# Make or buy calculator: break-even and total cost

> Compare making a part in-house with buying it from a supplier: total cost over your horizon, cost per unit, break-even volume, payback and a recommendation.

Source: https://sourcesquid.co/tools/make-or-buy/

Cost tool · free

# Make or buy calculator. Decide on the full cost.

A make-or-buy decision compares the total cost of producing a part in-house, including upfront investment and fixed running costs, with the landed cost of buying it from a supplier. Enter both sides and this calculator shows the total cost of each over your horizon, the break-even volume and a recommendation shaped by your strategic priorities.

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Lower total cost**Buy**

Cost per unit, make**$0**

Cost per unit, buy**$0**

Totals are simple sums over the horizon with no discounting, inflation or residual value for equipment. For horizons over three years, or large investments, also check the net present value. Buy cost per unit = price × (1 + freight and duty %).

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How it works

## Three steps. One clear answer.

  1. 01

Enter your annual volume and how many years the decision should cover.

  2. 02

Add the make side (investment, variable and fixed cost) and the buy side (price, tooling, freight and duty).

  3. 03

Read the total cost of each, the break-even volume and payback, then tick the strategic factors that matter to you.

Method and sources

**Make total** = upfront investment + (variable cost × annual volume + fixed annual cost) × years. **Buy total** = tooling + price × (1 + freight and duty %) × annual volume × years. Cost per unit = total ÷ (annual volume × years). **Break-even annual volume** = (investment − buy tooling + fixed cost × years) ÷ ((landed buy price − variable cost) × years). **Payback** = (investment − buy tooling) ÷ ((landed buy price − variable cost) × annual volume − fixed annual cost). Totals are undiscounted. The strategic factors change the advice, not the numbers.

Results are estimates to support your decisions. For binding figures, ask our team or your customs broker.

Make or buy questions

## Straight answers.

Anything else, ask us directly. A principal replies, not a bot.

[anirudh@sourcesquid.co](mailto:anirudh@sourcesquid.co)

### What costs should I include on the make side?

Upfront investment in equipment and tooling, variable cost per unit (material, direct labour, energy, consumables and scrap) and fixed annual costs such as floor space, supervision, maintenance and quality staff that exist only because you make the part.

### What is the break-even volume in a make-or-buy decision?

It is the annual volume at which making and buying cost the same over your horizon. Above it, making in-house is lower-cost; below it, buying is.

### Should strategy override the numbers?

When the cost gap is small, strategic factors such as core IP, quality control, capacity and speed to market should decide. When the gap is large, protect those priorities within the lower-cost route, for example with split tooling or in-line inspection.

### Why include freight and duty on the buy side?

Because the supplier's price is not what the part costs you. Freight, insurance, duty and clearance often add 8 to 25% to an import from Asia, which can move the break-even point a long way.

### Does this use net present value?

No. It sums costs over the horizon without discounting, which is standard for quick decisions. For large investments or horizons beyond three years, also compare the options on net present value.

Use it with

## Tools that work well together.

[Cost**Should-cost** Should-cost is the price a well-run factory could reasonably charge for a part, built up from material, machine time, tooling, finishing, packaging, overhead and a fair margin.](https://sourcesquid.co/tools/should-cost/)[Cost**Landed cost** Landed cost is everything you pay to get a product to your warehouse: the factory price plus freight, insurance, import duty, customs fees and local charges.](https://sourcesquid.co/tools/landed-cost/)[Cost**Quote compare** Comparing supplier quotes fairly means converting each one to the same basis, landed cost per unit at your door, because EXW, FOB, CIF and DDP prices include different costs.](https://sourcesquid.co/tools/quote-compare/)[Cost**Teardown cost** A teardown cost estimate rebuilds a finished product's price from its parts, assembly labour, packaging, overhead and supplier margin.](https://sourcesquid.co/tools/teardown-cost/)

From numbers to factories

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