How much you earn (or lose) on each line: the 30-minute calculation

Uncomfortable question: of the part numbers you make, how many lose money? If the answer is "none" or "I don't know", keep reading. You cannot know which references lose money until you calculate their costs against their selling prices. Not because the factory is badly run, but because almost nobody costs with the true hourly cost.

The single hourly cost mistake

Most SMEs have ONE hourly cost for the whole factory: what the company costs divided by the hours it works. Everything gets quoted with that number. And that number lies twice:

• It mixes different lines. A manual line with one operator does not have the same cost structure as a capital-intensive automated line. With a single cost, the expensive line looks cheap and the cheap one looks expensive.
• It counts hours that don't exist. The machine doesn't produce 8 hours per shift: there are changeovers, stops, waits and cleaning. If you divide by theoretical hours, the hourly cost comes out lower than reality and you quote below cost without knowing it.

The calculation, step by step

1. Annual cost of each line

For each line or machine: operators per shift (their fully-loaded annual cost), machine depreciation, energy, maintenance and a reasonable share of overhead. Don't chase the last cent: chase the right order of magnitude per line.

2. Effective hours, not theoretical

Shifts x hours x days per year, multiplied by your real utilisation % (changeovers, stops, non-productive time). A line "on two shifts" with 75% utilisation doesn't give 4,000 hours a year: it gives 3,000. That 25% difference is where the phantom margins hide.

3. Hourly cost per line

Annual cost / effective hours. Now you have the number almost no SME has: what one hour of EACH line really costs. The gap between lines depends on their people, equipment, utilisation and overhead allocation.

4. Margin per reference

For each reference: sale price minus material, minus cycle time multiplied by the hourly cost of ITS line. The margin in euros and in %. And on top, a traffic light: green above your target margin, amber if it's tight, red if it loses.

What to do with the red references

When a reference comes out red you have four levers, in this order:

• Raise the price. Sometimes the market accepts it and nobody tried because "it was always charged like this".
• Move it to another line. A reference that's red on the expensive line can be green on the cheap one.
• Improve the cycle. Test how a shorter cycle changes the margin; the result depends on each reference and its costs. This is where SMED and continuous improvement come in.
• Stop making it. If no lever works, every unit sold is money you lose. Better to know it than to keep making it.

And with the green ones, the opposite lesson: those are the ones to sell more of, defend in negotiations and prioritise when capacity gets tight.

The 30 minutes in the title

The first full calculation takes an afternoon, not 30 minutes: you have to gather the annual costs and utilisations. The 30 minutes are the upkeep: once it's built, adding a new reference or reviewing prices is one row and one glance at the traffic light. The effort is paid once; the clarity lasts all year.