Custom software or SaaS: which costs less?

Custom software or SaaS: how do you compare the costs?

This calculator compares the total cost of a SaaS package with custom software over one to seven years. With SaaS you pay a subscription per user per month, usually with a one-off implementation on top. With custom software you pay for development up front and then each year for maintenance, hosting and extensions. That makes a comparison at a single point in time misleading: in the first year SaaS is almost always cheaper, while the picture can flip after a few years.

That is why this tool calculates the total cost over a period of one to seven years, also known as total cost of ownership. The chart shows the costs cumulatively, so you can see whether and when the lines cross. That crossing point is the break-even year: from then on, custom software is cheaper over the period as a whole.

How to use it: 1. enter the SaaS licence, implementation and integration costs; 2. enter the development, maintenance and extension costs of custom software; 3. choose the period. Enter amounts excluding VAT and use quotes or your current invoices where you have them. The values shown when the page opens are examples to show how it works, not guide prices.

Costs that are often forgotten

On the SaaS side these are mainly the costs around the package: integration tools to connect it with your other systems, extra modules, more expensive plans for features you turn out to need later, and the manual work that remains because the package does not quite fit the way you work. Annual price increases also add up considerably over several years.

On the custom side, maintenance is often underestimated. Software needs looking after: security updates, new versions of underlying components, hosting and monitoring. An annual amount of a substantial percentage of the development cost is common. Also allow for extensions, because requirements change as soon as people start working with the software.

Trade-offs you cannot express in euros

Ownership: with custom software you usually own the software or have broad rights of use. With SaaS you rent access; when the subscription ends, so does your use. With custom software, do put in writing who holds the source code and the rights, and with SaaS make sure your data can be exported in a usable format.

Vendor lock-in and fit: a SaaS vendor decides the roadmap, the prices and which integrations exist. That is fine as long as the package fits well. If the way you work differs from what the package expects, you end up adapting your process to the software instead of the other way round. Custom software fits your process, but requires that you can describe that process clearly.

Maintenance risk: with SaaS, the vendor carries the maintenance. With custom software you depend on the party that built it, or on documentation good enough to hand it over. So ask about mainstream technology, documentation and arrangements for a handover.

When do you choose custom software?

Custom software is mainly worth considering when your process sets you apart from competitors, when you have many users so licences add up quickly, or when you are currently tying several packages together with workarounds. For standard processes such as accounting or email, a good SaaS package is almost always the sensible choice.

It is often not either-or: a standard package for the basics with a custom integration or a small custom component for the part the package does not handle well. Model that option by entering the integration costs on the SaaS side.