Great little chip-break :-).. I came for the machining.. I stayed for the small business coaching :-)

That twitch that my eyebrow did during my managerial accounting class just came back...😂 Fantastic lesson, John, you're absolutely killing it with what you are providing as far as education to prospective entrepreneurs!

I took an entire course on this subject in college, you're spot on. You could get crazier with it and include interest and machine payments ect.

Great CB John! Lots of small business owners dont calculate this kinda stuff ahead of time. Its also one of the reasons I keep buying used Machines (although shopping very carefully is important)

80% spindle time is VERY ambitious and 90% is unicorn territory. My cell is sitting at 50% right now. Super long cycle times with low changeover time will get you there or pallet changing can do it as well. Setup, changeover and unexpected issues will kill your spindle on time. This is something I've been trying to explain at work...cycle efficiency is FAR more important than spindle on time. If your cycle is 1 minute and it takes 1 minute between cycles to changeover, your spindle on time is 50% (well not exactly...your cycle start time is 50%, spindle time is lower due to tool changes). If you reduce your cycle time by half to 30 seconds but your changeover still takes 1 minute, your spindle on time is reduced to 33%, but your productivity increased by 25%. If your cycle time stays the same, but you find a way to reduce your changeover time by half to 30 seconds, you get a better looking spindle on time of 66%, but end up with the exact same productivity gain of 25%. My point is, stop using spindle on time as a metric and instead use overall productivity...aka number of widgets per unit of time. I've said this before, but 9 seconds of reduced cycle time on a 100 units per day schedule is equal to 1.625 WEEKS of extra production per year.

thanks John. I appreciate very much all these tidbits of behind the scenes stuff. So many times we can see the pie in the sky but not realize it is a seagull until the poop hits us. haha. your eager willingness to help us with all aspects of being successful in our endeavors is refreshing. Not just machining, not just cad and tool paths , but hints on pricing jobs and now on true (approximated) cost of ownership and ROI. Awesome

Priceless ! Thanks a lot and please, for all of us pro CNCers wannabe, a series on these business critical, decision helping, management monitoring concepts/values would be another great contribution of yours...

Great walkthrough John! I like that you kept the factors simple and didn't get into section 179, financing, etc. I bet 50% of owners never look at their shops this way and 100% of FORMER owners definitely didn't.

YES... wonderful. I wish I could show this to the folks who own where I work. If you "wing it" all the time, without seeing numbers like this, eventually it catches up to you, even if you've done it that way 30 years! Awesome, John. Way to go on the VF2, too. ;)

Hey John, I love these videos man. Between the business/ shop improvement videos and your excellent shop tour videos, i get so much inspiration and motivation to continue down the Agile/Lean path in our custom instrument cell. Thanks as always.

Great stuff as usual John!

I would think 80% spindle time seems lofty unless you have huge runs of the same component. I see many machines in auctions that are below 50% spindle to run hours. In my work I do a lot of my jobs that are 4hours of setup for 30minutes of cut time.

Another tweak that improves the ROI is trying to spread in time the payments/costs and try to get your income $ the earliest. Of course financing has a cost and most of the times it's own interest, but always remember that money was more valuable in the past (in an inflationary economy). That might not work if you opt for second hand/third hand investments (a single payment is preferred), but it's an option to consider. And with newer machines entering the market and people selling their old ones yours loses resell value. More competition means you might need to drop the prices for a piece over time. TLDR: Earn that income dollar earliest, consider spreading expenses, and build a brand/good reputation early as possible. Good video! Very nice comments at the end.

Thanks for going through all this. Im hoping in the next few years ill be able to start my own shop.

nice bussiness thought planning video. I know you were keeping it simple but I think adding a cost of loan to buy machine line would be very informative for a lot of the boot strappers who may not have 100% of the cash up front good video.

This was very helpful. I had been hoping you would do some videos on this exact topic. Getting the numbers right is just as important as having the machining skills, when it comes to starting a successful CNC business.

Excellent presentation!

excellent tool!! thanks John!

Thanks John, just used this to help calculate a charge out rate for a new machine I just purchased.

This is a very good introduction to ROI. The thinking is good and logic but to people owning a small business that would implement that kind of analysis you have to know : - as all budgeting or forecast tools this heavily relies on the quality of the assumption. You cannot pull the variables out of the blue : be wrong on occupation rate (spindle time + work readying phase), the direct cost of operating (personnal, utilities and maintenance and repair) or the end selling price and you will be in a world of hurt when comparing at the end. So before hand one has to transform the guesses into estimation through sampling or financial controlling. It is not very complicated, may delay a bit the underlying acquisition but as machinist you know the value of accuracy. - This only compounds direct costs. Ideally one should be able to apply some of the structural costs into the matter : back office, leases, tax... It is the money maker and will also have to pay for all that is not getting cash in directly. I cannot stress out how much this is overlooked with people thinking they have positive ROI on all their equipment to only realize that they have not thought about other expenses when setting their sale prices (which obviously is one goal of that exercise). I could go on and on into controlling but I think we do not need to get into discounted cash flows or KPI until John does (and he is so close, at least for KPI).

