Own product make in house or send it out?

One of the products I make has been seeing a gradual uptick in sales to the point where I can no longer make them fast enough to meet demand.

I reached out to some shops and the cost to have them made leaves a pretty slim margin. I'm trying to understand if the business model is crap as in the product vs price and also from a design stand point.

Part of the reason for the slim margin is the quantity. I don't have any idea on the market cap which has had me doing them in smaller batches. I do know it's not a fad product which has bit me in the butt before.

So asking what others have done in this situation. I know there is a massive amount of variables and I'm being on the vague side.

Do people normally just go with the hard numbers? As in 10% profit on 10k parts is better than 70% on 1k parts.

Currently employed full time and as much as I would like to jump in full time with my products the money and stability is just too good at the day job right now.

Thanks in advance for any input.

10% margin sounds like shit unless you're talking huge dollar values or low value unit quantities in the millions.

A lot of the stuff I make has pricing based on $100/hr spindle run time. Meaning I make my shop rate+ materials, coatings, packaging, printer ink, etc when it sells.

That also means if I farm it out to a shop to make it for their shoprate I would lose money.

Put a different way, Doing it myself lets me make premium products from premium materials and sell them at a pricepoint that has a high perceived value. If I farmed them out I would have no choice but change things from machined and coated fanciness to punched, cold headed, mass produced, whatever. I could do it, but what's the fun in selling cheap shit?

I do have other shops make parts for me, but I don't pay them in money. I do things like all their programming and part prove outs, fix their machines when they break down, rigging and hauling and of coarse paying for lunch beers.

"Do people normally just go with the hard numbers? As in 10% profit on 10k parts is better than 70% on 1k parts."

I say it depends. How much do I like making the parts? Does it compliment another product? Is shipping and customer service a piece of cake? If shipping is a PITA and the customer base is a bunch of assholes then high volumes is a recipe for burnout. If it's easy and fun to make then the extra work of the higher volume may not be so bad.

Are you worried about someone else stepping in and making them because you can't provide enough to meet demand? If not I don't think outsourcing them would be a good idea. You also are going to have to pay another shop upfront, maybe that money could go towards another machine instead?

Look at it another way, what returns more $ per time invested? Selling / shipping your parts @ 10% margin or working extra O.T. at your current job?

likely you won't find a home shop guy working for under 30 bucks per.

better to figure a better process to make better numbers with your time.

I am in a similar situation, but don’t have another job, I’m doing this full time. I started with one off parts and prototypes for a very specialized industry, so all manual machines here. The demand rapidly increased and I also started making my own products. It is now at a point where it would make sense to have CNC for the high volume repetitive parts, which I am sometimes outsourcing, when possible. However, the parts are often quite demanding in terms of accuracy, for the standards of the CNC shops in a 500 mile radius at least.

If there were shops capable of doing it within that radius, I would outsource without thinking twice, as I am already very tight on space, even after having recently moved to a much larger shop. Yes, the margin would be lower, but the increased productivity would most probably more than make up for it. I would still be busy enough with the prototyping work and the critical parts that do not lend themselves to a higher degree of automation.

The current compromise solution is to outsource the roughing for most parts, and do the critical operations myself on the same parts. Saves some time and wear and tear on the machines that are actually capable of holding tight tolerances, which will probably keep them on that level for a bit longer.

But, I am definitely considering bringing it all in-house at some point in the future. It is not only machines that will be needed, but also workforce. This will allow me more flexibility on how things are planned and done, and will be a lot more bulletproof when it comes to the severe supply chain disruptions we have been experiencing lately.

What would it take in your case to be able to do it yourself? I think this is the main question to ask. What problem would you solve by doing it yourself, instead of outsourcing? What problems would it cause? If doing it yourself means not only more machines, but also hiring a few people, would there still be a big enough difference in the margins to justify it? I generally prefer to outsource anything that could technically be outsourced without detriment, as in my case, there is more than enough work that I cannot possibly outsource, to keep me busy working 16 hour days, plus weekends. I do not have the capacity to do more work myself, anything additional done here would need extra people to do it.

