How do you calculate make vs buy cost?

Multiply annual volume by internal unit cost by utilization, then add tooling investment for total make cost; divide by volume for cost per part. Here 25,000 × $14.50 × 100% + $60,000 = $422,500, or $16.90 per part.

Why does tooling raise the cost per part so much?

Tooling is a fixed cost spread across the year's volume. In the example, $60,000 of tooling over 25,000 parts adds $2.40 per part — pushing the loaded cost from $14.50 variable to $16.90 all-in. Higher volume dilutes that adder.

What does utilization do in the formula?

Utilization scales the variable cost charged to this part. At 100% the full $14.50 variable cost applies. If you can absorb the part into spare capacity, a lower utilization figure reduces the variable burden allocated to it.

What is a good make vs buy outcome?

Make is favorable when the loaded per-part cost — $16.90 here — is below the supplier's delivered price including freight, duties, and quality. If the buy quote lands under $16.90 all-in, buying likely wins on cost alone.

Should tooling be in the per-part number?

For a one-year comparison, yes — you're paying for it. But if tooling lasts five years, the true annualized adder is far smaller, so also run a multi-year view before deciding. The single-year number is conservative toward buying.

Make vs buy — what costs does this miss?

It excludes freight, inbound inventory, supplier quality and lead-time risk, overhead changes, and tooling life beyond one year. Use the $16.90 per-part figure as a cost floor, then layer in total cost of ownership before a final call.

Make-Buy, Outsourcing & Network Design calculator

Make vs Buy Cost Calculator

Make vs Buy Cost computes what it truly costs to produce a part in-house, fully loaded with tooling amortization, so you can compare it against a supplier quote on a like-for-like basis. Sourcing managers, operations leaders, and cost engineers run this on every reshoring, capacity, or new-program decision because the headline supplier price almost never tells the whole story — and neither does an internal unit cost that ignores the tooling you have to buy. By rolling annual volume, internal unit cost, capacity utilization, and tooling into a single total and a per-part number, it gives you the break-even figure that the buy quote has to beat. It is the first number most make-vs-buy business cases are built on.

What this calculator does

Compute the fully loaded internal cost of making a part so it can be weighed against the buy quote.
A sourcing engineer deciding whether to insource a part or keep buying it from a supplier.
It calculates total in-house make cost as annual volume times internal unit cost times utilization, plus the tooling investment, then divides by volume for a fully-loaded cost per part.

Formula used

Make cost = annual volume x internal unit cost x utilization% + tooling investment
Make cost per part = total make cost / annual volume

Inputs explained

Annual part volume: Yearly quantity of the part under the make-or-buy decision
Internal unit cost to make: Fully loaded cost to produce one part in-house
In-house capacity utilization: Percent of the volume actually run internally
In-house tooling investment: One-time tooling or setup cost to make the part

How to use the result

Use it early in a make-vs-buy or reshoring decision to establish the loaded internal cost the supplier quote must beat.
It is a single-year, deterministic comparison — it does not amortize tooling over multiple years, model inventory, freight, quality, or supply-risk costs, so treat the per-part figure as a baseline, not a full TCO.

Current U.S. benchmarks

As of May 2026, U.S. manufacturing runs at 75.6% of capacity (Federal Reserve via FRED), up 0.2 points from a year earlier. Enter your own plant's utilization; the national figure is a reference point for how loaded the industry is.
Sourcing currencies as of 2026-07-02 (Federal Reserve H.10): 6.7886 CNY and 17.4524 MXN per USD. Landed-cost comparisons move with these daily rates.
U.S. iron and steel imports ran $2.1B in May 2026 (Census International Trade). The U.S. ran a trade deficit of $0.4B in the category that month. Import volumes are the pressure gauge behind tariff and reshoring decisions.

Common questions

How do you calculate make vs buy cost? Multiply annual volume by internal unit cost by utilization, then add tooling investment for total make cost; divide by volume for cost per part. Here 25,000 × $14.50 × 100% + $60,000 = $422,500, or $16.90 per part.
Why does tooling raise the cost per part so much? Tooling is a fixed cost spread across the year's volume. In the example, $60,000 of tooling over 25,000 parts adds $2.40 per part — pushing the loaded cost from $14.50 variable to $16.90 all-in. Higher volume dilutes that adder.
What does utilization do in the formula? Utilization scales the variable cost charged to this part. At 100% the full $14.50 variable cost applies. If you can absorb the part into spare capacity, a lower utilization figure reduces the variable burden allocated to it.
What is a good make vs buy outcome? Make is favorable when the loaded per-part cost — $16.90 here — is below the supplier's delivered price including freight, duties, and quality. If the buy quote lands under $16.90 all-in, buying likely wins on cost alone.
Should tooling be in the per-part number? For a one-year comparison, yes — you're paying for it. But if tooling lasts five years, the true annualized adder is far smaller, so also run a multi-year view before deciding. The single-year number is conservative toward buying.

Last reviewed 2026-05-12.