Good stuff. You kept it very understandable.

"% of time you have work ready for the machine" and "efficiency" are often at odds to each other as well.. A few machines hitting high efficiency tends to run you out of stuff fairly quickly. Among the more difficult things to nail is scaling all of your various bottlenecks accordingly!

Don't forget ROI on smaller things like specialized tooling. A good example is your (John's) Sandvik through coolant drill. I bought a few custom tools that the ROI for initial cost was measured in a week and the tool has lasted over two years. It's the little things that can add up to huge time savings.

On the other hand if your jobs don't require the utmost in speed, etc. buy used machinery and pocket the difference in price. I'm running older machines with a desire but not the need to have the latest and greatest. I bought my 1st machine in 2002 and my second in 2006 still running both with no plans to replace them. I can take time off if I desire and don't have to worry about a large payment or return on investment...makes life easier. I'm lucky if I have 10% spindle uptime but cnc machining is only one facet (although a very important one) of the projects I take on in my business.

Its easily applicable to the big things in the shop but is there a similar method for calculating the ROI that a chop saw brings to company or evaluating whether to buy a high end unit in comparison to cheap 'get you by' equipment? Also, how do you convey this type of analysis to a boss that can barely operate a computer let alone understand a spreadsheet? I have issues at work!!! Love what you do and how you do it!!!

john very informative video, P.S. non't get sick .

The video is very good, thank you. Can you share the excel file?

Net Present Value ;)

I miss your chip breaks.

Sounds rather solid, kind of buffet/value investing stuff. But then, investing into the DOW would give you a similar ROI.

What about Section 179 depreciation? You should get tax breaks that will cover the lost depreciation between the purchase of the machine and the selling / disposal of the machine.

the $30/hr for labor would not all be counted towards that machine, unless you are paying someone to watch the machine all the time, and do nothing else.

Hey now - you're treading in my territory. :-)

I like this better: Bought used machine for 25K. Year one it produced 60K in work. Materials supplied by customer. Tooling was already in house. (duplicate machine) Buying a quality used machine is the best way to go for small shops. Did the new machine thing ONCE. Never again. Selling after six years? Nope. Keep them till they do not make good parts anymore or they start to break down too much. Too hard to pay for these machines to just let them go because some MBA classroom jockey says so. (not you John) If the parts are to print, it makes zero difference on what machine made the parts or how old a machine the parts were made with. I have seen with my own eyes medium-large shops make their fortune with a certain style or make of machine. Years later, only to be sold on new technology. And dumping the tried and true stuff they had. To go out of business because of crippling machine tool payments when the work dried up. When you are a big corporation with $millions from multiple sources rolling in, then yes, 250K (or more) for a machine is a pimple on the company's ass. For the small business it is more likely the gallows pole.

I look at that spreadsheet, and the first thing that strikes me to tackle is the 7 hours a day of productive uptime. You're already scaling the labor rate with machine hours-on, but then you cap that by only running one effective shift per day? Seems like an unnecessarily low total utilization of a capital asset that can run a whole lot more hours of the day. I don't know a single productive machine shop that isn't running at least a second shift (and a second shift typically at a lower labor rate since they are more operator focused, where as the first shift does all the setup/programming/dialing-in).

I don't understand why you added $20.00 for what the machine (makes) to the $30.00 labor cost and $10.00 utility cost...that you are losing?

When you take the percentage of aluminum foil decided by the number of grow lights.........................

somehow I must have hit unsubscribe in a sleepy stupor, wondered why I haven't got notifications the last 5 days. great video, just downloaded fusion 360 today, haven't watched any tutorials, so far I've had little problem adapting to it, its definitely easier than rhino 3d that I used in highschool. but not as familiar. ....... how can I add a fillet like a weld between two separate bodies? I'm stuck haha

not a comment on the overall video but your use of SUM in excel made me twitch. =sum(C9+C10) was just not how to use it. either =C9+C10 or =sum(C9:C10). I know it still works but it just looks terrible and is terrible practice if you want this to be an 'intro to excel' video.

호호

You should consider hiring a night shifter, some people prefer to work at night.

Put a face cam in the corner