Build vs. Buy Calculator
Compare the costs of building custom software in-house vs. buying a SaaS solution
About the Build vs. Buy Calculator
Deciding whether to develop a custom software solution in-house or subscribe to a pre-existing Software-as-a-Service (SaaS) platform is a pivotal strategic choice for businesses. This Build vs. Buy Calculator provides a quantitative framework to compare the Total Cost of Ownership (TCO) for both paths. It accounts for the heavy upfront engineering costs associated with building vs. the recurring, predictable subscription costs of buying. Beyond the raw numbers, this tool helps decision-makers visualize the 'cross-over point' where one option becomes more economically viable than the other.
Product managers, CTOs, and financial controllers use this tool to justify budget allocations. While building offers maximum customization and IP ownership, it often carries high 'hidden' costs like ongoing maintenance, security updates, and documentation. Conversely, buying offers a faster time-to-market but can lead to vendor lock-in and a lack of feature flexibility. By entering your estimated developer salaries, project timelines, and vendor quotes, you can move away from gut feelings and toward data-driven procurement.
Formula
Total Cost of Build = (Dev Hours * Hourly Rate) + (Annual Maintenance * Years) vs. Total Cost of Buy = Implementation Fee + (Monthly Subscription * 12 * Years)The build cost involves the upfront investment (internal or agency labor hours multiplied by the effective hourly rate) plus the recurring cost of keeping the software running. The buy cost includes any one-time setup or 'onboarding' fees plus the recurring SaaS subscription fee over the same time horizon. Both sides should be calculated over a 3 to 5-year period to see the true financial impact.
Worked examples
Example 1: A company needs a project management tool for 50 users. Building takes 3 months for 2 devs ($60/hr). Buying costs $20/user/month plus a $2,000 setup fee.
Build: (2 devs * 480 hours * $60) = $57,600. Maintenance (20%): $11,520/yr. 3-Year Build Total: $57,600 + $34,560 = $92,160. \nBuy: (50 users * $20 * 12 * 3) + $2,000 = $74,000. \nDifference: $92,160 - $74,000 = $18,160 savings from Buying.
Result: Buy is $21,000 cheaper over 3 years. Projecting further, the Build option only becomes cheaper after Year 6.
Common use cases
- A tech startup deciding whether to build a custom billing engine or integrate with Stripe.
- An enterprise evaluating if they should create a bespoke internal HR portal or pay for a Workday subscription.
- A marketing department weighing the cost of a custom data scraping tool versus a premium LinkedIn Sales Navigator seat.
Pitfalls and limitations
- Underestimating the annual maintenance cost, which is rarely zero and usually grows as the codebase ages.
- Failing to account for the 'opportunity cost' of diverting your best engineers away from your core product.
- Ignoring the cost of internal training and support for a custom-built tool that lacks a professional help desk.
- Neglecting potential price increases from SaaS vendors over a multi-year period.
Frequently asked questions
What are the hidden costs of building software in house?
Indirect costs include employee training, data migration, and the loss of productivity during the transition phase. You should also consider the 'opportunity cost' of your engineering team working on this project instead of core revenue-generating features.
Is it better to build or buy software for a startup?
In a build scenario, you have total control over the roadmap and data security, but you bear all the risk for bugs and maintenance. In a buy scenario, you gain speed and reliability but are limited by the vendor's feature set and potential price hikes.
How much does software maintenance cost per year?
Maintenance typically costs 15% to 20% of the initial development cost every year. This covers bug fixes, security patches, and keeping the software compatible with updated operating systems or browsers.
How to calculate break even point for software build vs buy?
The Break-Even Point is the moment when the cumulative cost of building and maintaining your own tool becomes cheaper than the cumulative cost of monthly subscription fees. If this point is 5+ years away, buying is usually the better financial move.
When should a company choose to build software?
If the software provides a unique competitive advantage or handles proprietary logic that no vendor supports, building is often necessary regardless of cost. If the tool is a standard utility like CRM or Payroll, buying is almost always more efficient.