How do you calculate make vs buy cost?

Make cost equals internal unit cost times volume plus fixed overhead. Buy cost equals supplier price plus freight plus quality loss, all times volume. With the example inputs, make is $465,000/yr and buy is $506,250/yr, so making saves $41,250/yr.

Should I include overhead in a make vs buy decision?

Only the overhead that genuinely changes. The default treats $24,000/yr of internal fixed overhead as staying regardless, which is why the make cost is higher per unit but still wins overall. If outsourcing truly eliminates that overhead, remove it from the make side.

Why is the buy unit cost higher than the supplier price?

Because the supplier price of $10.65 is not landed cost. Adding $0.42 freight and $0.18 quality loss brings the true buy unit cost to $11.25, which is the number you should compare against your $9.80 internal cost.

What is supplier quality loss?

It is the per-unit cost of defects that slip through from the supplier: sorting, returns, rework, line stoppages, and scrap. Even a small figure like $0.18 per unit compounds to $8,100 a year at 45,000 units and can flip a close decision.

Make vs buy: when does buying win?

Buying wins when the landed unit cost beats your internal unit cost by enough to cover the fixed overhead you cannot shed. In the example the gap is too small, so making is cheaper by $41,250; lower volume or higher overhead would push it the other way.

Does a positive savings number always mean make in-house?

Numerically yes, but check what the overhead and capacity assumptions hide. If keeping the part in-house blocks higher-value work or requires capital you have not costed, the financial winner may still be the wrong strategic choice.

Costing calculator

Make vs Buy Calculator

A make-versus-buy analysis compares the full annual cost of producing a part in-house against the landed cost of buying it from a supplier, including freight and the hidden cost of supplier quality problems. Sourcing managers, plant controllers, and operations leaders use it when capacity is tight, when a supplier sends an unsolicited quote, or when a long-running part is up for re-sourcing. It matters because the headline supplier price almost never tells the whole story: internal fixed overhead does not disappear when you outsource, and freight and quality escapes can quietly erase a tempting unit price. Running the real numbers stops a decision from being driven by the sticker price alone.

What this calculator does

Compare internal manufacturing cost against supplier purchase cost after freight, quality, and overhead.
Use when deciding whether to insource a part, outsource it, or keep current sourcing.
It computes the total annual make cost (unit cost times volume plus fixed overhead) versus the total annual buy cost (supplier price plus freight plus quality loss, times volume) and reports the savings.

Formula used

Make annual cost = internal unit cost × volume + internal overhead
Buy annual cost = (supplier price + freight + quality loss) × volume
Savings = buy cost − make cost

Inputs explained

Internal unit cost: undefined
Supplier price: undefined
Freight per unit: undefined
Supplier quality loss: undefined
Internal fixed overhead: undefined
Annual volume: undefined

How to use the result

Use it when evaluating outsourcing a part, responding to a supplier quote, or justifying keeping production in-house during a capacity or capital decision.
It treats internal fixed overhead as unavoidable and outside the buy scenario; if outsourcing actually lets you shed that overhead or free capacity for higher-margin work, the comparison shifts and you must model that separately.

Current U.S. benchmarks

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 vs buy cost? Make cost equals internal unit cost times volume plus fixed overhead. Buy cost equals supplier price plus freight plus quality loss, all times volume. With the example inputs, make is $465,000/yr and buy is $506,250/yr, so making saves $41,250/yr.
Should I include overhead in a make vs buy decision? Only the overhead that genuinely changes. The default treats $24,000/yr of internal fixed overhead as staying regardless, which is why the make cost is higher per unit but still wins overall. If outsourcing truly eliminates that overhead, remove it from the make side.
Why is the buy unit cost higher than the supplier price? Because the supplier price of $10.65 is not landed cost. Adding $0.42 freight and $0.18 quality loss brings the true buy unit cost to $11.25, which is the number you should compare against your $9.80 internal cost.
What is supplier quality loss? It is the per-unit cost of defects that slip through from the supplier: sorting, returns, rework, line stoppages, and scrap. Even a small figure like $0.18 per unit compounds to $8,100 a year at 45,000 units and can flip a close decision.
Make vs buy: when does buying win? Buying wins when the landed unit cost beats your internal unit cost by enough to cover the fixed overhead you cannot shed. In the example the gap is too small, so making is cheaper by $41,250; lower volume or higher overhead would push it the other way.

Last reviewed 2026-05-12.