Produce in-house or purchase?. The Make vs Buy Calculator takes units needed per year, in-house variable cost per unit, in-house fixed cost per year (equipment, space, supervision), purchase price per unit from a supplier and returns saving from the cheaper option plus cheaper option, total cost to make, total cost to buy, break-even volume (units per year). Results update as you type, and the formula is shown under the result so you can repeat it in your own spreadsheet.
Good business decisions come from putting numbers on the options before committing. Run the calculation with your best estimate, then again with a pessimistic one, and see whether the decision survives both. Use the worked example below to check the maths against your own figures.
How the Make vs Buy Calculator works
Making in-house wins only when volume is high enough to spread the fixed costs. Below the break-even volume the supplier is cheaper, before counting quality, control and management time.
Worked example
With the example values (units needed per year of 10000, in-house variable cost per unit of $12, in-house fixed cost per year (equipment, space, supervision) of $40,000, purchase price per unit from a supplier of $16), the saving from the cheaper option is $0.00; cheaper option Buy from the supplier, total cost to make $160,000.00, total cost to buy $160,000.00, break-even volume (units per year) 10,000. Change any figure above and the result updates immediately; use Copy results to paste the summary into a note or email.
Related Calculators
Frequently Asked Questions
How is saving from the cheaper option calculated?
make cost = units × variable cost + fixed cost; buy cost = units × purchase price; break-even units = fixed cost ÷ (buy price − variable cost).
Which figures do I need?
Units needed per year, in-house variable cost per unit, in-house fixed cost per year (equipment, space, supervision), purchase price per unit from a supplier. Take them from the same period and the same set of accounts or reports so the ratio is consistent, and check the example values as a guide to the units expected.
How reliable is the result?
As reliable as the estimates you enter. Run the calculation with optimistic and pessimistic inputs to see the range of outcomes before deciding.
