Business
Make or Buy Calculator
Compare annual and horizon make and buy costs, landed purchase cost, cost difference, and recurring break-even units. Review a side-by-side horizon-cost visual, decision method, examples, limitations, and FAQs.
Annual relevant make cost-
Landed buy cost per unit-
Annual recurring buy cost-
Make cost through horizon-
Buy cost through horizon including transition-
Buy cost minus make cost-
Annual units where recurring options are equal-
Decision view
Make-versus-buy horizon cost
Make-versus-buy horizon costBoth horizon totals and the exact cost difference are shown together.
Make and buy cost crossover by annual volumeAnnual units are horizontal; horizon make and buy costs share one monetary axis so the economic crossover can be read directly.
Exact scenario comparisonAnnual required units changes while all other entered assumptions remain constant.
| Annual required units | Annual relevant make cost | Landed buy cost per unit | Annual recurring buy cost | Make cost through horizon | Buy cost through horizon including transition | Buy cost minus make cost | Annual units where recurring options are equal |
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Period-by-period detail
Relevant make-versus-buy cost ledger
How to use Make or Buy Calculator
- Identify annual demand over the selected horizon.
- Exclude internal fixed costs that will remain after outsourcing.
- Build landed supplier cost including inbound and quality costs.
- Compare horizon totals and test volume around the recurring break-even point.
Calculator guide
Understanding Make or Buy Calculator
A make-or-buy comparison should include only costs that change with the decision. Internal relevant variable cost and avoidable fixed cost are compared with landed supplier cost and one-time outsourcing transition cost.
Calculation method
How the calculation works
Compare relevant internal variable and avoidable fixed costs with landed supplier cost and a one-time transition cost over a stated horizon. Annual make cost equals units times relevant internal variable cost plus avoidable fixed cost. Annual buy cost equals units times landed supplier cost. Horizon buy cost adds transition cost; the cost difference is buy minus make.
Sourcing review
Reconcile cost with operational risk
A complete decision pairs the cost model with a documented nonfinancial assessment.
Worked situations
Practical examples
- Unavoidable factory overhead should not be counted as savings from buying.
- A supplier can be cheaper annually but more expensive over a short horizon after transition cost.
- Higher demand often favors the option with the lower variable cost.
Better inputs
Useful tips
- Document which internal fixed costs are truly avoidable.
- Include minimum orders, scrap, quality, freight, and inspection in landed cost.
- Run downside cases for supplier price and demand.
Before relying on the result
Limitations and common mistakes
- Quality, resilience, intellectual property, lead time, and strategic capacity are not monetized.
- Costs are constant across the horizon and are not discounted.
- Inflation, FX, working capital, tax, and terminal costs are excluded.
Reference
Key terms
- Relevant cost
- Future cost that differs between the alternatives.
- Avoidable fixed cost
- Fixed cost eliminated if internal production stops.
- Landed cost
- Supplier price plus inbound and quality-related unit costs.
- Break-even units
- Recurring annual volume where make and buy cost are equal.
Important note
Calculated from the entered values using the displayed accounting method. Reconcile material decisions with source records and applicable accounting policy.
Frequently asked questions
Why exclude unavoidable fixed cost?
It will be incurred under both choices and therefore does not differentiate them.
Does break-even include transition cost?
The displayed break-even units compare recurring annual costs; horizon totals include transition cost.
What does a positive buy-minus-make result mean?
Buying costs more than making over the entered horizon.
Should depreciation be included?
Only if it represents a future cash or opportunity cost that changes between alternatives.