Build vs. Buy Calculator

What this build vs. buy calculator estimates

This calculator compares two ways to obtain business software: paying a recurring fee for an external product or funding an internal team to build and maintain a custom system. It estimates the one-time development cost, annual maintenance cost, annual savings from building, and the number of years required for those annual savings to recover the initial development investment. It also projects cumulative cash cost over a configurable horizon so you can see how the decision changes with time.

The result is a financial screening tool, not a complete procurement decision. Security, implementation risk, data migration, vendor dependency, product quality, opportunity cost, and strategic control may be as important as the arithmetic. For structured technology cost estimation, the U.S. Government Accountability Office cost estimating guide provides a useful framework. For software supply-chain risk, review guidance from CISA.

How to enter the assumptions

External service cost

License or service cost is the amount paid for the external option. Choose a monthly or annual period; the calculator converts monthly fees to an annual total. Include mandatory user seats, platform fees, support tiers, and required add-ons, but do not add optional services that would also be needed for an internal build. A higher external cost increases the potential annual savings from building and shortens break-even. Leaving the field empty or entering a negative amount is invalid.

Internal development inputs

Employees required is the average number of full-time-equivalent people assigned to the initial build. It can be fractional when employees split their time. More employees increase development cost proportionally. A common mistake is counting only software developers while excluding product management, design, quality assurance, data engineering, security, or implementation work.

Time to build is the elapsed development period. You can enter weeks, months, or years; the current value is converted when the unit changes. Longer projects increase the one-time build cost because the team remains assigned for more months. Use the time required to reach a deployable, supported version rather than a prototype.

Employee salary is gross compensation for one employee. It can be hourly, monthly, or annual. The calculator normalizes the value to a monthly salary. Hourly conversion uses the working-hours assumption in the advanced panel and 52 weeks per year. Salary should normally exclude employer overhead because overhead is entered separately.

Overhead adds employer costs such as payroll taxes, benefits, insurance, equipment, software, office allocation, and recruiting burden. Enter it as a percentage of gross salary. The effective monthly employee cost equals salary multiplied by one plus the overhead rate. Higher overhead raises both development and maintenance cost.

Days of maintenance is the recurring time allocated to fixes, upgrades, support, and operational care. The reference model uses a simplified five-day allocation formula: maintenance days multiplied by effective monthly employee cost, multiplied by 12, divided by 5. Weekly entries are first converted to an average monthly day count. This simplification is useful for parity with the source methodology, but organizations with detailed time tracking may prefer a working-days-per-month model.

Analysis horizon controls how many years appear in the chart and table. It does not change the core break-even formula. A longer horizon is useful when the build option has a high initial cost but lower recurring expense. Working hours per week is used only for hourly salaries; 40 hours is a conventional starting point.

How the results are calculated

Effective monthly employee cost = monthly gross salary × (1 + overhead)

Cost to build = employees × build time in months × effective monthly employee cost

Annual maintenance = maintenance days per month × effective monthly employee cost × 12 ÷ 5

Annual savings from building = annual external cost − annual maintenance

Years to profit = cost to build ÷ annual savings, when annual savings is positive

When annual savings is zero or negative, the internal option never recovers its development cost under the entered assumptions. When savings is positive, the break-even period shows how long it takes for avoided external fees to cover the initial build. The calculator keeps full precision internally and rounds only for display and export.

How to interpret each output

Effective cost per employee is the normalized monthly labor cost after overhead. Cost to build is the one-time development investment. Annual maintenance is the recurring internal cost after launch. Annual savings from building compares the external annual fee with internal maintenance; positive values favor building on a recurring basis, while negative values favor buying.

Years to profit is the central break-even result. A shorter period means the internal investment is recovered sooner. A value under three years can be financially attractive when requirements are stable and the organization can execute reliably. A longer result deserves more scrutiny because technology, staffing, and business needs can change before break-even. “Never” means maintenance is at least as expensive as the external product.

The five-year totals provide a common medium-term comparison. The chart extends that logic across the selected horizon. The blue line shows cumulative external fees; the green line starts with the build investment and then adds annual maintenance. Their intersection is the approximate break-even point. The table exposes the exact annual values represented by the chart, and “build advantage” is positive only when cumulative buying cost exceeds cumulative building cost.

Decision factors beyond the formula

Building may be preferable when the software is strategically differentiating, requirements are unusual, integrations are difficult, or control over data and roadmap is essential. Buying may be preferable when speed, proven functionality, predictable support, compliance certifications, and lower delivery risk matter more than customization. The NIST Software Quality Group is a useful starting point for understanding quality and assurance considerations.

Common mistakes include underestimating maintenance, ignoring employee turnover, treating all development time as productive coding time, omitting impl ementation and migration work, and comparing a mature external product with a minimal internal prototype. Also consider the economic concept of total cost of ownership, which includes acquisition, operation, support, and retirement costs.

Use scenario analysis rather than relying on one forecast. Test a slower build, a larger team, higher overhead, more maintenance, and vendor price increases. A decision that remains favorable across conservative scenarios is more robust than one that depends on a narrow set of optimistic assumptions. This calculator provides planning estimates and does not constitute financial, legal, tax, investment, or procurement advice.