Make vs Buy Calculator

Calculate whether it is cheaper to make a product or service in-house or buy/outsource it. Factor in fixed costs, variable costs, and quantity to find the break-even point and optimal decision.

📊 Operations💼 Break-Even Units = Fixed Make Cost / (Buy Cost - Variable Make Cost)
Cost to buy per unit ($)
Variable cost to make per unit ($)
Fixed cost to make (setup/equipment) ($)
Expected annual quantity (units)
Please enter valid values.

Formula & Reference

VariableFormulaUnits
Make vs Buy CalculatorBreak-Even Units = Fixed Make Cost / (Buy Cost - Variable Make Cost)units

Step-by-Step Examples

Example 1
Manufacturing Decision

Buy at $25/unit vs make at $12 variable + $10k fixed, 1,000 units.

  • Buy: 1,000*$25 = $25,000
  • Make: $10,000+1,000*$12 = $22,000
  • Savings from making: $3,000
  • Break-even: $10,000/($25-$12) = 769 units - you're above this
✓ MAKE saves $3,000 at 1,000 units
Example 2
Below Break-Even

Same costs but only 500 units needed.

  • Buy: 500*$25 = $12,500
  • Make: $10,000+500*$12 = $16,000
  • BUY is cheaper at this volume by $3,500
  • Break-even still at 769 units - you're below it
✓ BUY saves $3,500 at 500 units
Example 3
Software vs Build

SaaS license $500/month vs build ($50k fixed, $100 maintenance/month).

  • Buy: $500/month
  • Build: $50k/12 + $100/month = $4,267/month equiv
  • Buy is far cheaper at most realistic usage scales
✓ BUY (SaaS) is almost always better for tools

Real-World Applications

🏭
Manufacturing
Optimize build vs buy decisions for components and assemblies.
💻
Tech Companies
Evaluate build vs buy for software features and infrastructure.
💼
Operations
Apply to any insourcing vs outsourcing decision across business functions.
📊
Strategic Planning
Make vs buy analysis is a core strategic operations decision framework.

Common Mistakes to Avoid

⚠️
Ignoring opportunity cost of management time

Building in-house consumes management attention and technical resources that could go toward core business activities. This cost is real even if it doesn't appear in the spreadsheet.

⚠️
Not including all fixed costs

Equipment, training, dedicated staff, facility space, and maintenance setup are all fixed costs that must be included in the make option.

⚠️
Treating the analysis as purely financial

Consider: speed-to-market, quality control, competitive sensitivity, supplier reliability, and strategic capability before making make vs buy decisions purely on cost.

Frequently Asked Questions

When should I make instead of buy? ▾
When: volume is high enough to recover fixed costs, the capability is a core competitive advantage, you need more control over quality or IP, or the supplier market is unreliable.
When should I buy instead of make? ▾
When: volume is low, the item is not core to competitive advantage, the supplier can do it cheaper and better, or when capital is better deployed elsewhere.
What is the break-even quantity? ▾
The production volume at which total make cost equals total buy cost. Above break-even, making is cheaper. Below break-even, buying is cheaper.
How does make vs buy apply to software? ▾
Build in-house when you need unique competitive differentiation or sensitive data control. Buy SaaS when the functionality is commodity and third-party tools are better maintained.
What is outsourcing and how is it different? ▾
Outsourcing is buying a service/process from a third party. In the make vs buy framework, outsourcing = buy. The analysis still applies: compare internal cost vs outsourced cost at your volume.

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📊 Break-Even📊 Business Overhead📊 Profit Margin💰 Cost-Plus Pricing💰 Price Per Unit