Should You Take a Low-Rate Job Just to Fill Idle Machines? The Contribution Test (₹)
Should you take a low-rate job just to fill idle machines? Yes, if the price beats your variable cost per hour and the hours are truly idle. In our worked example (assumptions, 17 Oct 2026), a ₹450/h offer on a VMC with a ₹750/h full rate adds ₹46,000 over 200 idle hours and turns into a loss once it displaces regular work.
By the Mama Editorial Team. Last checked: 17 Oct 2026. This is a calculation method with stated assumptions, not pricing advice. Every ₹ figure in the worked example is an assumption unless a source is named in the same sentence.
Key takeaways
- Two numbers decide it, not one. Compare the offer with your variable cost per machine-hour, not your full machine hour rate. The gap is contribution towards costs you pay anyway.
- "Idle" has to mean idle. If the job pushes regular work into overtime or next week, the arithmetic flips.
- Overtime eats the margin. Overtime needs the worker's consent and is paid at twice the ordinary rate of wages (basic plus DA) under OSH Code, 2020, s.27; your state's rules set the overtime ceiling.
- The hidden cost is the price you teach. A buyer who gets ₹450/h once will quote it back to you.
- Payment terms are part of the price. For a micro or small supplier, section 15 of the MSMED Act caps the agreed payment period at 45 days, per the Ministry of Finance Memorandum to the Finance Bill 2023.
Why the full machine hour rate gives the wrong answer here
Your machine hour rate (MHR) is built for normal quoting. It spreads the whole year's machine cost over the productive hours: depreciation, interest, operator, power, maintenance, tooling and allocated overhead. We explain how that divisor is set in Machine Hour Rate in India: Count the Hours You Never Sold.
For hours that are already empty, most of that rate does not move. Depreciation, the EMI, the salaried operator, supervision, rent and the demand charge are the same this month whether you take the job or not.
The job adds only costs that start with the spindle: cutting energy, tools worn, coolant, wear-related maintenance, and any overtime. Cost accountants call this marginal costing: a price above variable cost earns contribution, and contribution pays the fixed costs you carry anyway.
A price below the full MHR is a loss in the costing sheet and can still be a gain in the bank account.
The contribution test in five lines
Fill in five numbers before you reply:
- Offered rate (₹/machine-hour). Convert a piece price into hours using your realistic cycle time plus setup, not the drawing's ideal.
- Variable cost (₹/machine-hour). Power, tooling, consumables and wear for this part on this machine.
- Extra labour (₹/hour). Zero if the hours sit inside a shift you already pay for; overtime or a temporary operator if not.
- One-off costs (₹). New fixture, special tool, programming and prove-out time, first-article inspection, freight.
- Displaced contribution (₹). What the regular work these hours push out would have earned. Zero only if the hours are truly empty.
Contribution = (offered rate − variable cost − extra labour) × hours − one-off costs − displaced contribution.
Clearly positive: the job adds cash. Near zero: the risks below decide. Negative: the job buys turnover with your money.
Worked example: a 200-hour VMC job at ₹450/h
A job shop runs three VMCs on a single shift. A buyer offers a one-off batch that needs 200 spindle-hours over about six weeks at a price that works out to ₹450 per machine-hour. Your normal quote is built on a full MHR of ₹750/h. All figures below are assumptions for illustration; replace them with your own.
Step 1: variable cost per machine-hour (assumptions).
| Variable cost item | ₹ per machine-hour | Basis |
|---|---|---|
| Power while cutting | 88 | Assume 11 kW average draw × ₹8 per kWh |
| Inserts, drills, taps | 90 | Assume tool life on this part's material |
| Coolant, oil, consumables | 15 | Assumption |
| Wear-related maintenance | 25 | Assumption: share of spindle, way-cover and pump wear |
| Variable cost (in shift) | 218 | Rounded to ₹220 below |
| Overtime operator, if needed | 173 | Assume the operator's wage equals the ASI 2023-24 average of ₹2,16,487 a year per worker, per MoSPI's ASI release on PIB, 27 Aug 2025: ÷12 ÷26 ÷8 ≈ ₹87/h, × 2 for overtime |
The overtime line uses an all-India average wage; overtime is twice basic plus DA, so use your own payroll and your state's current minimum-wage notification.
