Plasma cutting, when used properly on suitable materials, can make considerable improvements to your company’s profitability. It will only do that, however, if you charge the correct price for the work, which means you have to know its accurate costs.
Vaguely estimating costs and applying an arbitrary profit percentage is not good enough. That can result in wildly inaccurate figures that lead to operational losses or over-pricing that causes a reduction in business. It is essential that your costings are accurate so that your pricing is also correct, enabling profitable work and a succession of orders.
The cost of every job is made up of a number of separate elements, so you will need to calculate each one and then add them together to arrive at a total cost. This cost will depend on the size of the job, which will mainly be determined by the number and size of cuts, the level of detail needed and the speed of cutting.
Materials
If your company is providing the materials to be cut, they must be added to the total cost of production. Determine the total input materials and price them out at the rate charged by your supplier. This will vary depending on the type of material (stainless steel, aluminium, etc.) and its thickness.
You should maybe add a percentage to allow for wastage. Also, factor in additional costs such as for painting and finishing.
Power
Plasma cutting has high electricity usage of DC electricity, so do not underestimate its cost. The cutting is performed by producing an energy-dense plasma arc that is extremely hot and melts the metal along the cut line.
To calculate the total power consumption for the cutting area in a given period, such as a day or week, take opening and closing meter readings, and the difference is the usage in that period. Alternatively, you can calculate power consumption from the average voltage of the plasma cutting system and its amperage, multiplying them together. Multiplying by the current cost per kilowatt hour (kWh) will then give the total costs of electricity for that period, and you can use this to calculate the cost per minute.
To determine the cost of power for cutting a particular job, assess the arc-on time (which is the actual time spent cutting) by using a timer or estimating it based on the programming distances, speeds and daily throughput. The actual arc-on time will be influenced by a number of factors that include the number, depth and length of cuts to be made, the torch height control speed, the machine speed and the efficiency of material handling. Multiplying the arc-on time by the per-minute cost will give the cost of power at full efficiency. However, power supply efficiency tends to be around 85% so apply this percentage to the calculated cost to obtain the accurate power cost.
This calculation can be summarised as:
Power costs = power consumption (kWh) x arc-on time x unit cost x 85%
Gas
The cost of gas will depend on the type of gas used, with shop air being essentially free, although filtration needs to be used to keep it clean and fit to use. Other gases, such as argon, hydrogen and nitrogen, will have to be bought in and their cost will vary.
The cost of the gas used for each operation is determined by multiplying the consumption rate by the arc-on time and then applying the cost per unit. The consumption rate will vary depending on the size of the system, the nozzle size, the flow tube setting and operating pressure. The supplied operating manual for the equipment should provide consumption rates for different operating conditions.
The calculation is:
Gas cost = consumption rate (cubic feet or litres per minute) x arc-on time x gas unit cost
Consumables
These costs can differ significantly and depend on the cost of the different parts and their useful life, the latter being influenced by the skill of the operator, the duration of cutting, operational conditions and the length of each job. The main consumables are:
- electrodes that typically last 100-300 starts, although this depends on the materials being cut and their thickness
- nozzles that burn out quicker when using high power or cutting thicker materials
- shields that protect the nozzles but have to be replaced periodically.
Gas swirling devices and retaining caps are also consumables that will need to be replaced periodically and have to be accounted for. You can track the use of consumable parts by keeping a daily log of their life, measured by arc hours and number of pierces. You can then calculate the consumable costs for each job as:
consumption rate x arc-on time x parts cost
Labour
You need to include the cost of programming the plasma cutter (with intricate designs taking the longest), setting it up (loading materials and ensuring everything is aligned correctly) and supervising the process to ensure it runs properly. The actual costs of labour will depend on the number of people employed on each machine and their level of skill (which will influence their hourly rate).
Calculate the cost of labour for a job as the total hourly cost (the sum of the hourly rates for each employee involved) multiplied by the number of processing hours. These hours cover total processing, not just the cutting operation.
Overheads
Besides the direct costs of any job, there will be various overhead costs that are associated with it. These include all the administration costs of the company, heating and lighting, transport (unless charged separately) and various other expenses that need to be taken into account. A general overhead hourly rate will usually be established, calculated as the total overheads for the year divided by the operating hours, and this will be applied for each processing hour of the job.
A major overhead cost that must not be overlooked is the capital cost of the plasma cutting system. This is a very significant expense that will be spread over the life of the equipment and may also include maintenance costs that can be estimated, particularly if a service plan is established. Calculate the system costs as the sum of capital and maintenance costs over the expected life of the system. Then divide this by either the expected total number of production hours or arc-on hours over the complete lifetime to obtain a recharge rate, which is applied to the number of production or arc-on hours for each job.
The Essential Need for Accurate Costing
Once you have calculated all the various cost elements individually, add them together to give the total cost for the job. Then apply your regular markup percentage to achieve the required selling price. This percentage may include not only a profit element but also a contingency figure that allows for unexpected hold-ups or changes to the price of anything included in your costings.
Getting these figures right is essential because:
- If you give an initial estimate and then charge an actual price after the job is completed, the two figures need to be reasonably in line. Any significant differences can lead to misunderstandings and arguments, which will result in a loss of trust by the customer and ultimately may cause a loss of future business.
- Overcharging will make you uncompetitive and result in a failure to obtain work, while undercharging will make jobs unprofitable and ultimately cause the whole business to be no longer viable.
Getting your cost estimates right may make the difference between a profitable and successful business and one that eventually fails. So this is an extremely serious issue, and you must treat the subject properly because it is too important to be overlooked.
Reducing Costs and Increasing Profitability
Besides accurately estimating costs, it is best to keep them as low as possible so you can improve competitiveness and profitability. The best way to do this is through increased efficiency that does not compromise quality.
- Plasma cutters earn their money by cutting metal, so any time they’re not doing that is lost income. Minimise downtime by a preventative maintenance programme, ensure materials are delivered promptly to avoid delays and reduce positioning time by ensuring the equipment is set up correctly.
- Optimise cut paths to minimise unnecessary travel time and reduce consumables use.
- Set process parameters correctly and train operators properly so cutting time is reduced, quality is increased, and scrap is minimised. This will also prolong the life of consumables and keep replacement costs down.
- Batch jobs of the same type together so set-up time is reduced and the whole process runs more smoothly.
- Use as much automation as possible to improve throughput and reduce human errors that cause wastage.
As an authorised reseller of ProNest®, Plazmax can give you instant, out-of-the-box job costing and quoting — factoring in material, time, and consumable use automatically so you can price accurately without the manual headaches. It’s the easiest way to protect margins, win more work, and turn your cutting system into a true business tool. View our range or contact us to learn more.