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Presets:

Build Scenario

Initial Development Cost ($) Total salaries + contractors for v1.0

Integration Cost ($)

Training Cost ($)

Annual Maintenance ($) Bug fixes, updates, infra, DevOps

Monthly Opportunity Cost ($) Revenue lost per month during build

Buy Scenario

Annual License / Subscription ($)

Integration Cost ($)

Training Cost ($)

Initial Customization ($) Vendor professional services, config

Estimated Exit / Migration Cost ($)

Build TCO

—

Risk-adjusted

NPV: —

Buy TCO

—

Risk-adjusted

NPV: —

Savings

—

Over projection

Break-Even

—

Cumulative Cost Projection

Build Buy

Weighted Decision Matrix

Build Score: —

Buy Score: —

Year	Build Annual	Build Cumulative	Buy Annual	Buy Cumulative	Difference

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About

The build-versus-buy decision carries compounding financial consequences. An incorrect choice can waste $500K+ over five years through hidden maintenance, vendor lock-in penalties, or opportunity cost from delayed market entry. This calculator applies a Total Cost of Ownership (TCO) model across a configurable horizon of up to 20 years. It discounts future cash flows to present value using NPV at a user-defined rate r, identifies the break-even year where cumulative build costs fall below cumulative buy costs, and runs a weighted multi-criteria scoring matrix across 5 decision factors. All costs assume annual compounding of maintenance and licensing inflation.

The model approximates real-world procurement and development scenarios but does not account for organizational politics, sunk cost bias, or regulatory procurement mandates. Pro tip: most teams underestimate ongoing build maintenance by 40% to 60%. Use the risk adjustment sliders to stress-test your assumptions before committing budget.

Formulas

The calculator uses three core models to compare Build and Buy over a projection horizon of n years.

Total Cost of Ownership (Year t):

TCO_build(t) = C₀ + I_b + T_b + t∑k=1 M_b ⋅ (1 + g_b)^k

TCO_buy(t) = I_buy + T_buy + t∑k=1 L ⋅ (1 + g_s)^k

Net Present Value of Costs:

NPV = n∑t=0 Cost_t(1 + r)^t

Weighted Decision Score:

S = 5∑i=1 w_i ⋅ s_i , where 5∑i=1 w_i = 1

Where: C₀ = initial build cost, I_b = build integration cost, T_b = build training cost, M_b = annual build maintenance, g_b = build maintenance inflation rate, L = annual license/subscription, g_s = SaaS price inflation rate, I_buy = buy integration cost, T_buy = buy training cost, r = discount rate, w_i = criterion weight, s_i = criterion score (1 - 10).

Reference Data

Cost Factor	Build (Typical Range)	Buy (Typical Range)	Notes
Initial Development / License	$50K - $2M	$5K - $500K/yr	Build is capex; Buy is often opex (SaaS)
Integration & Customization	10 - 25% of dev cost	15 - 40% of license	API glue, SSO, data migration
Annual Maintenance	15 - 25% of initial build	Included or 18 - 22% support fee	Build maintenance often underestimated
Training & Onboarding	$2K - $20K	$1K - $15K	Custom UIs need custom docs
Opportunity Cost	3 - 18 months delay	1 - 4 months deploy	Revenue lost during build phase
Vendor Lock-in Risk	None (you own code)	Medium - High	Data portability, contract terms
Scalability Cost	Architecture-dependent	Per-seat or usage pricing	SaaS scales linearly with headcount
Security & Compliance	Full responsibility	Shared (SOC2, ISO certified vendor)	Build requires dedicated AppSec
Depreciation (Tax)	3 - 5 yr amortization	Expensed annually	Consult tax advisor for jurisdiction rules
End-of-Life / Migration	20 - 40% of rebuild	Contract exit fees	Plan exit strategy before signing
Typical Break-Even	2 - 5 years		If build breaks even at all
Developer Hourly Rate (US)	$75 - $250/hr	N/A	Senior/Staff level for custom software
SaaS Price Inflation	N/A	5 - 12%/yr	Vendor price hikes after lock-in
Internal Knowledge Risk	High (key-person dependency)	Low (vendor maintains)	Bus factor for build teams
Customization Ceiling	Unlimited	Limited by vendor roadmap	Critical differentiator for core IP

Frequently Asked Questions

Opportunity cost represents revenue or productivity lost during the build period. If your team spends 12 months building instead of shipping features, that delay has a monetary value. This calculator lets you input monthly opportunity cost, which is added to Year 0 and Year 1 of the Build scenario. A high opportunity cost can push the break-even point out by 2-3 additional years or eliminate it entirely.

Use your company's weighted average cost of capital (WACC), typically between 8% and 15% for most businesses. Startups with higher risk profiles should use 15-25%. A higher discount rate penalizes future costs less, which tends to favor Build scenarios since their heavy upfront costs are not discounted. If uncertain, run the calculation at 8%, 12%, and 15% to see sensitivity.

SaaS vendors typically increase prices by 5-12% per year after initial contract terms expire. This is well-documented in enterprise procurement data. The inflation parameter g_s compounds annually, meaning a $50K/yr license at 8% inflation becomes $107K/yr by year 10. Ignoring this inflation is the most common error in buy-side cost analysis.

Use a 1-10 scale anchored to concrete benchmarks. For "Time to Market": 10 means deployment within 1 month (buy), 1 means 18+ months (complex build). For "Customization": 10 means the solution is your core IP differentiator (build), 1 means commodity functionality like email or CRM (buy). If two stakeholders disagree, average their scores. The weights matter more than individual scores - adjust weights to reflect your organization's actual priorities.

Partially. The "Vendor Lock-in Risk" criterion in the weighted scoring matrix captures this qualitatively. Quantitatively, you can model it by increasing the Buy scenario's risk multiplier. If your vendor has fewer than 500 customers or less than 3 years of operating history, increase the buy risk factor to 1.3-1.5×. Also factor in data portability: if your data is trapped in a proprietary format, exit costs can reach 30-50% of annual license fees.

Build wins when the software is your core competitive advantage (not commodity), when you have a strong engineering team already on payroll, when no vendor solution covers more than 60% of your requirements, or when regulatory constraints prohibit third-party data handling. The break-even typically occurs within 2-3 years in these cases. Conversely, buy almost always wins for commodity functions like authentication, payments, email, and CRM where vendors have decades of hardened code.