Step 2: the four scenarios.
| Scenario (200 machine-hours) | Rate (₹/h) | Cost counted (₹/h) | Margin (₹/h) | Result on 200 h (₹) |
|---|---|---|---|---|
| A. Costing-sheet view: full MHR | 450 | 750 | −300 | −60,000 |
| B. Truly idle hours, inside the shift | 450 | 220 | +230 | +46,000 |
| C. Same job on overtime | 450 | 393 | +57 | +11,400 |
| D. Inside the shift, but 80 h displace regular work at ₹900/h | 450 | 220 | — | +46,000 − 54,400 = −8,400 |
In scenario D, the 80 displaced hours would have earned (₹900 − ₹220) × 80 = ₹54,400 of contribution on regular work. Losing them wipes out the ₹46,000 the low-rate job brings in.
Step 3: the one-off costs (assumptions). A new fixture at ₹25,000 turns scenario C into a ₹13,600 loss. It leaves scenario B at ₹21,000, still positive. Keep the fixture if you expect repeat work at a fair price; otherwise it is a cost of this job alone.
What the table says. The rate is the same in all four rows. Whether it is a gain or a loss depends on one fact: whether those 200 hours are empty.
When the low-rate job helps
The hours are idle and will stay idle. A schedule cut leaves a machine without work for weeks, not hours, and longer than the job lasts.
The part fits the machine as it is. No new fixture, no special tooling, a predictable cycle time.
The cash covers a fixed cost that is coming anyway. ₹46,000 of contribution is ₹46,000 less drawn from the overdraft for next month's EMI and salaries.
When it hurts
It crowds out better work. A batch from your best customer can land in week three of a six-week low-rate job. Then you delay a good customer or pay overtime on the cheap job. Scenario D is that week, priced.
It anchors the price. A buyer who gets ₹450/h once will use it as a benchmark. Say you run 2,000 hours a year of regular work for the same OEM. If the next annual negotiation knocks ₹90/h off your rate, that is 2,000 × ₹90 = ₹1.8 lakh a year (assumption). That is about four times the gain from scenario B. Quote the job as a one-off with a part number, quantity and validity date.
The tooling becomes yours. Check whether the buyer supplies the fixture, pays for it separately, or owns it.
It hides the real problem. If machines are idle because work is stuck waiting for material, an approval or a decision, a cheap job fills the symptom. Our article on why machines sit idle when the job sheet is full covers those four causes.
Payment terms are part of the rate
A low-rate job paid in 120 days is a lower rate still. For a micro or small enterprise, the MSMED Act gives two levers:
- The 45-day cap. Section 15 of the MSMED Act, 2006 requires payment within the period in the written agreement, which cannot exceed 45 days, or within 15 days if there is no agreement. This is how the Ministry of Finance summarised the section in its Memorandum to the Finance Bill 2023.
- Interest on late payment. Under section 16, a buyer who pays late owes compound interest with monthly rests at three times the RBI bank rate, per the DC-MSME summary of the Act. The bank rate is 5.75% from 7 October 2026, per the RBI Monetary Policy Statement. Three times that is 17.25% a year.
The DC-MSME summary lists no exception for discounted or one-off orders (checked 17 Oct 2026).
Enforcing the rule is slow. As of 14 August 2026, micro and small enterprises had filed 2,56,892 delayed-payment applications worth ₹55,244 crore on the MSME Samadhaan portal, with ₹20,979 crore still pending, per a CRISIL Intelligence release of 17 August 2026.
