How do you calculate make-or-buy break-even?

Subtract your internal make cost from the supplier buy cost to get the dollar advantage, then divide by your reference cost basis and multiply by 100. With an $18,500 buy benchmark, a $17,200 make cost, and an $18,500 basis, the gap is $1,300, a 7.03% advantage to making in-house.

Does a positive percentage mean I should make the part?

In this calculator a positive result means making is cheaper than buying; here making saves 7.03%. A negative result means the supplier is cheaper. Treat anything inside roughly plus or minus 3% as a wash where quality, lead time, and capacity should decide.

What is a good make-versus-buy cost advantage?

There is no universal number, but most shops want at least a 5-10% in-house advantage before insourcing, because that buffer absorbs overhead you under-counted and the operational risk of owning the process. The 7.03% in the example is modest and worth pressure-testing against freight and scrap.

Make cost vs buy cost: what should each include?

Make cost should carry direct material, direct labor, machine burden, scrap allowance, and a fair share of variable overhead. Buy cost should include the quoted unit price plus inbound freight, tariffs, incoming inspection, and carrying cost. Comparing a fully loaded make cost to a bare supplier price is the classic distortion.

Why use a reference cost basis instead of just the dollar gap?

The percentage normalizes the $1,300 gap against the part's scale. A $1,300 edge on an $18,500 part (7.03%) is meaningful; the same $1,300 on a $200,000 assembly is rounding error. The basis lets you rank many parts on one consistent scale.

How often should make-or-buy decisions be revisited?

Re-run whenever input costs move materially: a labor rate change, a new supplier quote, a tariff event, or a capacity shift. Many manufacturers review high-spend categories quarterly and the full part list annually.

ERP & MRP Planning calculator

Make or Buy Break Even Calculator

The make-or-buy break-even compares what an outside supplier would charge for a part against what it costs your own shop to produce it, then expresses the gap as a percentage of a reference cost basis. Sourcing managers, cost engineers, and operations leaders use it to decide whether to keep a part in-house or push it to a vendor. It matters because a few percentage points across thousands of annual units is the difference between a profitable line and one that quietly bleeds margin. Unlike a raw dollar comparison, the percent advantage normalizes across parts of very different unit values so you can rank sourcing opportunities apples-to-apples.

What this calculator does

Compare supplier buy cost with internal make cost and show the make-versus-buy margin.
a plant manager needs to compare internal make cost against a supplier quote
It computes the dollar gap between a supplier quote and your internal make cost, and the size of that gap as a percentage of a chosen reference cost basis.

Formula used

Make-or-buy margin = supplier buy cost benchmark - internal make cost estimate
Margin percent = make-or-buy margin ÷ reference cost basis × 100

Inputs explained

Supplier buy cost benchmark: Use quoted supplier cost, outside processing cost, or landed buy cost for the same quantity.
Internal make cost estimate: Include material, labor, overhead, setup, tooling, quality, and capacity cost.
Reference cost basis: Usually the supplier buy cost or internal make cost used for percentage reporting.

How to use the result

Use it during sourcing reviews, new-part quoting, supplier renegotiations, or when load on a bottleneck cell tempts you to outsource overflow work.
It is a cost snapshot only, ignoring volume commitments, tooling amortization, freight, quality risk, lead-time exposure, and fixed overhead that does not disappear when you outsource.

Current U.S. benchmarks

Manufacturing hourly earnings average $30.27 (BLS, Jun 2026), up 4.4% from a year earlier. Median machinist pay is $28.24/hr (OEWS 2025), with state medians on each state page. Manufacturers have 529k open positions nationally (BLS JOLTS).
U.S. manufacturing runs at 75.6% of capacity (Federal Reserve, May 2026). New factory orders are up 2.3% year over year (Census).

Common questions

How do you calculate make-or-buy break-even? Subtract your internal make cost from the supplier buy cost to get the dollar advantage, then divide by your reference cost basis and multiply by 100. With an $18,500 buy benchmark, a $17,200 make cost, and an $18,500 basis, the gap is $1,300, a 7.03% advantage to making in-house.
Does a positive percentage mean I should make the part? In this calculator a positive result means making is cheaper than buying; here making saves 7.03%. A negative result means the supplier is cheaper. Treat anything inside roughly plus or minus 3% as a wash where quality, lead time, and capacity should decide.
What is a good make-versus-buy cost advantage? There is no universal number, but most shops want at least a 5-10% in-house advantage before insourcing, because that buffer absorbs overhead you under-counted and the operational risk of owning the process. The 7.03% in the example is modest and worth pressure-testing against freight and scrap.
Make cost vs buy cost: what should each include? Make cost should carry direct material, direct labor, machine burden, scrap allowance, and a fair share of variable overhead. Buy cost should include the quoted unit price plus inbound freight, tariffs, incoming inspection, and carrying cost. Comparing a fully loaded make cost to a bare supplier price is the classic distortion.
Why use a reference cost basis instead of just the dollar gap? The percentage normalizes the $1,300 gap against the part's scale. A $1,300 edge on an $18,500 part (7.03%) is meaningful; the same $1,300 on a $200,000 assembly is rounding error. The basis lets you rank many parts on one consistent scale.

Last reviewed 2026-05-12.