Build vs Buy Calculator - Software Development Decision Tool

Free build vs buy calculator that compares the total cost of ownership between custom software development and off-the-shelf solutions. Make informed technology investment decisions.

Calculate Your Build vs Buy Calculator - Software Development Decision Tool

Upfront cost to develop the solution internally

Yearly cost to maintain and update the solution

Number of full-time employees needed

Average annual salary per team member

Common Parameters

Number of years for comparison

Annual discount rate for NPV calculation

The Build vs. Buy decision is one of the most critical choices many organizations face when implementing new software solutions or systems. This calculator helps you analyze the financial implications of both options to make an informed decision based on your specific circumstances.

Understanding the Build vs. Buy Decision

Building custom software gives you complete control over features, integration capabilities, and ongoing development. Buying off-the-shelf solutions typically offers faster implementation and predictable costs, but may require compromises on functionality or customization.

Build Considerations

  • Higher upfront development costs
  • Ongoing maintenance requirements
  • Full control over features and roadmap
  • Internal expertise and resources needed
  • Potential for competitive advantage
  • Intellectual property ownership

Buy Considerations

  • Lower initial implementation costs
  • Faster time to market
  • Predictable subscription/licensing fees
  • Vendor updates and support
  • Limited control over product roadmap
  • Potential integration challenges

Key Financial Metrics

This calculator uses several financial concepts to compare options:

  • Net Present Value (NPV): Calculates the present value of all future costs, accounting for the time value of money. A lower NPV (less negative) is financially preferable.
  • Total Cost of Ownership (TCO): Represents all direct and indirect costs associated with each option over the specified timeframe.
  • Break-Even Point: The point in time when the cumulative costs of one option begin to exceed the other.

How to Use This Calculator

  1. Enter your estimated costs for both the "Build" and "Buy" options
  2. Set the timeframe for your analysis (typically 3-7 years)
  3. Specify a discount rate that reflects your organization's cost of capital
  4. Review the results, including total costs and the graphical comparison
  5. Consider how the financial analysis aligns with your non-financial requirements

Remember that the accuracy of this calculator depends on the quality of your cost estimates. It's advisable to gather input from various stakeholders, including IT, finance, and business units, to ensure comprehensive and realistic projections.

Frequently Asked Questions

Common overlooked 'Build' costs include: ongoing maintenance (typically 15-20% of initial development costs annually), infrastructure costs, training, quality assurance, documentation, security compliance, and opportunity costs. Also consider potential overruns (software projects often exceed initial estimates by 20-50%) and the cost of diverting internal resources from other initiatives.

Frequently overlooked 'Buy' costs include: customization expenses, integration with existing systems, data migration, training, potential vendor price increases over time, exit costs when changing vendors, and costs associated with working around limitations of the purchased solution. Also consider potential hidden fees for additional users, features, or support levels.

Building typically makes more sense when: 1) Your requirements are unique and central to your competitive advantage, 2) You need extensive customization that would be costly with off-the-shelf options, 3) You have strong in-house development capabilities, 4) The solution will need to continuously evolve with your business, 5) You need tight integration with proprietary systems, or 6) You have regulatory or security requirements that commercial products can't satisfy.

Beyond costs, evaluate: 1) Strategic importance of the solution to your business, 2) Required time-to-market, 3) Internal technical capabilities, 4) Need for unique features or integrations, 5) Vendor lock-in concerns, 6) Scalability requirements, 7) Security and compliance considerations, 8) Availability of suitable commercial options, and 9) Long-term maintenance and support needs.

A hybrid approach might involve: 1) Buying a commercial platform but building custom components on top, 2) Using open-source software as a foundation with custom extensions, 3) Starting with a commercial solution while gradually developing an in-house replacement for critical components, or 4) Buying for standard functions and building only for unique competitive advantages. This approach can offer a balance between speed to market and customization.

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