Should you do it yourself or pay someone else? The question comes up everywhere: making a component or buying it, running payroll or using a bureau, doing your own deliveries or using a courier, keeping bookkeeping in-house or outsourcing it.
The cost side of the decision is simple arithmetic once you separate fixed and variable costs. The other side, control, quality, risk and focus, needs judgement.
So making is cheaper only above a certain volume:
Break-even volume = extra fixed costs per year ÷ (buy price per unit − in-house variable cost per unit)
A small furniture maker buys in 3,000 powder-coated brackets a year at £14 each. It could coat them itself:
| Buy in | Make in-house | |
|---|---|---|
| Yearly cost | 3,000 × £14 = £42,000 | 3,000 × £8.50 + £9,000 = £34,500 |
| Saving | — | £7,500 a year |
At 3,000 a year, making wins. If volume fell below about 1,640, buying in would be cheaper again.
| Factor | Favours making | Favours buying |
|---|---|---|
| Volume | High and steady | Low or uncertain |
| Skill | You have it, or it is a core strength | Specialist, hard to hire |
| Control | Quality or lead time is critical | Standard item, many suppliers |
| Cash | Cash available for setup | Cash needed elsewhere |
| Focus | Close to what customers pay you for | A distraction from the main work |
The biggest risk is volume. If the saving depends on volume you are not sure of, run the calculator at your pessimistic figure. Also count the management time an in-house operation takes; it is easy to leave out because nobody invoices for it.
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