Dual Sourcing Cost Premium Calculator

Work out dual sourcing cost premium instantly with clear inputs, formula shown and shareable results.

About Dual Sourcing Cost Premium Calculator

Dual sourcing costs the price difference on the volume allocated to the second supplier. That premium is effectively an insurance policy, so compare it with the revenue at risk from a single-source failure rather than treating it as pure cost.

Formulas

Dual-source cost

Cost = Primary price x Volume x (1 - Secondary share) + Secondary price x Volume x Secondary share

Premium

Premium = Dual-source cost - Single-source cost

Worked example

With the default values below, Dual Sourcing Cost Premium Calculator returns Annual cost premium of dual sourcing of $1,440,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Primary supplier price per unit: 480
Secondary supplier price per unit: 528
Annual volume: 120,000
Volume allocated to the secondary supplier: 25

Results

Annual cost premium of dual sourcing: $1,440,000.00
Blended unit price: $492.00
Total dual-source cost: $59,040,000.00
Premium as % of single-source cost: 2.500%

Step by step

1Values used
2Dual-source cost
3Premium
4Annual cost premium of dual sourcing= 1,440,000.00
5Blended unit price= 492.00
6Total dual-source cost= 59,040,000.00
7Premium as % of single-source cost= 2.500

Assumptions and limits

The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take inflation, tax or fees or charges into account.
Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

What secondary share is enough?

Enough to keep the supplier qualified and capable of scaling — typically 20-30%. Below 10% the second source cannot ramp when needed.

Is dual sourcing always worth it?

Compare the annual premium with the probability-weighted revenue at risk. For critical components it is almost always worth it; for commodities rarely.