How to use the setup fee unit cost calculator
- Enter the setup fee and the unit price for supplier A.
- Enter the same two figures for supplier B, or leave them blank to look at one supplier.
- List the quantities you might order.
- Read the all-in unit cost at each quantity and the quantity where the two suppliers cost the same.
Formula
All-in unit cost = (setup fee + unit price x quantity) / quantity
The suppliers cost the same when setup A + price A x q = setup B + price B x q
Crossover quantity q = (setup B - setup A) / (price A - price B)
A crossover exists only when the supplier with the higher setup fee has the lower unit price.
A $150 setup fee at $2.00 a unit against a no-setup supplier at $3.00
For 100 units supplier A costs ($150 + $200) / 100 = $3.50 each, while supplier B costs $3.00 each. At 500 units A drops to $2.30, and at 1,000 units to $2.15.
The two cost the same when $150 + $2q = $3q, so q = 150 units. Below 150, supplier B is cheaper, and above it supplier A is cheaper. If supplier B charged $300 of setup at $2.50, no crossover exists, because A has both the lower setup and the lower price.
Why the unit price is not the whole price
A setup fee is spent once for the whole order, so the more you buy the less of it each unit carries. A quote that looks cheap per unit can be the more expensive order for a small run, and the reverse is true for a large one. The all-in unit cost puts both suppliers on the same footing at the quantity you plan to buy.
Setup fees appear in printing, embroidery, plastic molding, custom packaging and many other made-to-order goods. A table of several quantities shows how quickly the fee fades into the price.
Before you order
Quotes often change by quantity band, and the tool uses one price for every quantity. For quantity discounts use the Tiered Pricing Calculator, and for the savings from larger lots the Bulk Buy Savings Calculator. Shipping and duty can change the answer, so add them with the Landed Cost Calculator. The EOQ Calculator then helps decide how much to order each time, if you will order again.
Assumptions and limits
- Each supplier has one setup fee and one unit price for every quantity.
- Quantities are whole numbers and the setup fee is paid once per order.
- The figures shown are examples. Use the quotes you have.
- Shipping, tax and storage are not included.
Frequently asked questions
What if I only have one supplier?
Leave the second supplier blank. The table then shows the unit cost, the total and the share of the total that is setup for each quantity.
Why does the table say Same?
It appears when both unit costs are equal at that quantity, which happens exactly at the crossover if that quantity is in your list.
Can the crossover be a fraction?
Yes. The result is shown with one decimal when it is not a whole number. You can only order whole units, so round up to be safe.
What if both setup fees are the same?
Then the supplier with the lower unit price is cheaper at every quantity, and no crossover exists.