Make vs Buy Analysis Calculator 2025/26

The make option should include all incremental costs: direct materials, direct labour (at fully loaded cost including NI, pension and holiday pay), machine time (at an appropriate overhead rate covering depreciation, maintenance and energy), quality testing, and a share of relevant fixed overheads (management, facilities) if the production would occupy capacity that has an alternative use. Avoid including sunk costs (already spent) or fixed costs that will be incurred regardless of the make/buy decision.

The buy option should include: supplier unit price; inbound freight and handling; import duties and tariffs (for non-UK sourcing); incoming quality inspection; purchase administration; tooling and NRE (non-recurring engineering) costs amortised over expected volumes; currency risk hedging if sourcing in foreign currency; and a buffer for supply disruption (safety stock carrying cost). Outsourcing decisions frequently underestimate these hidden costs — the true landed cost is often 20-40% above the quoted unit price.

Making in-house is typically preferred when: volume is high enough to absorb fixed setup costs and achieve economies of scale; the process is a core competence or competitive differentiator; IP protection is critical; quality requirements exceed what external suppliers can reliably deliver; or the component requires rapid design iterations. The breakeven volume is the point at which total make costs equal total buy costs — below this volume, buying is cheaper; above it, making is cheaper. Make sure to re-evaluate the decision as volumes change.