Build vs Buy Software Analysis
Compare the total cost of ownership between purchasing enterprise software and building a custom solution. Make data-driven procurement decisions.
Buy (Vendor Solution)
Build (Custom Development)
5-Year TCO Comparison
Buy Total Cost
$330,000
Year 1: $90,000
Build Total Cost
$1,170,000
Year 1: $474,000
Savings (BUY)
$840,000
| Year | Buy (Cumulative) | Build (Cumulative) | Difference |
|---|---|---|---|
| Year 1 | $90,000 | $474,000 | -$384,000 |
| Year 2 | $150,000 | $648,000 | -$498,000 |
| Year 3 | $210,000 | $822,000 | -$612,000 |
| Year 4 | $270,000 | $996,000 | -$726,000 |
| Year 5 | $330,000 | $1,170,000 | -$840,000 |
Build vs Buy Calculator
Recommendation: BUY
$840,000
5-year savings compared to building
Buy Total
$330,000
Build Total
$1,170,000
Break-Even
N/A
Analysis Period
5 years
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The Build vs Buy Decision Framework
Expert Industry Guide
The build vs. buy decision represents one of the most consequential choices in enterprise technology strategy. While the financial analysis provides a foundation, successful decisions require weighing strategic factors that extend far beyond cost comparison.
Total Cost of Ownership Analysis
Both paths carry hidden costs. Buying involves implementation, customization, training, integration, and vendor lock-in. Building requires ongoing maintenance, security updates, technical debt management, and the opportunity cost of developer time diverted from core product development.
Strategic Considerations
Core competency alignment matters: build software that creates competitive differentiation; buy commodity functionality. A fintech should build its trading algorithms but buy its HR system. An e-commerce company should build its recommendation engine but buy its accounting software.
Opportunity Cost of Engineering Time
Engineers building internal tools aren't building revenue-generating features. If your developers could be working on product improvements that drive growth, the opportunity cost of internal development may exceed the direct cost comparison.
Vendor Risk Assessment
Buying introduces dependency risks: vendor price increases, feature roadmap divergence, acquisition, or discontinuation. Mitigate through contract negotiation, multi-vendor strategies, and exit planning. Building creates technical debt risk requiring long-term maintenance commitment.
Hybrid Approaches
Many organizations adopt hybrid strategies: buy platforms with APIs for customization, use open-source foundations with custom extensions, or start with purchased solutions while building replacements for proven high-value use cases.
Disclaimer: This content is for informational purposes only and should not be considered professional advice. Always consult with qualified professionals for specific guidance related to your situation.