Guide
Welding and fabrication bookkeeping: shop rate and steel
The shop costs the same busy or quiet. Every job has to carry its share at a rate built from your own numbers.
Reviewed by Darren Lim, US CPALicense CPA.742536024 min read
A welding and fabrication business usually works in two places: the shop, where work is cut, fit and welded under a roof, and the field, where a rig truck goes to the work. They cost very differently. The shop carries rent, power, heavy equipment and cranes whether it is busy or not; the field carries trucks, travel and set-up time.
Whether a job made money depends on how many hours it spent in each, and what an hour in each really costs.
A shop rate from your own books
The shop is overhead that every shop job has to carry. The way to price and cost it is a shop hourly rate: shop overhead — rent, utilities, equipment, maintenance, shop supervision — divided by the productive hours the shop actually works in a year, added to the burdened labor cost of the people in it.
That rate, built from your own books, is what every shop job should be charged per hour. It is also what shows the real cost of a quiet month: the same overhead spread over fewer hours. The overhead rate calculator does the arithmetic.
Field work gets its own rate: truck, rig, fuel and travel on top of labor.
Steel moves
Steel and other metals can change price meaningfully between a quote and a purchase. On fixed-price work, that movement comes straight out of your margin.
Record, per job, material at estimate against material actually paid. Over a few quarters that shows how much price movement you have absorbed, and whether your quotes need a shorter validity period or a material escalation clause. See how to bid a job.
Drops and offcuts that go back into stock should be credited to the job they came from, and the stock itself is inventory.
Consumables add up
Shielding gas, wire, rods, grinding discs, cutting tips and abrasives are small individually and significant in total. Where they can be tied to jobs — large jobs, specialty materials — code them to the job. Otherwise, include them in the shop rate so they are recovered on every hour.
Gas cylinder rental is a recurring cost that is easy to overlook, and cylinders not returned keep costing money. Check the supplier statement monthly.
Structural and commercial work
Structural steel, stairs and railings for commercial projects bring shop drawings, submittals, pay applications, retainage, lien waivers, and often certified welding and prevailing wage. Engineering and detailing time before fabrication starts is a real cost of the job. See retainage explained, lien waivers explained, and a WIP schedule once jobs run for months.
Repair and mobile work
Mobile repair — equipment, trailers, agricultural and industrial repairs — is smaller, faster and often billed by the hour. Separate it from fabrication with its own income account or class. Its margin, pay cycle and customers are different, and it frequently subsidizes, or is subsidized by, the shop.
Certifications and equipment
Welder certifications and testing, inspections, and specialist equipment are costs of being able to take certain work. Include them in overhead, and track the equipment per machine so you can see which ones are earning their keep. See buy, lease or finance.
Related
General information, not tax or legal advice.
How we do this
We build this into your books. Starting with a month that costs you nothing.
A shop rate and a field rate built from your own books, every job costed at them, and steel at estimate against steel as purchased tracked per job.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — license CPA.74253602
- The 24-Hour Guarantee: Your first month back in 24 hours, or the next month is free.
A shop rate guessed from a competitor’s is a guess about someone else’s overhead. One month of books gives you your own. Free, CPA-signed, back in 24 hours.