What really puts the dent in the margins in my case is having to ship parts from 500 miles away on a regular basis. If I had a shop nearby that could take on the work, I don’t think I would be making more money by doing it in-house.

Similarly, I am outsourcing simple sheet-metal work and powder coating, as there is really no advantage to having this done here.


Sent from my iPhone using Tapatalk

Can you partially farm it out?

On our products we had a shop do everything. Then we brought plasma in house, then bending, then a laser, then powder coating, and we do everything now.

Determine what services available are the best value, and what equipment you can afford to make your job more efficient.

If you can setup a machine to run them overnight and when you're at work, then go for it. Don't quit your day job unless your side gig can pay more.

With a 10% margin you'd better have calculated your costs accurately; miss something and you'll find yourself losing money.

Wow thank you for the quick replies.

10% was just a rough number but not too much lower than actual number given the quotes I received for the qualities.

If the sales stay around what they have been over the last few months then I would make more making the product myself over working OT. I'm working all the OT that's being offered right now but that's for building up some atta boys with the new management.

Not too worried about some one else making the product. It could be done very easily but I think that goes with most products.

The product doesn't have much to it in the way of painting, laser, forming ect. so partially farming it out I think would be more trouble than its worth. Might be wrong though.

Another machine might be the safest route to go to boost my numbers. I definitely don't want to hire anyone full time but have had friends that would like to run the machines on the weekend for extra spending money. Waste of money right now because I can run what I have alone. If I add another machine then it would make more sense.

Thanks again for the replies.

It is not a hard Q.

If You can only get 10% when outsourcing ..
the product or market is bad, or ..
the supplier is too expensive.

Most/Everyone here on pm is extremely efficient, scaled up..
If one of them cannot make Your widget for 30% less, leaving You a 40% margin on marginal cogs, vs 10%,
I think Your chance of lowering Your production cost meaningfully is == 0.

You will not be able to make the parts for less than the best//better pm members here, no way.
The cost of a machine to make the parts is immaterial, and has little to do with the end-result overall cogs.

About 2/3 of the final cost of a part is in ancillary stuff and logistics and financing.

The guys on pm are about 5x better than you will be in delivering results aka widgets/cost.
The best in the world is flextronics, who make cases for apple iphones.
They are about 50x better than the guys here on pm.
They can do 65 machining ops on an iphone carcass, for 5$.
No-one here will do machining ops for 0.1$ per unit.

Nothing wrong in bringing stuff in-house.
But the total real burdened costs are vastly higher/widget than you think. Imo. Ime.

hanermo said:

It is not a hard Q.

If You can only get 10% when outsourcing ..
the product or market is bad, or ..
the supplier is too expensive.

Most/Everyone here on pm is extremely efficient, scaled up..
If one of them cannot make Your widget for 30% less, leaving You a 40% margin on marginal cogs, vs 10%,
I think Your chance of lowering Your production cost meaningfully is == 0.

You will not be able to make the parts for less than the best//better pm members here, no way.
The cost of a machine to make the parts is immaterial, and has little to do with the end-result overall cogs.

About 2/3 of the final cost of a part is in ancillary stuff and logistics and financing.

The guys on pm are about 5x better than you will be in delivering results aka widgets/cost.
The best in the world is flextronics, who make cases for apple iphones.
They are about 50x better than the guys here on pm.
They can do 65 machining ops on an iphone carcass, for 5$.
No-one here will do machining ops for 0.1$ per unit.

Nothing wrong in bringing stuff in-house.
But the total real burdened costs are vastly higher/widget than you think. Imo. Ime.

Click to expand...

I have had a lot more trouble with outsourced parts, Sometimes there fine, sometimes you end up fixing them, that 10% can turn into a -50% pretty fast.

turnworks said:

Wow thank you for the quick replies.

