Nearshoring Break-Even Volume and Payback Calculator
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.
Your numbers
All-in delivered cost from your current source.
Including labor, materials, freight, duty and yield loss.
Tooling moves, qualification, PPAP or FAI, training and dual running.
Local management, shelter or facility fee, compliance and IT.
From shorter pipeline and lower safety stock.
Your results
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.
Net yearly benefit vs annual volume
Sweeps Annual volume from 0 to 1500000, holding your other inputs fixed.
Landed cost from real ERP data
Optional: see how item-level landed cost can be pulled for a nearshoring case.
Optional. The tool and every export work without this. No spam.
How to use it
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.
- 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
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
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
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.
Frequently Asked Questions
Is break-even volume fixed or variable?
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?
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?
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?
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.
Netray can pull current landed cost per item, freight and yield from your ERP so the business case uses actual numbers.
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