Build vs Buy Calculator

The Build vs Buy Calculator gives a finance-first view of a common software decision: should your organization build a tool internally, or pay a vendor, agency, or SaaS provider to supply it? The calculator is intentionally narrow. It does not pretend to value every strategic issue, but it does make the cost comparison explicit. You enter the vendor subscription cost, the number of internal employees needed, the build timeline, monthly salary, overhead, and ongoing maintenance effort. The result reports cost to build, annual vendor cost, annual maintenance cost, annual savings from building, and years to break even.

That structure is useful when the debate has become too abstract. Product teams may focus on customization, engineering teams may focus on control, and executives may focus on speed. A repeatable model gives everyone the same base case. If the result says the internal build pays back quickly, the business can discuss execution risk. If the result says the payback is slow or never arrives, supporters of building need to explain why ownership, compliance, data access, or differentiation is worth the additional cost.

What the inputs mean

Vendor subscription cost is the monthly amount you would pay to buy the external solution. Use the all-in recurring price, not the teaser rate. Include required seats, platform fees, usage charges, premium support, and any committed minimums if they are part of the ongoing contract. The calculator multiplies this input by 12 to create the annual vendor cost.

Employees required and time to build define the implementation labor. If two engineers and one product manager would spend four months on the project, enter three employees and four months. If people are only half-time, convert the staffing to full-time equivalents. For example, four half-time contributors equal two full-time employees.

Monthly gross salary is the base monthly pay for one contributor. Overhead turns that salary into a loaded internal cost. The calculator treats overhead as a percentage. A salary of 9,000 USD with 30 percent overhead becomes 11,700 USD per employee per month. Maintenance effort is the number of days per month expected after launch. Paid workdays per month converts that effort into a share of one loaded employee-month; use the same work calendar as the salary assumption.

Formula

The calculator first loads monthly salary with overhead:

$\text{effective monthly employee cost} = \text{salary} \times \left(1 + \frac{\text{overhead \%}}{100}\right)$

It then calculates implementation cost:

$\text{cost to build} = \text{employees} \times \text{months} \times \text{effective monthly employee cost}$

Annual vendor cost is the monthly subscription multiplied by 12:

$\text{annual vendor cost} = \text{monthly vendor cost} \times 12$

Maintenance follows the calculation exactly:

$\text{annual maintenance cost} = \frac{\text{maintenance days}}{\text{paid workdays per month}} \times \text{effective monthly employee cost} \times 12$

Annual savings are the vendor cost avoided after paying maintenance:

$\text{annual savings} = \text{annual vendor cost} - \text{annual maintenance cost}$

If annual savings are positive, payback is:

$\text{years to break even} = \frac{\text{cost to build}}{\text{annual savings}}$

The recommendation is build only when annual savings are greater than zero and years to break even are less than or equal to the entered maximum acceptable payback. Otherwise, the calculator recommends buying the external tool.

Example

Suppose a vendor charges 15,000 USD per month. An internal build would require 2 employees for 3 months. Each employee has a 9,000 USD monthly gross salary, and the organization uses 30 percent overhead. Maintenance after launch is estimated at 1 day per month against 20 paid workdays per month.

The effective monthly employee cost is 9,000 × (1 + 30 ÷ 100), or 11,700 USD. The cost to build is 2 × 3 × 11,700, which equals 70,200 USD. The annual vendor cost is 15,000 × 12, or 180,000 USD. Annual maintenance is (1 ÷ 20) × 11,700 × 12, which equals 7,020 USD. Annual savings from building are 180,000 − 7,020, or 172,980 USD.

Finally, years to break even are 70,200 ÷ 172,980, or about 0.41 years. Because annual savings are positive and payback is within the default entered threshold of three years, the primary result says Build internally. If the vendor price were only 1,000 USD per month with the same build and maintenance assumptions, annual vendor cost would be 12,000 USD, annual savings would drop to 4,980 USD, and payback would stretch to about 14.10 years. The calculator would then favor buying at that same entered threshold.

How to decide beyond the number

A short payback period is helpful, but it is not the whole decision. Building internally can create a tool that fits your workflow precisely, avoids vendor lock-in, and keeps sensitive data under direct control. It can also consume scarce engineering capacity, create a permanent maintenance obligation, and delay deployment. Buying or outsourcing can be faster, gives access to vendor support, and may shift security and uptime responsibilities to a specialist, but it can limit customization and create recurring contractual commitments.

Use the calculator as the financial gate. If buying is clearly cheaper, ask whether the missing strategic benefit is valuable enough to justify the extra spend. If building is clearly cheaper, ask whether the team can deliver on schedule and support the tool responsibly. The break-even calculator can test the same payback logic for broader projects, the roi calculator can express gains as a return percentage, and the budget calculator can place the project into a wider operating plan.

Caveats and review checklist

The model assumes one average loaded monthly cost for every contributor. Real projects may involve engineers, designers, security reviewers, data staff, legal review, and external contractors at different rates. It also assumes maintenance can be represented by a fixed number of days per month. That can understate the cost of systems that require on-call coverage, compliance updates, incident response, or frequent user-requested changes.

Before approving the decision, review the vendor contract length, implementation fees, termination rights, data export terms, internal opportunity cost, and security responsibilities. For internal builds, confirm who owns documentation, access control, backups, and support. For outsourced builds, separate one-time development cost from future maintenance and hosting. A disciplined build-or-buy memo should include the calculator output, a sensitivity table, the main nonfinancial reasons, and a clear owner for the option selected.

Displayed results use the currency, time period, percentage, or other units named in the tool and round only for presentation; retain additional precision when carrying a result into another calculation.

Method and source limits

SBA and IRS sources support identifying business costs, not a universal decision rule. Salary overhead, maintenance effort, vendor cost, build duration, and the maximum acceptable payback are user-entered assumptions. Sources and linked guidance below were accessed July 9, 2026; later revisions are outside this page version.

Sources

• SBA, Calculate your startup costs — guidance on identifying startup and operating costs before committing resources.
• SBA, Manage your finances — small-business finance practices for tracking cash flow, budgets, and costs.
• IRS, Deducting business expenses — overview of ordinary and necessary business expenses.