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The waste is real. It just isn't labeled waste on the P&L.

Rework, defects, escapes, and the hours spent fixing them never appear as a line item — they hide inside payroll and cost of goods. Six inputs put an annual dollar figure on it. Most leaders are off by 5–10x, in the wrong direction.

Claims, invoices, applications, orders, cases — whatever the process handles.
Share of items requiring correction, rework, or resubmission.
Average handling time to detect, correct, and reprocess.
Salary + benefits + overhead. If unsure, salary × 1.4 ÷ 2080.
Cost when a defect reaches the customer: credits, penalties, churn, expedites. Enter 0 if unknown.
Portion caught by the customer instead of internally.
Unlocks the industry benchmark comparison.
Estimated Annual Cost of Poor Quality
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See where the money goes.

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Cost of Poor Quality (COPQ) is the total annual cost an organization absorbs because work has to be corrected, reprocessed, or fixed after it reaches the customer. It is rarely a line item — it hides inside payroll, cost of goods, and customer credits, which is why most leaders underestimate it by five to ten times.

How to calculate cost of poor quality

Annual COPQ is internal failure cost plus external failure cost. Start with defective items per year: monthly volume × 12 × defect rate.

Worked example: a claims team handles 4,000 claims a month with a 6% defect rate. That is 2,880 defective claims a year. At 45 minutes of rework each and $45 an hour loaded, internal failure costs $97,200. If 15% of defects reach the customer at $250 each, external failure adds $108,000. Annual COPQ: $205,200, from a defect rate most managers would call acceptable.

What it calculates

An annual dollar figure for internal failure cost (detecting and reworking defects before they ship) and external failure cost (defects the customer catches — credits, penalties, expedites, churn), from six operational inputs.

Who it is for

Operations leaders, CFOs, and quality managers who suspect rework is expensive but have never put a number on it. Useful when you need a defensible figure to justify a process improvement budget.

How to read the result

Compare the total against annual revenue. Under 5% is well-controlled. Between 5% and 15% is typical for organizations without a formal quality system. Above 15% usually means defects are being absorbed as normal operating cost rather than treated as failures.

What the tool asks for

Common questions

What is the cost of poor quality?

COPQ is the sum of internal failure costs (rework, scrap, re-inspection before delivery) and external failure costs (returns, credits, penalties, lost customers after delivery). It excludes prevention and appraisal costs, which are investments rather than losses.

How is COPQ calculated?

Multiply monthly volume by the defect rate to get defective items, multiply by rework hours and loaded labor cost for internal failure cost, then multiply escaped defects by the external cost per escape. Annualize both and add them together.

What is a typical COPQ percentage?

Organizations without a formal quality system commonly run 15–25% of revenue. Mature Lean Six Sigma environments generally hold it under 5%. The gap between those two figures is usually the largest unclaimed margin in the business.

Why do leaders underestimate COPQ?

Because rework is performed by salaried staff already on the payroll, it never appears as a separate cost. The hours are real but invisible — absorbed into normal capacity rather than reported as failure.

What counts as a defect in this calculator?

Anything that forces the work to be touched twice: an error caught in review, a report sent back, a claim reprocessed. If someone re-did something, it counts.

My number came out huge. Is that real?

Probably. COPQ typically runs 10–25% of revenue in organizations that have never measured it, which is exactly why nobody believes it the first time. Sanity-check the two inputs that drive it most: rework hours and loaded labor rate.

Is the calculator free? What does entering my email unlock?

The calculator and your annual figure are free, no signup. Entering your email unlocks the industry benchmark comparison and the internal-vs-external breakdown. It doesn't change your number, and it doesn't obligate you to anything.

Can I use this for a business case?

Yes, that's the point. Pair the annual figure with one quarter of actual defect data and you have the opening slide of a project charter.

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Built by Windy Hill Partners, a process improvement consultancy applying Lean Six Sigma and DMAIC. Every tool here is free and ungated at the point of use.