10% was just a rough number but not too much lower than actual number given the quotes I received for the qualities.

If the sales stay around what they have been over the last few months then I would make more making the product myself over working OT. I'm working all the OT that's being offered right now but that's for building up some atta boys with the new management.

Not too worried about some one else making the product. It could be done very easily but I think that goes with most products.

The product doesn't have much to it in the way of painting, laser, forming ect. so partially farming it out I think would be more trouble than its worth. Might be wrong though.

Another machine might be the safest route to go to boost my numbers. I definitely don't want to hire anyone full time but have had friends that would like to run the machines on the weekend for extra spending money. Waste of money right now because I can run what I have alone. If I add another machine then it would make more sense.

Thanks again for the replies.

Click to expand...

Sounds like if I were in your shoes I'd be focusing on improving throughput first. Can you fit more parts on the machine at once, maybe a bunch of parts from one large piece of stock? Combine multiple operations with 4/5 axis? Cut cycle times with better tooling or different approaches? Eliminate any outsourced ops, maybe replace marking with engraving on the machine? Switch to a material that doesn't need paint / anodize / coating?

mhajicek said:

Sounds like if I were in your shoes I'd be focusing on improving throughput first. Can you fit more parts on the machine at once, maybe a bunch of parts from one large piece of stock? Combine multiple operations with 4/5 axis? Cut cycle times with better tooling or different approaches? Eliminate any outsourced ops, maybe replace marking with engraving on the machine? Switch to a material that doesn't need paint / anodize / coating?

Click to expand...

We have some parts where we have special extrusions made to eliminate a lot of machining and buying material to throw away, without knowing more about the parts we are just spitballing in the dark

Sorry for being vague on the product.

I think I was more aiming at the base choice of keep in house or not. I agree I could do a better job at boosting my numbers with an air mattress and overnight 1.5 hour alarms to swap parts out along with other ideas posted here.

I was having a convo with a friend and his take was if I can't get it made by another and still make a good profit then its not a good business plan. If I was to get a quote for a whole years worth based on my sales numbers then I know I could get the price way down. Honestly that idea just scares the crap out of me fronting all that then something happen like sales drop to nothing and I'm stuck with scrap.

With another machine I could use it for other products or out right sell it if something happened.

Thanks for the replies it gave me some view points I wasn't seeing before.

turnworks said:

Sorry for being vague on the product.

I think I was more aiming at the base choice of keep in house or not. I agree I could do a better job at boosting my numbers with an air mattress and overnight 1.5 hour alarms to swap parts out along with other ideas posted here.

I was having a convo with a friend and his take was if I can't get it made by another and still make a good profit then its not a good business plan. If I was to get a quote for a whole years worth based on my sales numbers then I know I could get the price way down. Honestly that idea just scares the crap out of me fronting all that then something happen like sales drop to nothing and I'm stuck with scrap.

With another machine I could use it for other products or out right sell it if something happened.

Thanks for the replies it gave me some view points I wasn't seeing before.

Click to expand...

When I was in automotive the lowest margin at a company that wasn't about to go out of business was around 6%. That was overall, after paying for employees, retirement funds, loss making service parts, and development, at a place with >100k employees. Most of it was in multi-year contracts. The lower margin items even had customer paid capital. Moving that up to 10% just sounds thin.

If you can make it a lot cheaper by ordering/building a year's worth, can you make it appreciably cheaper by ordering 3 months worth? Given the larger margins (assuming here) from a higher volume, how many can you get stuck holding in a bag and still break even?

I think what's more important than numbers is what you want out of life. If you want to be a shop owner, want to be only responsible to yourself (ha ha, that's not how it really is but anyway), want to be captain of the ship, then you can figure out how to do that. Many of us hardheaded people have done that, when it really doesn't make sense monetarily. A hot dog stand probably does make more money than a machine shop but hey, it's my machine shop !

