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Build vs. Buy Calculator

Enter your developer costs and the price of a ready-made solution to see which option saves more money over the long run. The calculator works out the full cost to build (including overhead and a realistic buffer for scope creep), annual maintenance, annual buy cost, and how many years it takes for building to pay off. Results update as you type.

Your details

The monthly subscription or license fee for the off-the-shelf product.
/ month
How many developers (or equivalent contractor FTEs) will build the solution.
people
Realistic calendar months from kickoff to production-ready launch.
months
Monthly gross salary (or contractor day-rate converted to monthly) per developer.
/ month
Employer costs on top of salary: payroll taxes, benefits, insurance, equipment. Typically 25-40%.
%
Research shows software projects overrun estimates by 1.5-2x on average. 1.0 = no buffer.
x
Developer-days per month needed to keep the system running after launch (bug fixes, security patches, upgrades).
days / month
How many years to project cumulative costs. Break-even is shown independently of this.
years
Currency
Break-evenBuy wins
999years

Years before the cumulative savings from building recover the upfront investment

Cost to build$187,200
Annual maintenance$28,364
Annual buy cost$12,000
Annual savings (build)-$16,364
Total cost to build$329,018
Total cost to buy$60,000
Net savings over horizon-$269,018
Build$544,582
Buy$72,000

Net savings from building: -$269,018

  • Upfront cost
  • Annual maintenance
  • Total over horizon
$0.0$165k$329k035
Year
  • Build
  • Buy

Buying is cheaper - the build never breaks even under these assumptions.

  • Annual maintenance costs exceed the license fee, so the in-house build will never pay for itself.
  • Consider reducing the maintenance estimate, negotiating a better SaaS price, or reducing scope.

Next stepRevisit maintenance assumptions or negotiate a lower SaaS price before committing to build.

What the calculator measures

The build vs. buy decision comes down to one financial question: does the one-time cost of building in-house get paid back quickly enough through avoided license fees? This calculator answers that by estimating the fully loaded development cost (including a scope-creep buffer), the recurring maintenance burden, and the annual savings you would earn by not paying a vendor. It then divides the upfront investment by those annual savings to give you the break-even year, and compares cumulative costs over your chosen horizon so you can see which option is cheaper at any point in time.

How the formulas work

First, the effective developer cost per month is the gross salary multiplied by (1 + overhead fraction), where overhead covers payroll taxes, benefits, equipment, and workspace. The raw build cost is: developers x months x effective monthly cost. That is then multiplied by the scope-creep buffer (default 1.5x) to account for the near-universal tendency for software projects to overrun their initial estimates. Annual maintenance is the developer-days per month spent on bug fixes, security patches, and upgrades, converted to an annual cost using a 22-working-day month. Annual savings from building equals the annual license fee minus annual maintenance. Break-even equals the upfront build cost divided by annual savings, expressed in years.

The scope-creep buffer and why it matters

Academic research and industry surveys consistently find that custom software projects overrun their initial time and cost estimates by a factor of 1.5 to 2. The Standish CHAOS Report, for example, has tracked software project outcomes for decades and finds that the majority of projects deliver late and over budget. Setting the buffer to 1.0 gives you the optimistic case; 1.5 is a realistic baseline; 2.0 is conservative and defensible for complex or novel systems. If your team has a strong track record of accurate estimation, use a lower number. If the domain is new or the requirements are vague, use a higher one.

Beyond break-even: strategic factors

The break-even calculation is necessary but not sufficient. A build decision also carries opportunity cost (what else could the engineering team deliver instead?), technical debt risk (in-house systems age and accrue maintenance burden), data ownership benefits (no third-party lock-in), and customization upside (the solution can match your exact workflow). A buy decision trades financial predictability and faster time-to-value for vendor dependency and the risk of price increases. The numbers from this calculator should anchor a broader conversation that includes those qualitative factors.

Build vs. Buy decision guidelines

Break-even periodVerdictKey consideration
Under 1 year Strong build case Verify capacity and long-term maintenance commitment
1-2 years Build favored Confirm the in-house solution matches all feature requirements
2-4 years Build viable Assess team retention and technology lifecycle risk
4-6 years Borderline Opportunity cost and risk of technical debt often tip the balance to buy
Over 6 years Buy recommended Subscription flexibility usually outweighs long-term savings
Never Buy clearly wins Maintenance costs exceed the license - building is not financially justified

General industry benchmarks for interpreting the break-even result.

Frequently asked questions

What is the scope-creep buffer and what value should I use?

The scope-creep buffer multiplies the raw development estimate to account for the well-documented tendency of software projects to take longer and cost more than originally planned. A value of 1.5 means the final cost is assumed to be 50% higher than the initial estimate, which is a common real-world outcome. Use 1.0 if you have a very well-defined specification and a track record of on-time delivery. Use 2.0 or higher for novel, complex, or poorly defined projects.

What should I include in the overhead percentage?

Overhead covers employer-side costs on top of gross salary: payroll taxes (varies by country but is typically 10-20%), health and dental insurance, retirement contributions, equipment (laptop, licenses), workspace, and any training budget. For a US-based salaried engineer, 25-40% is a typical range. For contractors, overhead is often lower because those costs are the contractor's responsibility, but a small buffer for management time is still appropriate.

How do I estimate maintenance days per month?

A widely used rule of thumb is that maintaining a live software system requires roughly 15-20% of the initial build effort per year. For a 6-month, 2-developer project that is 12 developer-months, 15% would be 1.8 developer-months per year, or about 3-4 developer-days per month. Highly regulated systems, systems with frequent external dependencies (APIs, third-party libraries), or consumer-facing products typically need more. Internal tools with stable requirements can often get by with less.

What does the break-even year actually mean?

The break-even year is the point at which cumulative savings from not paying the license fee exceed the upfront build cost. Before that year, buying would have been cheaper. After that year, building is cheaper. If the break-even is beyond your analysis horizon, or if annual maintenance exceeds the license cost (break-even is "never"), buying is the more economical choice under these assumptions.

Does this calculator account for price increases in SaaS subscriptions?

Not automatically. It assumes the license fee stays constant. If the vendor has raised prices historically, you can model the worst case by entering a higher monthly cost. Alternatively, run the calculator twice, once at the current price and once at a projected future price, and see how the break-even shifts.

Should I factor in the time value of money?

This calculator uses nominal cash flows without discounting. For decisions with a horizon under three years, the difference is usually small. For longer horizons (five or more years), a discounted cash flow model is more rigorous because a dollar saved five years from now is worth less than a dollar saved today. If your finance team requires a DCF, use the cumulative cost numbers from the year-by-year chart as inputs into a separate NPV calculation.

Sources

Written by Sarah Klein, CFP Certified Financial Planner · Chicago, USA

Fifteen years translating mortgage tables and amortization schedules into decisions that actually help real borrowers.

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This tool provides general information and education, not professional advice. For decisions about your health or finances, consult a qualified professional.

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