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Supplier performance and risk

Supplier switching cost calculator

Enter your yearly spend, the saving the new supplier offers and the one-time costs of moving. You get the payback period and the net gain over three years.

Switching supplier pays when the yearly saving covers the one-time cost within a sensible time. At the default numbers the switch costs USD 77,000 and pays back in 12.8 months.

Written by Procurement VMS Editorial Team · Reviewed by Michael, Procurement Advisor Expert · Updated

Go to the calculator

Your numbers

The boxes start with an example so you can see how it works. Replace them with your own figures.

Your result

One-time cost of switchingUSD 77,000
Yearly savingUSD 72,000
Payback period12.8months

Switching costs USD 77,000 once and saves USD 72,000 a year, so it pays back in 12.8 months and nets USD 139,000 over three years.

One-time cost of switchingUSD 77,000
Yearly savingUSD 72,000
Payback period12.8 months
Net gain over three yearsUSD 139,000

The currency box changes the label only. Enter amounts in the currency you choose.

Free PDF and Excel

Save this result as a PDF guide and an Excel model

Free to download. You enter your name, work email and phone number, and the files are ready at once.

  • PDF guide with the formula, a worked example and a checklist of what to enter
  • Excel model with live formulas, so your own numbers recalculate at once
  • Ready at once after the form, with no account to create

The files open with the example numbers from the page. Type yours over the blue cells in the Excel file. The calculator on this page is free to use without a form.

How the supplier switching cost calculator works

The formula

Payback months = one-time switching cost / yearly saving x 12. Net gain = yearly saving x 3 - one-time cost.

A quote that is a few percent cheaper rarely tells the whole story. Qualifying a new supplier, moving data, changing tooling and running two suppliers at once all cost money before the first saving arrives.

The payback period is the number to watch. A short payback leaves room for things to go wrong. A long payback means that the supplier need only slip a little for the move to lose money.

The example numbers are illustrative and are not benchmarks. Use your own data for any decision.

How to use it with your own data

  1. List every one-time cost, with help from operations, quality and finance.
  2. Use the price in a written quote and apply it to your actual volume.
  3. Compare the payback period with how long you plan to keep the supplier, and test a smaller saving.

Mistakes that skew the answer

Using the headline saving

Prices differ by volume, terms and freight. Compare delivered costs, with the landed cost calculator.

Leaving out the dual running period

Moving volumes takes weeks or months, and you pay for both.

Ignoring risk

A new supplier brings quality and delivery risk. Count the cost of failure as well.

What to do with the result

If the payback is fair, run the supplier through your onboarding and risk checks with the vendor risk assessment template, and compare options with the supplier scorecard. The strategic sourcing guide shows how to structure the exercise.

Questions about the supplier switching cost calculator

How do I calculate the cost of switching suppliers?

Add every one-time cost of the move: qualification, onboarding, tooling, overlap and transition stock. Compare the total with the yearly saving.

What is a good payback for switching?

It depends on risk and contract length. Many buyers look for under a year, and treat anything over two years with care.

Should I include the cost of quality problems?

Yes if you can estimate them. A higher defect rate or late delivery from the new supplier can wipe out the price saving.

Can I use it for services suppliers?

Yes. Replace tooling and stock with handover, retraining and parallel running costs.