According to the US Census, there are more than 25,000 machine shops with fewer than 4 employees, not counting the thousands of one-person operations spread across the country. Making a profit while owning a small machine shop can be difficult in these times of economic depression. Here are some tips for making money.
Hire close family or friends and classify them as civil servants, not employees. This will help with insurance charges. Check with your insurance agent and your state for particular requirements.
Small footprint – do you really need that 10,000 square foot building? If possible, get out of your shed, garage, or barn. If not, many warehousing facilities now offer storefronts.
Upgrade to CNC Milling – If you have all manual machines, consider upgrading to a CNC.
Offer reduced rate services to local manufacturers. Local manufacturers will have hired large workshops many miles away to machine their product. There are times when they need to rework, modify, or make changes on the fly. They will go to the nearest and cheapest boat in the area.
Offer Reduced Fee Services to Local Hobby Clubs – Many hobby clubs, including RC Model Clubs, Model Building Clubs, and Engineering Clubs, require prototyping and custom parts and accessories to be built. Offering an hourly group discounted rate to these clubs will ensure that all machining requirements reach your shop.
Government Labor Quote: The United States government is the world’s largest spender on goods and services. There are hundreds of machining opportunities every day.
Overflow Job – Find the biggest stores in town and offer overflow job. Many large machine shops love working with small shops, the reason is that they can instantly expand their workforce and machining capacity at a lower rate than yours. This helps them on their critical projects with tight deadlines.
Raw material: group the orders as much as possible. Never ask for cut lengths instead of full lengths. Full lengths of material are always cheaper than cut pieces. If small parts are absolutely necessary, ask your supplier for a “Randoms” quote. These are the pieces left over from a previous court order and are generally offered at a substantial discount.
Cutting tools: never order the cutting tools made in china. A $ 25.00 Made in USA finishing bur will exceed the $ 10.00 import any day of the week. Expect to go through 3 import Endmills to each of the national end mills. This will increase cutting tool overhead, reduce part volume, and increase tool change cycle times. Also, don’t be afraid to shop around for your cutting tools. Many tool vendors are in the same boat as you are and will sell you tools at a very low markup. If possible, talk to someone from your vendors within the sales department. Many tools can be offered at deep quantity discounts if you bundle your order and simply request a discount.
Recycle Your Chips – Throw away your stainless steel and aluminum chips. Also, don’t forget your dull and broken carbides.
Many machine tool builders will refer their customers who are interested in purchasing the same machine you have but cannot afford it at this time. This is especially true with specialized equipment. Just call your tool dealer and ask.
Accuracy pays – the tighter the tolerance, the longer and harder the job. If you are a true official machinist, this niche will always be profitable regardless of the economy.
Welders – Contact all local welders in your area. If they scratch your back, you will scratch theirs. All the welding work you get is contracted to them in exchange for all the machining requirements they have.
SBA- Take advantage of all the resources, loans and grants that the SBA offers. (If you have been in business for 2 years)
Accounting – A good CPA will be your best friend in business, always do what he says financially. If you have any doubts about what they say, ask them and ask them to explain their reasoning.
Market Your Business – Create business cards, brochures, capacity cards, and a website. Let your prospect know in advance exactly what you can do, what you specialize in, and what your capabilities are. You don’t want to waste time listing jobs you can’t handle.
Quote: When calculating your hourly rate due, do not include earnings in the rate. That way, when you list a job, the price that is calculated is its “zero” rate. This is the price that you will balance at if you don’t factor in your earnings (sometimes you’ll want to quote a job at “zero” to win that new client). Once you have your zero fees, you can play with them. For the first 3 jobs or so, you are listed with a 5% profit margin. Then subsequent jobs can increase it up to 12% -15%. With this method, you will always know your breakeven rate and can adjust your profit margin to the market at any time. When the jobs are good, your profit margin can be high. When jobs are not that easy to come by, you can quote with a very small margin or no margin at all.
Quote Contingency – Always add a small 3-5% contingency to quotes. This will cover the inevitable price increases or expedited shipping or other unforeseen charges that will break your profit margin.
Niche Markets – A couple of niche examples that come to mind are:
A grinding shop
Equipped with a larger capacity surface grinder
A rotary grinder type Blanchard
And an OD / ID grinder and a skilled machinist
A 5-axis store
Don’t be intimidated by 5-axis machining
Equip yourself with a medium capacity VMC
and 1 seat of 5 Axis software and you’re done.
Total investment $ 100,000 new or $ 50,000- $ 80,000 used
Rapid prototype shop
Equipped with a CNC VMC a Bridgeport and a lathe. You should be able to make a piece from concept to reality in less than 48 hours. Accelerate everything. Only 1-2 parts are run. Absolutely no production can be done using this concept.
Standard workshop walk-in
Equipped with a mill and manual lathe. This is especially helpful and suitable for the walk-in repair customer. Best for mechanics and do it yourself – just need drilled hole or diameter down or some threads repaired.
