Quick answer
A make or buy decision comes down to one sum: your avoidable fixed cost of making the part in-house, divided by what you save on each unit (the supplier's price minus your own variable cost). The answer is the number of units a year you need to beat the supplier. If your steady volume sits well above it, and you have the space, skills and a repayment that survives a quiet month, making it yourself can be worth funding.
Key points
- Break-even units = avoidable fixed cost ÷ (supplier price − your variable cost per unit).
- Count only costs that would genuinely disappear or appear — not overheads you pay either way.
- Test the answer against your lowest realistic volume, not this year's best.
- Manufacturing input prices rose 10.7% over the 12 months to June 2026 — suppliers are passing costs on, but your own materials and energy are rising too.
- Borrow for the machine only after the scorecard says make; if it says not yet, keep buying and revisit.
Your supplier’s latest price list has landed, the increase is bigger than you budgeted for, and a thought you’ve had before comes back: “I could just make this myself.” Sometimes you’re right. Sometimes the machine ends up as an expensive ornament in the corner of the workshop.
The difference is rarely gut feel. It’s a handful of numbers and a few honest questions — which is what this guide walks you through, coach-style, before anyone talks about borrowing.
Why are more manufacturers asking “make or buy” right now?
Because input costs have been moving. The ABS Producer Price Indexes for the June quarter 2026, as reported by Australian Manufacturing, showed manufacturing input prices up 0.9% in the quarter and 10.7% over the 12 months, with output prices up 8.5% over the year. Petroleum and coal products supplied to manufacturers jumped 25.4% in the quarter. You can check the original figures in the ABS release.
Two things follow. Your supplier’s price rises are probably real, not opportunistic. And the materials, power and freight you would pay to make the part yourself are rising too — so the saving you imagined may be smaller than last year’s quote suggests. Re-run the numbers with current prices rather than the ones in your head.
What is the make or buy break-even sum?
It’s one line:
Break-even units a year = avoidable fixed costs ÷ (supplier price per unit − your variable cost per unit)
- Avoidable fixed costs are costs that appear only if you make it: machine repayments, servicing, insurance, an operator’s wage, any extra floor space or power connection, training and tooling.
- Variable cost per unit is what each extra unit costs you to make: materials, power, consumables and the labour time that scales with volume.
- Supplier price per unit includes freight and any minimum-order waste, not just the quote.
If you expect to need more than the break-even number every year, making it can win. If you’re near or below it, the supplier is cheaper once everything is counted.
The classic trap is allocating overheads. Your rent, your own pay and your accountant’s fee don’t change whether you make this part or not, so they don’t belong in the sum. Only count what would genuinely change.
What does it look like with real numbers?
Illustrative example only, not a quote or a client. A small metal fabrication business buys laser-cut brackets from a supplier at $18 each, about 6,000 a year. Buying a cutter would cost roughly $120k.
| Item | Illustrative figure |
|---|---|
| Supplier price per bracket (delivered) | $18 |
| Own materials, power and consumables per bracket | $5 |
| Extra labour per bracket | $2 |
| Saving per bracket | $11 |
| Machine repayments, servicing and insurance a year | $34,000 |
| Part-time operator, training and extra power a year | $12,200 |
| Avoidable fixed cost a year | $46,200 |
| Break-even | 4,200 brackets a year |
At 6,000 brackets a year the business saves about $19,800 after covering the machine’s costs (6,000 × $11 − $46,200). If volume slides to 4,200, the saving is zero. Below that, making it costs more than buying.
Notice what the sum shows: a 30% drop in volume wipes out the benefit. That’s why you test the low case, not the best one.
The 6-point make or buy scorecard
The sum covers cost. These six questions cover everything else. Score 2 for a clear yes, 1 for “sort of”, 0 for no.
- Is volume steady? Is the demand for this part predictable year to year, with at least 30% headroom above break-even?
- Do you have the space and utilities? Floor area, three-phase power, ventilation, compressed air, safe access.
- Do you have the skills? Someone who can run, set up and maintain the machine, or a realistic plan to hire or train them.
- Is quality in your hands? Can you hold the tolerance and finish your customers expect, and is there a plan for scrap and rework?
- Does it free up cash or tie it up? Count raw material stock and the cash tied up in the first few months of setup before the savings arrive.
- What if the supplier cuts you a deal? Have you actually asked? A volume commitment or a longer contract sometimes closes most of the gap without buying anything.
| Score | What it suggests |
|---|---|
| 10–12 | Strong case to make in-house. Move on to funding. |
| 6–9 | Promising but fix the weak spots first, such as a pilot run or a skills plan. |
| 0–5 | Keep buying for now and revisit when volume or capability changes. |
What about tax and depreciation on the machine?
