Why the make or buy decision affects margins
Every Swiss SME, at some point, faces a recurring question: is it better to carry out an activity with your own resources or entrust it to an external supplier? The right answer is not found by comparing only an employee's hourly cost with an outsourcer's quote. Margins, service quality, operational flexibility, and strategic risk all come into play.
In Switzerland, where labour costs and social contributions (OASI, DI, EO, occupational pension, accident insurance) significantly affect the full cost of an employee, the temptation to outsource to "save money" is understandable. But outsourcing without a structured analysis can generate hidden costs — handovers, dependence on a single supplier, loss of internal know-how — that silently erode profitability.
This guide offers a concrete method for making make or buy decisions based on your company's real numbers, with particular attention to the Swiss regulatory and tax context.
The make or buy framework in four steps
Before signing a contract or hiring a new profile, follow this path to avoid decisions based on intuition:
Define the scope of the activity
Precisely delineate what the function under evaluation includes. "Accounting" and "payroll management" are different areas; "production of component A" and "final assembly" may follow opposite make or buy logic. A vague scope produces unreliable comparisons.
Calculate the full internal cost
Add gross salary, employer social contributions (approximately 15–25% of salary in Switzerland, including occupational pension), indirect costs (rent, software, training, supervision time), depreciation, and opportunity costs — i.e. the revenue those hours do not generate if staff could be deployed on higher-value activities.
Compare with the total external offer
Include in the supplier's quote: recurring fees, onboarding costs, contractual penalties, internal coordination expenses, any transition costs, and VAT (generally 8.1% on services, deductible as input tax if you are registered for VAT). Always ask for an estimated annual cost, not just the monthly fee.
Assess non-monetary factors
Quality control, response times, data confidentiality (nFADP), operational continuity, scalability, and strategic alignment. A core activity — the one that differentiates your offering in the market — is rarely worth outsourcing, even if the supplier costs less.
Comparison table: make vs buy
Here is a concise comparison of the criteria that guide the decision in Swiss SMEs:
| Criterion | Make (in-house) | Buy (external) |
|---|---|---|
| Variable cost | Fixed: salaries and contributions even in low-activity periods | Proportional to volume: you pay for what you consume |
| Swiss labour cost | Salary + employer social contributions (approx. 15–25%, including occupational pension) | Flat fee or usage-based, with no direct social charges |
| Control and quality | Maximum: internal processes, immediate feedback | Depends on the contract and agreed SLA |
| Know-how | Builds up and stays in the company | Risk of losing internal skills |
| Scalability | Requires hiring, training, space | Quickly adaptable up and down |
| Time to market | Slow: recruiting and ramp-up in Switzerland take months | Fast: activation in days or weeks |
| Operational risk | Absences, turnover, employment contract constraints (CO art. 319 et seq.) | Supplier dependence, service interruption, contractual lock-in |
| Data protection | Direct control, internal nFADP compliance | Requires DPA and verification of data processing (nFADP art. 9) |
| Tax treatment | Personnel costs fully deductible | External expenses deductible; watch for services at the boundary of dependent employment |
| Ideal for | Core activities, high and stable volumes, critical control | Support functions, seasonal peaks, rare specialist skills |
How to calculate the full internal cost
The most common mistake in SMEs is comparing the net salary received by the employee with the supplier's invoice. The real cost to the company is significantly higher:
Components of internal cost
- Annual gross salary — contractual base
- Employer social contributions — OASI/DI/EO (~5.3%), ALV (1.1% up to the ceiling), family compensation fund (varies by canton), occupational pension (varies), accident insurance
- 13th salary and holiday pay — if provided contractually or by usual cantonal practice
- Indirect costs — share of rent, utilities, software, equipment
- Training and onboarding — amortised over the period of use
- Supervision time — hours of the owner or manager dedicated to oversight
Numerical example — services SME in Ticino
An administrative employee with an annual gross salary of CHF 72,000 generates an employer cost of approximately CHF 85,000–88,000 (contributions included). Adding CHF 8,000 in indirect costs and CHF 4,000 in owner supervision time, the full cost rises to approximately CHF 97,000–100,000/year.
An external fiduciary for ordinary accounting and VAT returns might cost CHF 18,000–30,000/year depending on the volume of entries. But if the internal administrative activity also includes invoicing, client management, and management reporting, the comparison must cover the full package — not accounting alone.
Typical areas: what to keep in-house and what to outsource
There is no universal answer, but Swiss SMEs converge on some recurring patterns:
"Make" often makes sense
- Core product production — what customers choose you for
- Direct commercial relationship — sales and strategic client management
- Final quality control — responsibility towards the end customer
- Activities with high, stable volumes — fixed internal cost is amortised
- Sensitive data and trade secrets — outsourcing carries excessive risk
"Buy" often makes sense
- Accounting and audit — specialist expertise, ongoing regulatory updates
- Payroll and social contributions — cantonal complexity and frequent deadlines
- IT infrastructure and cybersecurity — update costs and rare skills
- Cleaning, logistics, plant maintenance — non-strategic activities
- Seasonal peaks or temporary projects — avoids costly fixed-term hiring
How a wrong choice erodes margins
Operating margins in Swiss SMEs — often between 10% and 25% depending on the sector — are sensitive to make or buy decisions taken without analysis. Here are three concrete erosion scenarios:
Scenario 1: Outsourcing too early
A manufacturing company outsources production of a standard component when internal volume would already exceed 2,000 units/year. The external supplier applies a 30% markup and imposes a minimum order. The expected savings on personnel costs turn into an 18% increase in unit cost, eroding gross margin on that product.
