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Finding the right price is one of the harder problems in manufacturing. Most businesses are either leaving margin on the table or losing work to competitors, sometimes both at once.
The Tribal Knowledge Problem
Most manufacturers have a quoting problem that shows up in one of two ways: winning work and losing money on it, or losing work to a competitor because the number came in too high. Both come from the same place: the quote wasn't built on real cost data. It was built on habit.
In most operations, one person knows how to quote. They've been doing it for ten or fifteen years. They know the machines, they know the customers, and they have a feel for what a job should cost that's genuinely hard to replace. The problem isn't their skill. The number lives in their head, not in a process anyone else can follow.
The markup they're applying was set years ago based on what the market would bear and what the owner thought was a reasonable profit. It hasn't been recalculated against current overhead rates, current labor costs, or current material prices, and it just gets applied because that's how it's always been done.
When that person is out sick, on vacation, or the one day a large quote needs to go out fast, someone else takes a guess, the job gets quoted late, or the owner quotes it himself based on what he thinks the customer will pay. And when that person eventually leaves, which they will, the quoting process goes with them. The business discovers it never had a process. It had a person.
What Overhead Allocation Means and Why It Matters
Material and labor are easy to see in a quote. Material is what you paid for the stock, labor is the hours times the rate, and most operations get these close enough. Where the money gets lost is overhead.
Overhead is everything it costs to run your operation that isn't directly tied to a specific job. Rent, utilities, equipment depreciation, insurance, indirect labor, tooling, quality costs, and the time your estimator spends building quotes. These costs have to be recovered somewhere, and if they're not explicitly built into your quoting rate, they're being absorbed by your margin.
Most manufacturers allocate overhead by applying a percentage markup to labor or material. The percentage was set at some point in the past and hasn't been revisited. If your overhead costs have grown faster than your revenue, and they usually do as a business scales, that percentage is too low and you're leaving money on the table on every job you win. If your overhead rate should be 26% of labor and you've been applying 18%, you're giving away roughly $80 per labor hour on every job you win — before you even account for the margin you thought you were making.
The consequence isn't obvious on any single job. It shows up over time as a gross margin that keeps trending in the wrong direction even when the operation is busy and revenue is growing. A business running at full capacity but under-recovering overhead on every job is heading toward a cash problem whether the P&L shows it yet or not.
A $30M contract manufacturer rebuilt its quoting and job costing process as part of a broader operational engagement. Gross margin improved 18% and quote turnaround went from months to days, entirely from knowing what the jobs actually cost.
The Jobs You Should Be Losing
Not all work is worth doing. Some jobs are structurally unprofitable regardless of how efficiently you run them. They require setups that take half a day for a two-hour run, need tolerances that push your scrap rate up, and go to customers who pay in 90 days and call every week to check on their order. On paper they look like revenue. In practice they consume capacity that could be used for work that actually contributes to your bottom line. Beyond the capacity cost, the estimator who prices this work and the scheduler who tries to fit it in are spending time they could be spending on jobs worth winning. The drag is real and it compounds.
Most manufacturers keep quoting this work because they've always quoted it. The customer relationship feels important and saying no feels like leaving money on the table, but businesses that have done the math on a high-maintenance, low-margin customer find the number uncomfortable, and the ones that grow profitably know their costs well enough to act on it.
The Jobs You're Losing That You Should Win
Over-quoting is harder to see than under-quoting because there's no visible cost. The job just doesn't come in, you don't get a call saying your number was too high, and you only find out when you check your win rate and notice that a certain type of work has been going somewhere else. Sometimes you find out when a customer mentions in passing that they gave a similar job to a competitor because the number came in lower.
Businesses with poor cost visibility pad their quotes out of uncertainty rather than greed. If you don't know exactly what a job costs, you build in a buffer to protect yourself. That buffer is sometimes appropriate and sometimes the reason you lost work to a competitor who knows their costs and can price more aggressively. Both problems feed each other. The operation under-prices complex work it doesn't fully understand and over-prices straightforward work it's actually good at, ending up with a mix of jobs that fills the floor but doesn't produce the margin it should.
What a Reliable Quoting Process Looks Like
Both problems have the same solution: know what your work actually costs before you price it.
A defensible quote starts with your overhead rate. Take your total overhead costs for the last twelve months and divide by your total direct labor hours to get your overhead rate per labor hour. Apply that rate to every quote alongside your labor rate and you're recovering overhead on every job rather than hoping the markup covers it.
The second piece is the feedback loop. Pull your closed job reports every month, the actual cost summary your ERP generates after a job is complete, and compare estimated hours and material to actuals by category of work. Most ERPs capture this data, but many operations haven't configured the system to collect it consistently or aren't reviewing it regularly. If your turning jobs consistently come in 25% over estimated hours, your turning estimates are wrong and your quotes are wrong. Adjust the estimates, requote similar work at the corrected rate, and your quoting gets more accurate over time. When a category of work consistently runs over estimate, the decision isn't just to adjust the number — it's to decide whether that work is worth quoting at all.
The third piece is tracking how often you win. If you're winning 80% of your precision grinding quotes and 20% of your milling work, either your milling estimates are too high or your competitors are buying that work. Knowing which requires looking at the data.
None of this requires new software, although sometimes there's a case for it. It requires the discipline to compare what you estimated to what the job actually cost, and to use that to get better.
Reach out at veritops.com/meet if you'd like to talk through what this means for your business.
