Tooling amortization
Tooling amortization spreads the cost of production tooling (molds, dies, fixtures) across an agreed volume of parts instead of billing it up front. A $60,000 injection mold amortized over 200,000 parts adds $0.30 to each unit. The structure preserves the buyer's cash and shifts the conversation to ownership, true-up terms, and what happens when actual volume misses the plan.
Examples
Program cancelled mid-stream: An $84,000 trim die is amortized at $0.30 over 280,000 parts. The program ends at 150,000 units, and the true-up clause triggers a closeout invoice for the $39,000 unamortized balance, a number the program's margin model had never carried.
The adder that never stopped: A buyer keeps paying a $0.30 tooling adder past the 280,000-part payoff because nobody reconciled cumulative volume. An audit catches it at 340,000 parts: $18,000 overpaid, recovered as a credit only because the cost breakdown showed the adder as a separate line.
Definition
Buyers choose amortization for cash flow and accounting reasons: paid-up tooling is typically capitalized, while an amortized adder flows through cost of goods sold, a CapEx versus OpEx distinction finance teams care about. Suppliers accept it because it locks in volume, and sometimes prefer it because it quietly strengthens their hold on the business.
Three terms decide whether the structure ages well. Ownership: if the supplier funded the tool, the buyer cannot move the part without paying the unamortized balance or building a new tool elsewhere. True-up: the contract should state what happens if volume falls short (the buyer pays the remainder) and when the adder stops, verified against cumulative shipments. Visibility: the adder should appear as its own line in the cost breakdown, not vanish into the unit price.
Amortization also distorts sourcing comparisons against quotes with upfront NRE, since the cheaper-looking piece price is carrying hidden tooling. Quote comparisons in LightSource separate amortization adders from base piece price, so offers with different tooling structures line up on equal volume assumptions.
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