Custom Software vs. SaaS Cost: The 3-Year Total Cost of Ownership (TCO) Guide
Compare two options with the same required features and time horizon. The worksheet below uses chosen inputs to show the arithmetic; it is not an audited client result or a market survey.
In this hypothetical model, the included SaaS costs total £127,620 and the included custom costs total £30,500 over three years, a £97,120 difference. The table does not include all costs needed for a purchasing decision. Add omitted costs to both options and verify equivalent functionality before calling the difference a saving.
1. 3-Year TCO Comparison Table: 25-User Team Scenario
Assume 25 seats at £120 per month in year one, a 10% rate increase in year two and 30 seats at that rate in year three. These are hypothetical prices and growth choices. The custom model uses a £26,000 build plus the annual operating allowances shown; it is not a LookADev proposal.
| Cost Component | Renting Commercial SaaS | Hypothetical Custom Build | Variance / Savings |
|---|---|---|---|
| Initial Setup & Onboarding | £4,500 (vendor onboarding fee & consultants) | £26,000 (assumed build cost) | -£21,500 upfront |
| Year 1 Subscription & Hosting | £36,000 (25 seats @ £120/seat/mo) | £1,200 (Cloud hosting @ £100/mo) | +£34,800 saved in Year 1 |
| Year 2 (With 10% SaaS Price Hike) | £39,600 (Vendor price increase + tier add-ons) | £1,500 (assumed hosting + limited maintenance) | +£38,100 saved in Year 2 |
| Year 3 (Team grows to 30 seats) | £47,520 (30 seats @ increased rate) | £1,800 (assumed operating allowance) | +£45,720 saved in Year 3 |
| 3-Year Included Costs | £127,620 | £30,500 | £97,120 modelled difference |
Year-one break-even: (£26,000 − £4,500) ÷ (£3,000 − £100) = 7.41 months from go-live. This is a continuous estimate; with monthly end-of-period payments, the first lower cumulative custom total is in month 8. It assumes immediate SaaS cancellation, no overlap and equivalent functionality, without discounting future cash flows.
Add migration, staff training, rollout delays, subscription overlap, security reviews, backups, monitoring, support, integration changes and any applicable taxes. Year one includes hosting only; the later maintenance allowances are chosen inputs, not verified quotes. There is no fully costed support contract in this example. These omissions can reduce or reverse the £97,120 difference and delay break-even.
2. The Build vs. Buy Decision Matrix
LookADev never advises building custom software for generic problems. Use this framework to make the right capital allocation decision:
- Commodity infrastructure: Email (Google Workspace / Office 365), chat (Slack).
- Statutory accounting: Tax compliance, payroll, and bookkeeping (Xero / QuickBooks).
- Early validation: When an existing product lets you test the workflow without a custom build.
- Standard generic functions: Where your process does not provide any competitive differentiation.
- Core operational engine: How you deliver your service and create client value.
- Cost comparison: When scoped build and operating costs compare favourably with the required SaaS features.
- Proprietary client portals: When you need a branded, self-service client experience.
- Spreadsheet replacement: When multi-tab workbooks contain sensitive pricing logic.
- AI and automated pipelines: When you need real-time data sync across APIs without third-party connector limits.
3. Seat Pricing and Usage-Based Hosting Are Different
Model the vendor's actual seat, tier and usage terms. For custom software, a contract without a per-seat code licence still needs a hosting and support budget. User count alone does not describe the workload.
Keep individual accounts and access controls in either option. Do not treat account sharing as a saving. Include the service level and support coverage you need when comparing prices.
A staging load-test specification might use 25 named users, 5 concurrent sessions, 10 requests per second and 5 GB of data with small read/write records and no model inference or video. Those are test inputs, not measured capacity or a provider quote. Measure request latency, errors and resource use, then price compute, storage, transfer, backups and support. The table's £100/month year-one hosting allowance is not a guaranteed ceiling. Supabase documents compute billing by the hour, independent of database usage.
4. Check Ownership and Handover
Ask who owns the custom code, how you export data and who can maintain the system if the original supplier leaves. This worksheet assumes no resale value for either option. An accountant should assess any capitalisation of development costs.
Check export formats, renewal terms, availability commitments and the cost of leaving the service. A subscription can be a suitable choice when it meets your requirements and reduces maintenance responsibility.
Check source-code rights, third-party licences, deployment documentation, backup restoration and a maintainable handover. Ownership alone does not establish operating efficiency, retention or a higher company valuation.
Frequently Asked Questions
When is building custom software cheaper than subscribing to SaaS?
Compare equivalent scope over the same period. Seat count alone does not decide: include setup, subscriptions, usage, maintenance, migration, training and the cost of supporting the system. Either option can cost less.
How does this example calculate break-even?
The hypothetical year-one inputs give (£26,000 minus £4,500) divided by (£3,000 minus £100) = 7.41 months from go-live. This assumes equivalent functionality, immediate replacement and no additional costs. It is not a market benchmark or promised payback.
What about maintenance and hosting costs for custom software?
Budget them separately. Hosting depends on concurrent activity, requests, storage, backups and service levels. Maintenance includes updates, monitoring, incidents and integration changes; a low hosting bill does not mean low support cost.
Does owning custom software guarantee a higher valuation?
No. Review intellectual-property rights, maintainability and dependency risk, and ask your accountant about the treatment of development costs. This worksheet assigns no resale value or valuation premium to either option.
Calculate Your 3-Year Software TCO with LookADev
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