Custom Software vs SaaS: When Should You Build Instead of Buy?

The build vs buy decision is one of the most consequential technology choices a business makes. Get it right, and you gain a competitive advantage. Get it wrong, and you waste significant time and money.

This guide provides a framework for making this decision, including a realistic look at the total cost of ownership for both approaches.

The True Cost of SaaS

SaaS appears cheaper initially—pay a monthly fee and start using software immediately. But the long-term costs often surprise businesses:

Direct Costs

Per-User Pricing Most SaaS products charge per user per month. A tool costing $50/user/month seems reasonable until you have 100 users paying $60,000 annually.

Tier Limitations Features you need are often in higher-priced tiers. That $50/user product might actually cost $150/user for your requirements.

Add-Ons and Integrations Native integrations, API access, advanced features, and support levels often carry additional charges.

Hidden Costs

Workarounds When SaaS doesn't fit your workflow, employees create workarounds—manual processes, spreadsheets, or duplicate data entry that wastes hours weekly.

Training Adapting your team to software that doesn't match your processes requires ongoing training and reduces productivity.

Data Export Limitations Your data lives in their system. Extracting it for reporting, migration, or compliance can be difficult or expensive.

Vendor Lock-In Switching costs increase over time. The more integrated a SaaS becomes, the harder it is to leave—even when a better option exists.

5-Year TCO Example

Scenario: Project management for a 50-person team

SaaS (Popular Tool):

• Year 1: $30,000
• Year 2: $33,000
• Year 3: $36,000
• Year 4: $40,000
• Year 5: $44,000
• 5-Year Total: $183,000

Custom Software:

• Year 1: $80,000 (initial development)
• Year 2: $15,000 (maintenance)
• Year 3: $15,000 (maintenance)
• Year 4: $15,000 (maintenance)
• Year 5: $15,000 (maintenance)
• 5-Year Total: $140,000

Includes 10% annual SaaS price increases and 15% annual maintenance for custom software

Over 5 years, custom software often costs less while providing exactly what you need.

When SaaS Makes Sense

Commodity Functions

If the software solves a generic problem with standard requirements, SaaS is usually the right choice:

• Email (Gmail, Outlook)
• Video conferencing (Zoom, Teams)
• Document collaboration (Google Docs, Notion)
• Basic accounting (Xero, QuickBooks)
• CRM for small teams (HubSpot free tier)

Early Stage or Uncertain Requirements

When you're still figuring out what you need, SaaS lets you experiment without major commitment. Once requirements stabilise, reassess the build vs buy decision.

Rapid Deployment Needed

If you need software running this week, not in three months, SaaS delivers immediately. Speed sometimes trumps fit.

Limited Technical Resources

If you have no internal technical capability and no budget for ongoing maintenance, SaaS removes technical burden entirely.

When Custom Software Makes Sense

Competitive Advantage

If software is core to what makes your business unique, building it protects and enhances that advantage.

"Your processes are your intellectual property. SaaS standardises them. Custom software amplifies them."

Complex Integrations

When you need to connect multiple systems in ways SaaS products don't support, custom software provides seamless data flow.

Unique Workflows

If you've spent years perfecting your processes, forcing them into generic software destroys value. Custom software adapts to you.

Scale Economics

At sufficient scale, custom software becomes dramatically cheaper per user than SaaS. The breakeven point varies, but often occurs at 30-50 users.

Regulatory or Security Requirements

Industries with strict compliance (finance, healthcare, government) often require control over data and infrastructure that SaaS can't provide.

Long-Term Vision

If you plan to operate the software for 5+ years, the economics favour building. You own the asset and avoid perpetual rent.

Decision Framework

Answer these questions to guide your decision:

1. Is this core to your business?

• Core: Consider building
• Support function: Consider SaaS

2. How unique are your requirements?

• Highly unique: Build
• Standard with minor tweaks: SaaS
• Completely standard: Definitely SaaS

3. What's your timeline?

• Need it this month: SaaS
• Can wait 3-6 months: Consider building

4. What's your 5-year budget?

• Under $100k total: SaaS
• $100k-300k: Depends on requirements
• Over $300k: Strongly consider building

5. How many users?

• Under 20: Usually SaaS
• 20-50: Analyse carefully
• Over 50: Custom often wins economically

6. Do you have technical resources?

• No technical team: SaaS is safer
• Some technical capability: Hybrid approach
• Strong technical team: Building is viable

Hybrid Approaches

You don't have to choose entirely one way or the other:

SaaS with Custom Integrations

Use best-in-class SaaS for commodity functions, build custom software to connect them and handle unique workflows.

Custom Core, SaaS Periphery

Build the software that's central to your business, use SaaS for everything else.

Custom Front-End, SaaS Back-End

Build a custom interface that users love, powered by SaaS infrastructure (like Stripe for payments).

Platform Approach

Use low-code platforms (Retool, Bubble) for simple tools, custom development for complex requirements.

Real-World Examples

Company A: Chose SaaS (Wrong)

A logistics company adopted a popular project management SaaS. Within 18 months:

• 40% of features unused
• Critical workflows required manual spreadsheet processes
• Monthly cost grew from $3,000 to $8,000
• Staff spent 5 hours/week on workarounds

They eventually built custom software, essentially paying twice.

Company B: Chose Custom (Right)

A professional services firm built custom resource management software. After 3 years:

• Saves 15 hours/week in administrative time
• Integrates perfectly with their CRM and accounting
• Competitive advantage in client proposal process
• Total cost: $180,000 including maintenance

The productivity savings alone justified the investment within 18 months.

Company C: Chose SaaS (Right)

A startup used off-the-shelf tools for everything while validating their business model:

• Slack for communication
• Notion for documentation
• HubSpot for CRM
• Xero for accounting

Once they reached 40 employees with proven processes, they selectively built custom tools for their unique operations.

Making the Transition

If you decide to build, here's how to transition from SaaS:

1. Document current workflows - How do you actually use the SaaS?
2. Identify pain points - What doesn't work well?
3. Prioritise features - What's essential vs nice-to-have?
4. Plan data migration - How will you move existing data?
5. Build in phases - Don't try to replace everything at once
6. Run in parallel - Keep SaaS running during transition

Key Takeaways

1. SaaS has hidden costs beyond the subscription fee
2. Custom software often costs less over a 5-year horizon
3. Build when software is core to your competitive advantage
4. Buy when requirements are standard and speed matters
5. Consider hybrid approaches that use both strategically
6. Reassess annually as your business evolves

Trying to decide between building custom software or using SaaS? Contact us for a free consultation where we'll help you analyse the true costs and make the right choice.