The tax treatment changes the real cost of the machine, so ask your accountant before you commit. In broad terms, the ATO’s instant asset write-off lets small businesses (aggregated turnover under $10 million) deduct the cost of eligible assets under a set threshold in the year they’re first used or installed ready for use. The Government’s 2026–27 Budget announced the $20,000 threshold would be made permanent from 1 July 2026; check the ATO’s page for the current position.
Most production machines cost well above that figure, so they’re usually depreciated over their effective life instead. Don’t buy a machine for the deduction — a deduction only returns part of what you spent. Build the decision on the make-or-buy numbers and treat tax as a bonus.
Should you borrow to buy the equipment?
Only after the scorecard says “make”. Then use the same discipline as our good debt vs bad debt test:
- Match the term to the machine’s life. A five-year loan on a machine that’ll work for ten is a sensible fit. A two-year term on the same machine squeezes cash flow without need.
- Test the repayment against your quietest month. Use the avoidable-fixed-cost figure above. If the business can’t carry it in its slowest month, the case is weaker than the break-even sum implies.
- Keep a buffer for setup. Training, tooling, material stock and a slow ramp-up can eat several months of the saving. Our cash runway guide shows how to check you can ride that out.
- Choose the structure deliberately. An unsecured or cash-flow-based facility suits smaller machines and quicker decisions. A property-secured loan can suit bigger purchases when you own suitable property, and it generally means a larger amount over a longer term. Which one fits depends on your situation. See our equipment goal page for the trade-offs.
Not sure which structure matches your numbers? Our 2-minute funding profile takes your stage, trading history and goal and shows the options that fit, and you can start an enquiry here whenever you’re ready — no credit check when you first enquire.
What else should you check before committing?
- Ask for a trial run. Some equipment dealers will let you test your material. A short pilot run tells you the real variable cost per unit — usually higher than the brochure.
- Get two supplier quotes. If you haven’t gone back to the market in over a year, the price increase may not be the market’s. A competing quote either fixes the problem or confirms your sum.
- Keep the supplier on the books. Even if you make most of it, a supplier you’ve kept warm is your backup when the machine is down.
- Check government support. business.gov.au lists current grants and programs for manufacturers. Status and funding change, so check the listing rather than assuming a program is open.
- Reflect on timing. Buying just before your busiest season means learning on live orders. Installing in a quieter period gives you room to make mistakes cheaply.
When is “not yet” the right answer?
Honest coaching sometimes says wait. Keep buying if:
- your volume is below or near break-even, or lumpy from month to month;
- a few big customers account for most of the demand for the part;
- you don’t have anyone to run the machine and no realistic way to get them;
- you’d need to stretch your cash so thin that a slow quarter becomes a crisis.
If that’s you, the best use of your time may be negotiating with your supplier, trimming the part count or tightening your pricing so you’re not absorbing the increase yourself. You can come back to the sum in six months with fresh numbers.
Got a “make” result? Let’s work out how to fund it
If your sum and scorecard both point towards making it yourself, the next question is how to pay for the machine without putting strain on cash flow. That’s where we can help: we look at your stage, turnover and any property you own, and match the structure that fits rather than sending you a list of products.
Enquiring takes about 60 seconds, and your credit file isn’t touched just for asking. We don’t send your details to a pile of lenders — a real person reads your answers and rings you to talk it through. The more accurately you fill in the form (the amount, the purpose and your monthly deposits), the better the first match will be.
Frequently asked questions
What is a make or buy decision?
It's the choice between producing a part or product yourself and buying it from a supplier. You compare the costs that would actually change under each option, then add the things numbers miss: capacity, skills, quality control, lead times and risk.
How do you calculate make or buy break-even?
Divide the extra fixed costs of making in-house (machine repayments, servicing, insurance, an operator, extra space) by the saving per unit (supplier price minus your own materials, labour and power per unit). The result is the yearly volume where the two options cost the same.
Which costs should I leave out of a make or buy comparison?
Leave out overheads you'll pay either way, like the existing rent, the owner's wage and the accountant. Only include costs that would appear if you make it, or disappear if you stop buying it.
Can I write off a machine I buy to make parts in-house?
Possibly. The $20,000 instant asset write-off for small businesses (turnover under $10 million) applies per asset costing less than the threshold, and larger machines are generally depreciated over time. Check the current rules on ato.gov.au and ask your accountant before you buy.
Should I borrow to buy production equipment?
Only if the scorecard supports making it yourself and the repayment fits your quietest month. The loan should run no longer than the machine's useful life. Our good debt vs bad debt test is a useful second check.
When is it better to keep outsourcing?
When your volume is below break-even, uneven or uncertain, when you lack the skills or space, or when the supplier offers specialist quality you can't match. Tying up cash in a machine that sits idle is a common mistake.