Scenario 2: Producing in-house for too long
A consulting SME maintains an internal IT department (2 people, full cost CHF 210,000/year) to manage cloud infrastructure that a specialist MSP could deliver for CHF 60,000/year. The CHF 150,000 difference — equivalent to roughly 3 percentage points of margin on revenue of CHF 5 million — remains invisible until a comparative analysis is done.
Scenario 3: Forgetting transition costs
Moving from an internal accounting system to an external fiduciary involves data migration, training, and a period of dual management. If not quantified in the business case, the expected annual savings materialise only in the second or third year — and in the meantime margins take a temporary but significant hit.
Swiss specifics not to underestimate
Sham self-employment risk
Outsourcing a function to an individual who works exclusively for you, with hours and tools imposed by the company, may be reclassified as an employment relationship by the authorities (OASI, cantonal). Consequences include retroactive social contributions, penalties, and tax reclassification. Always prefer suppliers with a corporate structure and multiple clients.
Record-keeping and audit obligations
Even when outsourcing accounting, responsibility towards the tax authority and auditors remains with the company (CO art. 957 et seq.). Ensure the contract provides for regular delivery of documents, access in case of audit, and compliant retention (10 years for accounting documents, CO art. 958f).
Cross-border data transfers
If the supplier processes personal data of clients or employees outside Switzerland, verify compliance with the nFADP (art. 16–17) and standard contractual clauses approved by the FDPIC. For accounting and tax data, many Swiss SMEs prefer suppliers with servers in Switzerland or at least in the EEA.
VAT implications
Outsourced services are generally subject to the 8.1% VAT rate. If your SME is registered for VAT, the tax is deductible as input tax. For services from foreign suppliers not registered for VAT in Switzerland, assess the reverse charge obligation (VAT Act art. 45). These aspects affect the effective net cost of buy.
Quick decision matrix
Use this matrix for an initial assessment. The more criteria fall in the "Buy" column, the stronger the case for outsourcing — but always verify with the numbers:
| Key question | Tends towards Make | Tends towards Buy |
|---|---|---|
| Is the activity core business? | Yes — it differentiates your offering | No — support function |
| Estimated annual volume | High and stable (> 1,500 hours/year) | Low or variable (< 500 hours/year) |
| Expertise available internally | Yes, with room for improvement | No, complex recruiting would be needed |
| Need for direct control | High — critical quality or sensitive data | Low — standardised process |
| Time horizon | Long (> 3 years) | Short or uncertain (< 2 years) |
| Qualified suppliers available | Few or expensive | Several, with clear SLAs and references |
Contract and governance: protecting margins in buy
When the decision is buy, the contract is the tool that turns expected savings into concrete results. Essential elements for Swiss SMEs:
- →Measurable SLAs — response times, minimum quality, penalties for non-performance. Avoid generic clauses such as "professional service".
- →Indexed pricing and annual review — set an adjustment mechanism (e.g. Swiss consumer price index) to avoid unilateral increases.
- →Termination and reversibility clause — provide a reasonable notice period (3–6 months) and an obligation to return data in a readable format.
- →Non-dependence clause — maintain at least one qualified alternative supplier or the ability to bring the activity back in-house within a defined timeframe.
- →Confidentiality and DPA — data processing agreement compliant with the nFADP, specifying server location and sub-suppliers.
When to review the decision
Make or buy is not a final choice. Review it at least once a year or when these triggers occur:
Volume growth
An outsourced activity that triples in volume may become more expensive than the in-house alternative. Recalculate the break-even.
Supplier price change
Increases above 10% per year without a corresponding improvement in service justify a tender or a rethink towards make.
Strategic shift
If a support activity becomes differentiating (e.g. data analytics), consider bringing it back in-house to protect your competitive advantage.
Decision support with Accountex
A solid make or buy decision starts from reliable accounting data. With Accountex you can analyse cost structure by cost centre, compare internal and supplier expenses over time, and simulate the impact of outsourcing on operating margins — all in compliance with Swiss accounting standards (Swiss GAAP FER).
Record invoices from outsourced suppliers with the correct VAT allocation, monitor service cost trends against revenue, and generate reports showing gross margin evolution by business area. That way your next make or buy meeting is based on verifiable numbers, not impressions.
Conclusion
The make or buy decision is a direct lever on the profitability of Swiss SMEs. Outsourcing to reduce operational complexity makes sense when the activity is not strategic, volumes are variable, and the market offers qualified suppliers on transparent terms. Producing in-house pays off when the activity is core, volumes justify fixed personnel costs, and quality control is a competitive advantage.
The decisive step is to calculate the full cost — not the salary, not the isolated quote — and update the analysis at least once a year. SMEs that treat make or buy as a management process, not a one-off decision, protect margins even in one of Europe's highest labour-cost environments.