Make in-house or outsource: practical guide

What to prepare

• Gather supplier quotes, invoices, time records and the actual scope of the job or business decision.
• Separate revenue from VAT, direct costs from overheads, and profit from the timing of cash receipts.
• Use the same accounting period and currency for related inputs.

Understand the inputs

The calculation method

In-house cost = fixed cost + units × internal unit cost. Outsourced cost = setup cost + units × supplier price.

Worked example

Illustrative inputs and their result.

Example inputs

Required units

5000

Avoidable internal fixed cost (€)

30000

Internal variable cost per unit (€)

8

Supplier price per unit (€)

15

Outsourcing setup cost (€)

2000

Calculated example result

In House Cost

€70,000.00

Outsourced Cost

€77,000.00

Crossover Units

4,000

How to interpret the result

A profitable estimate can still create a cash shortfall. Read the cost and timing assumptions as well as the headline profit, price or return; the result is a scenario, not a sales forecast.

Keep the scope constant while changing price, volume, supplier cost or time. A lower-sales or higher-cost case helps show whether the decision depends on an optimistic assumption.

Common mistakes to avoid

• Do not confuse markup on cost with margin on selling price.
• Include work that is easy to miss, such as travel, setup, rework and administration, where the model supports it.
• Do not treat tax collected or an unpaid invoice as freely available cash.

Assumptions and sources

Only avoidable decision costs belong here. Consider capacity, quality, confidentiality and delivery risks alongside the calculated cost.

Related business guides

• Margin & markup pricing: practical guide
• Cost of goods sold: practical guide
• Break-even analysis: practical guide
• Irish corporation tax: practical guide
• Customer acquisition & value: practical guide
• Stock turnover & DSO: practical guide