# Nearshoring Break-Even Volume and Payback Calculator

> Source: https://netray.co/tools/nearshoring-break-even-volume-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Compares your current landed cost per unit with a nearshore cost, adds one-time transfer cost and extra fixed overhead, and returns break-even volume and payback months.

## Category

cost-finance

## Region

Mexico

## Industry

Nearshoring manufacturing

## Audience

- CFO
- Operations director
- Plant manager
- Cost accountant

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Current landed cost per unit

**Key:** current_cost

**Type:** number

**Default:** 18.4

**Min:** 0

**Step:** 0.1

**Unit:** USD

**Help:** All-in delivered cost from your current source.

#### Nearshore landed cost per unit

**Key:** near_cost

**Type:** number

**Default:** 17.1

**Min:** 0

**Step:** 0.1

**Unit:** USD

**Help:** Including labor, materials, freight, duty and yield loss.

#### Annual volume

**Key:** volume

**Type:** slider

**Default:** 400000

**Min:** 0

**Max:** 1500000

**Step:** 10000

**Unit:** units

#### One-time transfer cost

**Key:** setup

**Type:** number

**Default:** 1200000

**Min:** 0

**Step:** 50000

**Unit:** USD

**Help:** Tooling moves, qualification, PPAP or FAI, training and dual running.

#### Extra fixed overhead per year

**Key:** fixed

**Type:** number

**Default:** 260000

**Min:** 0

**Step:** 10000

**Unit:** USD

**Help:** Local management, shelter or facility fee, compliance and IT.

#### Working capital released

**Key:** inventory_release

**Type:** number

**Default:** 400000

**Min:** 0

**Step:** 10000

**Unit:** USD

**Help:** From shorter pipeline and lower safety stock.

#### Cost of capital

**Key:** wacc

**Type:** number

**Default:** 10

**Min:** 0

**Max:** 30

**Step:** 0.5

**Unit:** %

**Outputs:**

#### Saving per unit

**Key:** saving_unit

**Expr:** current_cost - near_cost

**Format:** currency

#### Gross yearly saving

**Key:** gross_saving

**Expr:** saving_unit * volume

**Format:** currency

#### Yearly benefit of released working capital

**Key:** capital_benefit

**Expr:** inventory_release * wacc / 100

**Format:** currency

#### Net yearly benefit

**Key:** annual_net

**Expr:** gross_saving - fixed + capital_benefit

**Format:** currency

**Primary:** true

#### Break-even annual volume

**Key:** break_even

**Expr:** if(gt(saving_unit,0), max(0, (fixed - capital_benefit) / saving_unit), 0)

**Format:** integer

**Primary:** true

#### Payback on transfer cost

**Key:** payback

**Expr:** if(gt(annual_net,0), setup / annual_net * 12, 0)

**Format:** months

**Description:** Shows 0 when the net yearly benefit is zero or negative.

**Chart:**

#### Net yearly benefit vs annual volume

**Type:** line

**X:** volume

**From:** 0

**To:** 1500000

**Steps:** 30

**Series:**

- annual_net

**Disclaimer:** Simple steady-state model. It ignores ramp-up, tax effects, discounting of future years, FX moves and price increases on either side. A payback of 0 means no payback at the given inputs.

## Content

**Intro:** A nearshoring case usually dies on a spreadsheet nobody trusts. This calculator reduces it to a few honest inputs: the unit cost difference, the fixed overhead you add, the one-time transfer cost and the cash released from inventory.

**Sections:**

#### How to use it

**Body:** Enter the current delivered cost per unit and the delivered nearshore cost per unit, both on a full landed basis. Then add annual volume, the one-time transfer cost, the extra fixed overhead and any working capital released. The primary results are the net yearly benefit, the volume at which the project breaks even and the payback in months. The chart shows how the benefit grows with volume.

**Bullets:**

- Use landed cost on both sides, with duty, freight and yield loss.
- Include dual running and qualification in the one-time cost.
- Run low, base and high volume cases.

#### Method

**Body:** Saving per unit is the current cost minus the nearshore cost. Gross saving is that times volume. The net yearly benefit subtracts the extra fixed overhead and adds the carrying value of released working capital, taken as the capital released times the cost of capital. Break-even volume is fixed overhead less the capital benefit, divided by the per-unit saving. Payback is the one-time cost divided by net yearly benefit, in months.

#### Worked example

**Body:** At 18.40 dollars today and 17.10 nearshore the saving is 1.30 dollars a unit. At 400,000 units the gross saving is 520,000. Subtract 260,000 of fixed overhead and add 40,000 of capital benefit and the net benefit is 300,000 a year. Break-even volume is about 169,000 units and a 1.2 million dollar transfer pays back in 48 months.

#### Common mistakes

**Body:** The classic errors are comparing an FOB Asia price with a delivered Mexican price, leaving out qualification and customer approval time, underestimating the ramp-up scrap and ignoring that the saving per unit can shrink if the peso strengthens or Asian prices fall. A project with a four year payback is fragile, so test the case at a stronger peso before approving.

**Cta:** Netray can pull current landed cost per item, freight and yield from your ERP so the business case uses actual numbers.

**Faq:**

#### Is break-even volume fixed or variable?

**Answer:** It depends on your inputs. If saving per unit is zero or negative there is no break-even volume. If the fixed overhead is lower than the capital benefit the break-even volume is zero, meaning the project pays at any volume.

#### What belongs in the one-time cost?

**Answer:** Tooling transfer, first article and customer qualification, training, duplicate inventory during the switch, legal setup and travel. Teams most often forget the cost of running two sources until the customer approves the new one.

#### Why add working capital?

**Answer:** Shorter lead times lower pipeline and safety stock. The released cash earns your cost of capital, which is a real benefit even though it does not appear in the unit cost. Use the pipeline calculator to size it.

#### Should I discount future years?

**Answer:** For a final decision, yes. This tool shows a steady-state year and a simple payback. Take the net yearly benefit into a full discounted cash flow before committing capital.

## Search terms

nearshoring break even calculator, reshoring payback calculator, move production to Mexico cost, nearshoring business case, plant transfer payback period, break even volume calculator, offshore vs nearshore total cost

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