CNC Router Economics Capital


Your CNC router economics is one of the key factors to your business success. This article aims to guide and raise concepts and ideas that you will need to include in your CNC router economics. The discussions will cover Employed capital, Operating cost and some discussion on overhead.

CNC Router Economics Employed Capital

All businesses requires investment in other words capital or cash. I use the word employed capital mainly to focus you that the capital is like an employee or worker, if it’s not working, it’s just a cost. So when you have an employee you want to keep him/her busy with cash making activities, this goes for you also. This is even more important for any equipment you will buy.

The installed capital depends on many factors but you should include the following items. The buying price of your CNC router which include all the taxes and duties if you imported. The transport cost to get the CNC router to your place. The cost and your time to set up and test the CNC router. You can also include some tools and consumables but that is normally better to classify as consumables. This gives you the employed capital We will use a figure of $ 6000 for this discussion

Why is this important?

The CNC router is not immortal, it will die and you need to place cash away to replace it in x years. This keeps your business young and use the best technology available at the time. This is the write-off period in accounting and is deducted before tax. You need to discuss this with your accountant.

 

CNC Router Economics write-off

You have to decide how long the CNC router will last. Talk to an accountant, the normal period is 5 years but in the case of detail work you will find that the CNC routers accuracy decrease quickly and you should assume for the calculations that you will have to replace the CNC router within 3 years. This does not mean that you can’t refurbish the CNC router and get another 2 years of service from it. The reality is that a detail refurbishment will cost you around 50% of the CNC routers cost. The general rule is that lower the capital the quicker you can expect the accuracy will drop. The other critical rule is not to over capitalize. if the capital is high the CNC router must run continuously to pay for the capital. The focus should thus be to only increase your capital as the market grows not at the start. So let’s assume that you will need to replace the CNC router in three years, thus your write-off period is 3 years and you need to save $ 6000/3 = $ 2000 for future replacement of your CNC router. This is not totally true, you will also need to take inflation into account. Inflation increases the price you will pay in future so when you are saving money, you need to add this money into your piggy bank. So at the end of the first year, assuming inflation is 1% per year for the 3 years, 1% * $ 6000 = $ 60, 1% * $ 6060 = $ 60.60 1% * 6120.60 = $ 61.2. So when you want to replace the  CNC router it will cost you $ 6181,4. So after year one you need $ 2060 in your piggy bank. You can calculate yearly but I just calculate for the 3 years.

So the next it to talk about the running time under CNC router economics, Lets call it effective running time.

CNC Router Economics Effective running time

So we now know the Capital in details so to find the cost per hour, we need the hours. This is easier in a table.

Activities Figures
Write-off Years 3
Weeks per year (Takes care of leap years) 52.15
Work days per week (Your are a business) 6
Work day ( for calc 8 hours but you will work longer) 8
So Maximum hours available 7509.6
But there is time required to set up the material to cut 20%
Rework due to design errors and CNC problems 10%
The CNC also requires maintenance 6%
Marketing, leave planned and unplanned 10%
The CNC will thus be cutting for 54%
So the hours that you actually generating cash is 4055.18
So the Employed capital per hour is ($ 6181.4 / the hours) $ 1.52

So for you to replace your capital every 3 years you will have to include $ 1.52 per hour in the price of any project you do on your CNC router. I hope this helps with determining the price of any product you make on your CNC.

 

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