What is a build vs buy calculator and how does it work?

A build vs buy calculator computes the total cost of ownership for two strategic paths: building software in-house versus purchasing a vendor solution. It sums all build costs, including state-adjusted engineering labor and multi-year maintenance, then compares them against all buy costs, including one-time implementation fees and compounding annual subscription costs, returning the net difference as savings or deficit over a user-defined horizon such as 3 or 5 years.

When does building software in-house cost less than buying a SaaS product?

Building in-house typically costs less when the vendor subscription is high relative to available internal engineering capacity, when vendor price escalation compounds significantly over a long analysis horizon of 5 or more years, or when deep customization would generate large vendor professional-services fees. For example, a $120,000 per year SaaS contract at 7% annual escalation over 7 years accumulates to roughly $1.07 million, an amount that can exceed the full cost of a comparable custom build plus ongoing maintenance.

How does the state labor cost multiplier affect the build vs buy analysis?

The state labor multiplier uses Bureau of Labor Statistics Occupational Employment and Wage Statistics data for software developers to scale the blended hourly rate to local market conditions. California carries a multiplier exceeding 1.20 relative to the national median, while states such as Mississippi reflect multipliers near 0.75. This geographic adjustment can shift the build cost estimate by 30 to 40 percent, which is large enough to reverse the build vs buy recommendation in borderline cases.

What annual maintenance cost percentage should be used for in-house software?

Industry practice places annual software maintenance cost at 15 to 25 percent of the initial development investment per year. Simple internal tools with stable feature sets typically fall near the 15 percent floor, covering security patches and minor bug fixes. Customer-facing applications requiring regulatory compliance updates, third-party API integrations, and ongoing feature development typically reach 20 to 25 percent. For a $300,000 initial build, annual maintenance costs range from $45,000 to $75,000, compounding substantially across a 5-year analysis window.

How does vendor price escalation affect the total cost of buying software?

Vendor price escalation applies a geometric growth series that models compounding annual subscription increases over the full analysis period. At 5% annual escalation, a $50,000 Year 1 subscription accumulates to approximately $276,281 over 5 years versus $250,000 at flat pricing. At 8% escalation, the same contract totals nearly $293,330 over 5 years. Because the effect compounds exponentially, accurately estimating the escalation rate is one of the highest-leverage inputs in any build or buy calculator analysis.

What time horizon should be used for a build vs buy analysis?

A 3- to 5-year time horizon is the industry standard for most build vs buy analyses, balancing forecast accuracy with strategic planning relevance. Shorter horizons of 1 to 2 years almost always favor buying because upfront development costs dominate before subscription fees accumulate. Horizons beyond 5 years tend to favor building when vendor price escalation is material, but forecast reliability declines sharply past 5 years due to technology evolution, vendor acquisition risk, and business model changes. Most finance and product teams default to exactly 5 years.

Last verified · v1.0

Calculator · business

Build Vs Buy Calculator

Compare in-house development vs vendor software costs over any time horizon, with state-adjusted labor rates, annual maintenance, and compounding SaaS price escalation.

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Inputs

Estimated Development Hours (Build)

Blended Developer Hourly Rate

Annual Maintenance Cost (Build)

Vendor Implementation/Setup Cost

Annual Subscription/License Cost

Annual Price Escalation

Analysis Time Horizon

State (for labor cost adjustment)

Savings from Buying vs Building (positive = Buy is cheaper)

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Savings from Buying vs Building (positive = Buy is cheaper)—

Build Vs Buy Calculator

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