If you just want to have some fun, do some shows, make some extra money on a thingy you invented, and you like free time and holidays and doing stuff with the wife, then better to be a middleman than a manufacturer. If you build a shop with machines and people and customers, they own you.

The one bright spot is that if you re making a low margin product that wont bear a higher selling price....then no one is going to steal your idea.

I've had to do this because it's taking up to 16 weeks for me to get material and 1-2 weeks for me to do what I need to do. Margins are a quarter of what they should be doing it this way.

I would recommend either upgrading machines to get the extra capacity to run lights out or add another machine to run while you're in the shop. Just make sure you have a way of handling debt if things go south and you didn't pay cash for the machine.

Sounds like price increases are needed all round.....like x2 or more....If the product is any good ,buyers will take the rise ,if buyers refuse,on to the next good idea.

A few thoughts. I do not own a product (yet.)

A small shop that I used to work with, bought material through one of his customers' accounts. Got better pricing. Can you through your employer, and simply pay via your personal/business credit card? Also, don't forget that a big factor on small quantity material orders is delivery. Sometimes delivery isn't broken out on the quote, so the per-pound price looks ridiculous. Ask for a better price if you pick up in will-call. Or if it's delivered on the same truck to your employer. Etc...

If you own & make the product, I can't see anything less than 30-40% margin making sense. When I sold cutting tools, 25-30% was pretty good margin. 20% was doing OK. Big shops buying $1m a year in tooling will probably be paying around 18% on average. In all of these cases - The companies selling the tools are ONLY re-selling the tools. Not manufacturing squat.

You should be able to buy everything for your product - materials, shipping supplies, packing slips, everything - pay yourself for the assembly & packaging, and still clear 30%. Don't forget about all of your non-billable expenses, such as your sales channel, accounting, marketing, etc...





Why would you do anything less to be honest? When you can put money into stocks or 401k and make 10-16% - Why would you settle for anything even close in your own business?




Time to sharpen your pencil, and also increase prices. And what better time. You have inflation to "blame" and a new calendar year just around the corner....

It is *difficult* to make stuff well and efficiently.

It is not hard at all to make excellent stuff. Expensive production.
At efficient yields, it is very hard.

Someone here on PM can make your widget for 50% of your own production cost.
Yes, they can.
While making a decent profit.
Endless reasons, and wherefors.

Aeroplanes, trains, and caterpillars cost about 3-5 $ per kg delivered.
They are about the most important, costly, manufactured goods on the planet.
And last 30 years in heavy industrial use.
You can look it up.

Buying a VMC for your planned use will probably mean your parts cost you 50-200 bucks each per kg.

Yes, Your *marginal* cogs per new piece may be half what you were paying, but your total outlay / product / sales will likely be about what I suggested.
And NO, You cannot use the machine to make extra income while it is "free".
This is a common error.
Then You are directly competing with the guys here on PM who have already excellent established pre and post-process chains for everything like tumbling, packaging, shipping, tooling and a metric trunkload of complex illogical expensive stuff.
Financing. Factoring. Insurance. QC.

The guys on PM can make stuff very well. Often about 2x what flextronics does - around 1$ / op or 5$ / kg of delivered goods.
In their own speciality.
2x flextronics pricing is excellent, by the way. Very hard to do.
Your production costs are likely to be in the 50$ and up bracket, about 50x more than the best here on pm.


If You want to move ops in-house there are lots of good reasons for it.
Price is not one, for low volume goods of low value (aka less than millions per year).

It costs about 3x the price of a machine (73k€) to make a medium level shop somewhat efficient.
I used to sell HAAS - as Gerente commercial. 2010-2012.
We were nr 1 in the world.
The best HAAS factory outlet in the world, 2013, iirc.
Hitec Espana.
So my recommendations are based on about 200 shop visits in 5 countries, plus 2000 cases, plus 20k plus cases we learned from over 25 years.