to the US Census there are over 25,000clients who are interested in purchasing the same
machine shops with less than 4 employees, notmachine you have but cannot afford it at the current
counting thousands of 1-man operations scatteredtime. This is especially true with specialized equipment.
across the country. Making a profit while owning aJust call up your tool salesman and ask.
small machine shop can be tough in thesePrecision pays - The tighter the tolerance the more
economically depressed times. Here are some tips ontime consuming and difficult the job is. If you are a true
making a profit.journeyman machinist this niche will always be
Hire family or close friends and classify them asprofitable regardless of the economy.
officers not employees. This will help with insuranceWelders- Contact all the local welders in your area. If
charges. Check with your insurance agent and statethey scratch your back you will scratch theirs. All the
for particular requirements.welding work you get you contract to them in
Down size – do you really need that 10,000 sfexchange for all the machining requirements they have.
building? If possible run out of your shed, garage orSBA- Take advantage of all the resources, loans and
barn. If not many self-storage facilities now offergrants offered by the SBA. (If you have been in
storefronts.business for 2 years)
Upgrade to CNC Milling – If you have all manualAccounting- A good CPA will be your best friend in
machines consider upgrading to a CNC.business, always do what they say financially. If you
Offer reduced rate services to local manufacturers.have a doubt with what they say question them and
Locale manufacturers will have contracted large shopshave them explain their reasoning.
many miles away to machine their product. There areMarket your business- Create business cards,
times when they need to rework, modify or makebrochures, capability cards and a website. Let your
changes on the fly. They will turn to the closest,prospective customer know upfront exactly what you
cheapest ship in the area.can do, what you specialize in and what your
Offer reduced rate services to local Hobby Clubs –capabilities are. You don't want to be wasting your
Many hobby clubs including RC Model Clubs, Modeltime quoting jobs you cannot handle.
Building Clubs, and Engineering Clubs require prototypesQuoting- when calculating your hourly rate due not
and custom parts and accessories built. Offering ainclude profit in the rate. That way when you quote a
group discount hourly rate to these clubs will insure alljob the price that calculates is your “zero” rate.
machining requirements come to your shop.This is the price that you will break even on if you do
Quote on government work – The United Statesnot factor in your profit (Sometimes you will want to
Government is the largest spending customer in thequote a job at “zero” to win that new
world for goods and services. There are hundreds ofcustomer). Once you have your zero rates you can
machining opportunities everyday.play with it. For the first 3 or so jobs quote it at a 5%
Overflow Work – Find the largest shops in townprofit margin. Then jobs after that you can bring it up
and offer overflow work. Many large machine shopsto 12%-15%. Using this method you will always know
love working with small shops, the reason is they canyour break-even rate and can adjust your profit
instantly expand their workforce and machiningmargin to the market at any given time. When the jobs
capability at a lower rate then there own. This assistsare good your profit mark up can be high. When the
them in their tight deadline critical projects.jobs are not so easy to come by you can quote at a
Raw Material - Group orders together as much asvery little mark up or no mark up at all.
possible. Never order cut lengths instead of full lengths.Contingency in Quoting- Always add a small 3-5%
Full lengths of material are always cheaper then cutcontingency to quotes. This will cover the inevitable
pieces. If small pieces are absolutely necessary askprice increases or expedited shipping or other
your vendor to quote you "Randoms" These are theunforeseen charge that will break your profit margin.
pieces that are left over from a previous cut orderNiche Markets – A couple Niche Examples that
and are usually offered at a substantial discount.come to mind are:
Cutting tools- never order the made in china cuttingA Grinding shop
tools. A $25.00 Made in USA end mill will out performEquipped with a larger capacity surface grinder
the $10.00 Import any day of the week. Expect to goA rotary Blanchard type grinder
thru 3 import Endmills to every one domestic end mill.And an OD/ID Grinder and a skilled machinist
This will add to your cutting tool overhead, lower yourA 5 Axis Shop
per piece volume and add to tool change cycle times.Don't be intimidated by 5 axis machining
Also don't be afraid to shop around for your cuttingEquip yourself with one Medium Capacity VMCand 1
tools. Many tool vendors are in the same boat you areseat of 5 AXIS Software and away you go.
in and will sell you tools at a very low mark up. If at allTotal investment $100,000 new or $50,000-$80,000
possible talk to someone at your vendors inside salesused
department. Many tools can be offered at greatRapid Prototype Shop
quantity discounts if you pool your order and just askEquipped with a CNC VMC a Bridgeport and a lathe.
for a discount.Must be able to make a part from concept to reality in
Recycle your chips - Scrap your Stainless andless than 48 hours. Expedite everything. 1-2 part runs
Aluminum chips. Also don't forget your broken and dullonly. Absolutely no production can be performed using
carbides.this concept.
Many machine tool manufacturers will refer to you