Build vs Buy Decision Analyzer
Compare TCO of building custom software vs buying SaaS over time. Enter values for instant results with step-by-step formulas.
Formula
TCO = InitialCost + (AnnualCost × Years)
We sum the initial CapEx (Development or Implementation fees) and the recurring OpEx (Maintenance or Subscription fees) over the selected time horizon to find the true cost.
Worked Examples
Example 1: Internal Tool
Problem:Build: $50k + $10k/yr. Buy: $5k + $15k/yr. 3 Years.
Solution:Build: $80k. Buy: $50k.
Result:Buy Saves $30k
Example 2: Core Product
Problem:Build: $100k + $20k/yr. Buy: $50k + $50k/yr. 5 Years.
Solution:Build: $200k. Buy: $300k.
Result:Build Saves $100k
Frequently Asked Questions
What are hidden costs of Building?
Maintenance, hosting, security patching, tech debt, and opportunity cost (your engineers aren't working on core product). Maintenance is typically 20% of build cost annually.
What are hidden costs of Buying?
Integration costs, training, lack of customization, price hikes by the vendor, and data lock-in.
When should I Build?
When the capability is a core competitive advantage (your 'Secret Sauce'), or when no vendor meets your specific regulatory/functional needs.
When should I Buy?
For commodity functions (Email, CRM, HR, Payroll). Why reinvent the wheel when Salesforce or Stripe exists?
Does this include Time to Value?
The calculator focuses on cost. But remember: Buying is usually instant. Building takes months. Delay has a cost.
What about Intellectual Property (IP)?
Building creates IP (Asset). Buying is an Expense. Investors generally prefer you own your core tech but rent your back office.
What about Exit Strategy?
If you Buy, ensure you can export your data. If you Build, ensure you document code so future hires can maintain it.
Background & Theory
The Core Decision Framework
The decision isn't just financial. It's strategic.
- Core: Your unique differentiator. BUILD.
- Context: Necessary but not unique (e.g., email). BUY.
Total Cost of Ownership (TCO)
Most people compare License Fees vs Developer Salaries. They miss:
- Build: QA, DevOps, Hosting, Security Audits, Documentation, Onboarding new devs.
- Buy: Vendor management, Legal review, Procurement cycles, Integration maintenance.
Strategic Tips
- Start with Buy: Prove the value. If you outgrow the vendor, *then* Build.
- Hybrid: Buy the engine (e.g., Stripe), Build the UI (Checkout form).
History
The Mainframe Era
In the 1960s-80s, you built everything. There was no software market. If you wanted payroll, you wrote COBOL.
The Package Software Era
In the 1990s, COTS (Commercial Off-The-Shelf) software emerged. Companies bought CDs of SAP or Oracle. Implementation took years and millions, but it was still cheaper than building an ERP from scratch.
The SaaS Revolution
Salesforce (1999) proved software could be rented. The "No Software" motto shifted the default from Build to Buy. Today, the API economy means we glue together SaaS blocks rather than writing monoliths.
Common Misconceptions
- Myth: Building is free because we have engineers. Reality: Engineer time is the most expensive resource you have.
- Myth: Buying is inflexible. Reality: Modern SaaS with APIs and Webhooks is highly extensible.