The make or buy decision for business services

Key takeaways

The make or buy decision asks whether to produce a service with your own people (make) or buy it from a provider (buy). For business services, make what is strategic or needs deep context, and buy what is standard, measurable and cheaper to source. Compare full costs over 3 years, not the first month.

• Make: strategic work that differentiates you from competitors.
• Buy: standard, repeatable work that providers do at scale.
• Compare full costs over 3 years, including exit.
• Check capability, risk and control, not just price.

What is a make or buy decision?

A make or buy decision is a choice between producing a product or service internally and buying it from an external supplier. In manufacturing it applies to components; in services it applies to functions such as customer support, finance admin, marketing or software. The UK Government's Sourcing Playbook uses the same logic for public services.

• In-house vs outsourcing: which model is more cost-effective?

Which factors decide make or buy?

Five factors decide most make or buy choices for SMEs: strategic importance, cost, capability, volume and risk. Price alone is a poor guide, because a cheaper purchase can create dependency on a provider for work that should be yours.

• Strategic importance: does it make you different?
• Cost: full in-house cost against full purchase cost.
• Capability: can you do it well, and keep doing it well?
• Volume: is there enough to keep an internal team busy?
• Risk: what happens if the person or provider fails?

• The in-house vs outsourcing cost scorecard

How do you cost a make or buy decision?

Cost the make option at the fully loaded rate: salary, employer National Insurance at 15% above £5,000, pension, holiday, recruitment, training, equipment and management. Cost the buy option at the provider price plus setup, your oversight and exit terms. Compare both over three years so one-off costs are spread fairly.

• Total cost of ownership of an in-house team

What does a worked example look like?

An SME needs first-line customer support for 50 hours a week. Make: two part-time hires at a combined £40,000 salary cost about £45,300 a year after employer costs, plus about £4,000 in overheads and a recruitment cost each time someone leaves. Buy: 50 hours at an indicative £12 per hour is about £31,200 a year, with cover included.

Over three years, make costs about £148,000 and buy about £94,000 plus setup. Buy wins on cost; make wins only if support is a key differentiator.

When should you make rather than buy?

Make when the work is your competitive edge, when it needs judgement built over years, when volume keeps a team fully busy, or when no provider can meet the standard. Also make when the knowledge involved is so sensitive or specific that writing it down for someone else would be risky or impractical.

• Core vs non-core activities: what to keep in-house

When should you buy rather than make?

Buy when the work is standard across businesses, can be documented and measured, fluctuates in volume, or needs cover you cannot staff economically. Buying also makes sense for skills you need occasionally but cannot justify full-time.

• BPO Solutions for UK businesses

Is there a middle option?

Yes. Co-sourcing keeps a small internal team working alongside a provider, and a hybrid model keeps core work in-house while buying the volume. These options give control and cost savings together, and let you move the balance over time.

• Co-sourcing vs outsourcing: sharing the work
• The hybrid model: part in-house, part outsourced

What mistakes skew a make or buy decision?

Most poor make or buy decisions come from comparing incomplete numbers or from treating a strategic question as a purchasing one. Checking for these mistakes takes minutes and often changes the answer.

• Comparing salary with a provider price, ignoring employer costs and overheads.
• Ignoring idle time in the make option.
• Ignoring your own oversight time in the buy option.
• Buying work that is actually your competitive advantage.
• Deciding once and never reviewing as volumes change.

• Outsourcing cost myths that skew the decision

What does this look like in practice?

A pattern we see in UK trades businesses: the owner makes quotes and surveys in-house, because pricing judgement is the business, and buys call answering, booking and invoice chasing. The make or buy line sits exactly where judgement stops and process starts.

• See client work

Make or buy checklist

Work through these for each function.

• Rate strategic importance from low to high.
• Cost the make option fully loaded over 3 years.
• Cost the buy option with setup, oversight and exit.
• Check capability and quality on both sides.
• Assess the risk if the person or provider fails.
• Decide, then review after 6 months.

Next step

Tell us the function you are deciding on. We will cost make and buy side by side over three years in a 30-minute call.