Put the delay in the test. Scenario B invoices 200 × ₹450 = ₹90,000. Waiting 120 days instead of 45 days at an assumed 10.5% cash-credit rate costs about ₹90,000 × 10.5% × 75 ÷ 365 ≈ ₹1,940. That is small against ₹46,000; a buyer who does not pay at all is a risk no rate covers.
Cluster reality: Ludhiana, Rajkot, Coimbatore
The test is the same everywhere; who is asking decides which risk matters most.
The offer comes from another job shop's overflow. Assume a Ludhiana shop is offered a batch by a neighbouring unit that is over capacity this month. Anchoring matters less, because this buyer is not your main customer. Check its payment record before the first invoice.
The offer comes from an OEM or tier-1 you already serve. Assume a Rajkot shop is offered a low-rate batch by the same buyer that takes most of its regular volume. This is where anchoring hurts most, because the ₹1.8 lakh line above falls on work you already have.
The slack is long and predictable. Assume a Coimbatore shop has lost a regular pump-casting order for two months. That is the textbook case for scenario B: the hours are empty for longer than the job lasts. We describe the city's job-shop floor in Factory Cameras in Coimbatore.
If the low-rate buyer then offers a large annual volume at the same rate, the question changes from "fill idle hours" to "commit capacity". That needs a capacity check first, which we cover in An OEM RFQ Lands: Can Your Shop Actually Take the Volume?.
What the decision needs from your floor
The weakest input in the test is the word "idle". Few owners know, week by week, how many machine-hours went unused and why.
Check three things before you say yes:
- Idle hours per machine over the last four to six weeks, not yesterday.
- What the idle hours were. "No job" hours are the only ones a low-rate job can fill without displacing anything.
- Where your regular customers' schedules are heading. Ask your two biggest buyers for their next eight weeks before you lock six of them.
The machine hour rate calculator turns those idle hours into rupees at your full rate. The five-line test then tells you whether a particular low-rate job is worth filling them with.
What cameras can't tell you. A camera can show when a spindle is cutting or stopped, and for how long. It cannot see feed rates, tool wear, insert prices, purchase-order terms or next month's orders. The pricing decision stays with the owner; camera data only makes the "idle" input honest.
Where Mama fits
Mama reads the cameras a factory already has, or cameras it adds, and every morning sends the owner a short note in plain language: which machines stood idle yesterday, for how long, and what those hours were worth in rupees. It watches machines, not people, and it ranks no operators. Over a few weeks that gives the owner the idle-hours pattern the contribution test depends on. Leave an email or phone in the form below and Mama will get back to you with a camera plan for the blind spots.
FAQ
Is it ever right to quote below my machine hour rate? Yes, for a one-off job on hours that would otherwise earn nothing: a price above variable cost still adds cash. It is wrong when the job displaces regular work, needs overtime or tooling you have not priced, or sets a price your main customer will quote back to you.
What counts as variable cost for a CNC or VMC hour? Costs that start when the spindle starts: power while cutting, inserts and tools worn, coolant and consumables, and wear-related maintenance. Add overtime or temporary labour only if the job needs it. Depreciation, interest, rent, supervision and a salaried operator inside the shift are fixed for this decision.
How do I stop the low rate becoming my new rate? Quote it as a one-off in writing: part number, quantity, delivery window and validity date. Price repeat work at your normal rate. Prefer low-rate jobs from buyers who are not your main customer.
Does the MSMED 45-day rule apply to a discounted job? For a micro or small supplier, section 15 caps the agreed payment period at 45 days and section 16 adds interest at three times the RBI bank rate on late payment. The DC-MSME summary lists no exception for discounted or one-off orders (checked 17 Oct 2026). This is a summary, not legal advice.
How many idle hours do I need before a filler job makes sense? No fixed number: the hours must stay idle for the whole job. Look at four to six weeks of idle-hour data and your main customers' schedules. A job that needs 200 hours over six weeks only works if about 33 hours a week are reliably empty.