The Breakeven Volume Rule
I advise shops to buy a machine when the annual volume exceeds about 500 parts. Below that, outsourcing is cheaper. Above it, the machine investment pays off within 2-3 years.
The 500-part rule is a starting point. The actual breakeven shifts with part size, material, tolerance, and the shop’s existing capabilities. I have seen shops that broke even at 200 parts because they already had a suitable machine and only needed the drilling attachment. I have also seen shops that needed 1000 parts to justify the investment because they needed a complete machine and coolant system.
| Factor | Lowers Breakeven | Raises Breakeven |
|---|---|---|
| Part complexity | Simple through-hole | Tight tolerance, blind hole |
| Material | Steel, cast iron | Titanium, Inconel |
| Existing equipment | Has CNC with live tooling | Needs complete machine |
| Tolerance | +/- 0.1mm | +/- 0.02mm |
| L/D ratio | Under 20:1 | Over 40:1 |
Cost Breakdown by Part Type
Outsourcing costs vary widely by part geometry and material. I track the per-hole costs across different job types to help shops compare.
| Part Type | Diameter | Depth | Material | Outsource Cost Per Hole | Est. In-House Cost Per Hole |
|---|---|---|---|---|---|
| Simple hydraulic manifold | 10mm | 200mm | 1018 steel | $8 | $3 |
| Valve body with cross holes | 12mm | 300mm | 4140 steel | $22 | $7 |
| Aerospace landing gear pin | 20mm | 600mm | 4340 steel | $55 | $18 |
| Medical implant component | 4mm | 80mm | 316 stainless | $35 | $12 |
| Oilfield tool joint | 25mm | 800mm | 4130 steel | $45 | $15 |
The in-house costs assume a paid-off machine, one operator running two shifts, and standard tooling. Adding a machine payment to the calculation increases the per-hole cost by 30-50% for the first three years.
The Machine Investment
A new gun drilling machine with a high-pressure coolant system costs $80,000 to $250,000 depending on size and capabilities. A used machine in good condition runs $30,000 to $80,000.
| Machine Type | New Cost | Used Cost | Max Diameter | Max L/D |
|---|---|---|---|---|
| Single-spindle small | $80-120k | $30-50k | 25mm | 60:1 |
| Single-spindle medium | $120-180k | $50-80k | 40mm | 80:1 |
| Production multi-spindle | $180-250k+ | $80-120k+ | 50mm | 100:1 |
| CNC lathe retrofit | $8-15k | N/A | 20mm | 10:1 |
I recommend that shops start with a used machine and one experienced operator. This minimizes the initial investment while building drilling capability. After 18 months, the shop knows their actual volume and can decide whether to buy new equipment.
Non-Financial Factors
Money is not the only consideration. Outsourcing gives flexibility but less control. In-house gives control but requires ongoing investment.
I have worked with shops that outsourced all their drilling and had excellent results because they had a strong relationship with a contract driller. I have also seen shops that brought everything in-house and struggled because they underestimated the training and setup time.
| Factor | In-House | Outsourcing |
|---|---|---|
| Lead time control | Full | Dependent on supplier |
| Quality control | Direct | Relies on supplier’s system |
| Design iteration speed | Fast | Slower, communication delays |
| Capital required | High | None |
| Operator training needed | Yes | No |
| Machine utilization risk | You carry it | Supplier carries it |
| Scalability | Limited by capacity | Usually more flexible |
Hidden Costs of Each Approach
Some costs do not show up in the per-hole calculation but affect the total cost of ownership.
For in-house drilling:
- Training time: A new operator takes 3-6 months to become productive. During that time, the shop pays full wages for partial production.
- Consumable tooling: Gun drills cost $50-300 each and last 50-500 holes depending on material. Regrinding costs $15-40 per tool.
- Coolant system maintenance: Filters, seals, and coolant concentrate add $200-500 per month.
- Machine downtime: A dedicated machine that is idle costs the same monthly payment as one that is running.
For outsourcing:
- Shipping costs: Parts going to and from the contract driller add $50-200 per shipment.
- Communication overhead: Each design change requires a phone call or email exchange.
- Lead time buffer: Outsourced parts need 2-4 weeks lead time, which ties up work-in-process inventory.
- Quality risk: The shop is responsible for the part quality to its customer even if the drilling contractor made the error.
I include these hidden costs in my analysis. The upfront numbers favor outsourcing, but the hidden costs can tip the balance toward in-house for parts with tight tolerances or frequent design changes.
Case Studies from My Experience
I have worked with three shops that went through this decision. Their outcomes illustrate how the factors play out.
Shop A was a hydraulic manifold shop running 400 parts per year with 12mm x 200mm holes. The outsource cost was $12 per hole. The in-house cost with a used machine was $4 per hole. They bought a used gun drill for $45,000 and broke even in 18 months. They now run the machine on two shifts.
Shop B was an aerospace job shop with 150 parts per year of varying geometries. The outsourcing cost was $35-55 per hole depending on the part. The investment for a machine that could handle the full range was $180,000. They chose to continue outsourcing and built a strong relationship with a contract driller who handles all their work.
Shop C was a general machining shop that wanted to add deep hole drilling capability as a service offering. They bought a new machine for $150,000 with a coolant system. The volume was uncertain but they priced the service at $25 per hole for common sizes. The machine paid off in 3 years through a mix of in-house work and outside jobs.
How I Help Shops Decide
I walk through a simple calculation with every shop considering the investment.
First, get quotes on 10 representative parts from three contract drillers. This gives the outsource baseline.
Second, calculate the in-house cost using $85 per hour for machine time, $35 per hour for operator labor, and $15 per hole for tooling. Include 20% overhead on both numbers.
Third, plot the breakeven chart. The intersection of the total outsource cost line and the total in-house cost line is the breakeven volume. If the shop runs that volume or more per year, the investment makes financial sense.
Key Takeaways
The 500-part-per-year rule gets the conversation started, but the real decision depends on part complexity, tolerance, and the shop’s existing equipment. I recommend starting with outsourcing for new work until the volume is proven. When the volume is there, a used machine with a good operator is the smartest entry into in-house drilling.