Build vs. Buy Software Decision
Compare the full 3–5 year cost, time to value, and risk of building custom software versus licensing a product.
Example scenario—not a forecast or verified benchmark. Enable JavaScript to edit inputs, view charts, save locally and export your analysis.
Example inputs
- Decision horizon
- 5
- Annual value once live (time saved, revenue gained)
- 120,000
- How unique is this capability to your business?
- some
- Discount rate (cost of capital)
- 10
- Build: initial development cost
- 150,000
- Build: months to go live
- 6
- Build: expected cost and schedule overrun
- 30
- Build: annual maintenance (% of build cost)
- 20
- Build: hosting & tooling per year
- 6,000
- Buy: annual license / subscription
- 36,000
- Buy: annual price increase
- 5
- Buy: implementation, data migration, training
- 25,000
- Buy: months to go live
- 2
- Buy: annual add-ons, integrations, admin
- 8,000
Example results
Buy: it comes out $120K ahead in present value over 5 years. Buying goes live in 2 months vs. 8 for a custom build (including a 30% overrun).
- Recommended path
- Buy
- NPV advantage
- $120,132
- Build NPV
- $119,858
- Buy NPV
- $239,990
- Build total cost (5 yrs)
- $351,000
- Buy total cost (5 yrs)
- $263,923
- Build: months to value (with overrun)
- 8 mo
- Overrun at which buy wins
- Buy already wins
What stands out
Buy wins by $120K in present value over 5 years
NPV of build: $120K; NPV of buy: $240K at a 10% discount rate.
Buying goes live 6 months sooner
Waiting 8 months for a custom build (incl. overrun) forgoes about $60K of value.
5-year cost: build $351K vs. buy $264K
Build includes 20% annual maintenance; buy includes 5% yearly price increases.
Next actions
- Shortlist 2–3 products, run a 30-day trial on your real workflow, and negotiate a multi-year price cap.
- Configure, do not customize: adapt your process to the product where it is standard.
- Revisit the decision if the license quote moves more than $24K/yr or the build estimate grows past 60% overrun.
Model assumptions & limitations
- Build cost and timeline are inflated by your 30% overrun assumption; maintenance starts at go-live.
- A custom fit earns a 10% benefit premium over buy (judgment-based by differentiation level).
- Cash flows are monthly and discounted at 10%/yr; no terminal value or rewrite cost is included.
- Total cost excludes the business benefit; NPV includes it, so time to value shows up in NPV.