Build vs Buy Calculator: What Numbers Actually Matter?

finance_carlos · February 23, 2026, 8:10pm

I’ve reviewed dozens of build vs buy proposals. Most miss critical cost components. Let me share what a proper financial model should include.

The 5-Year TCO Framework

Any build decision under $50K is probably fine either way. But for major decisions, you need a complete 5-year total cost of ownership model.

Build Side Components:

Initial Development: What most people calculate correctly
Annual Maintenance: 20-35% of initial cost for modern stacks, 50-70% for legacy
Opportunity Cost: Revenue/features deferred - the component almost nobody calculates
Risk Premium: Scope changes (~30%), unforeseen technical issues (~20%)
Compliance/Security: 15-25% annually in regulated industries

Buy Side Components:

Annual License Fees: Straightforward
Integration Cost: One-time, typically 30-50% of first year license
Customization/Consulting: Ongoing, 20-40% of annual licenses
Vendor Switching Cost: If it doesn’t work out

Real Example: $75K Build vs $25K/Year SaaS

Looks like build wins, right? Let’s do the math:

Build Total (5 years):

Initial: $75K
Maintenance: $35K/year × 5 = $175K
Opportunity cost: $50K (deferred features)
Risk premium: $25K
Total: $325K

Buy Total (5 years):

Licenses: $25K × 5 = $125K
Total: $125K

Break-even would take 8+ years. Most planning horizons are 3-5 years.

The AI Adjustment

AI can reduce initial dev by 40-60%, BUT maintenance costs stay similar. So:

AI-Assisted Build:

Initial: $45K (40% reduction)
Maintenance: $35K/year (no change)
5-year total: $245K

Still loses to buy at $125K.

International Complexity

Multi-region compliance adds 30-50% to BOTH scenarios, but vendors often absorb this.

What We Require

Any build over $50K needs:

Joint CFO-CTO approval
Standardized financial model
5-year TCO comparison
Confidence level assessment (if <70% confident, add risk premium)

This isn’t about saying no - it’s about making informed decisions with full cost visibility.

cto_michelle · February 23, 2026, 8:11pm

Carlos, love the financial rigor. Let me add the technical factors that multiply those maintenance costs.

Technology Stack Matters

Maintenance isn’t uniform. It varies wildly based on tech choices:

Modern Cloud-Native Stack:

Serverless, managed services, standard APIs
Maintenance: ~20-25% of initial build annually
Team can modify without deep expertise

Legacy/Custom Stack:

On-prem, custom protocols, proprietary tech
Maintenance: 50-70% annually
Requires original architect knowledge

Team Capability Multiplier

Add this to your model:

Can the team ACTUALLY maintain this?

Team proficient: 1.0x maintenance cost
Learning required: 1.5x maintenance cost
Specialist needed: 2.0x+ maintenance cost

Example: We built in Angular when team knew React. Maintenance costs were 2x estimates because every change required learning time.

Joint Approval Works

Our CFO-CTO joint approval has been fantastic. Forces both perspectives:

CTO: Can we build this sustainably?
CFO: Does the math actually work?

Result: Better decisions, fewer regrets.

product_david · February 23, 2026, 8:11pm

This is why product-finance alignment is crucial. Let me add the intangibles that spreadsheets miss.

Strategic Intangibles

Some builds have value beyond ROI:

Customer Trust: Building custom security shows enterprise commitment
Brand Differentiation: Unique capabilities create market positioning
Competitive Moat: Build things competitors can’t easily copy

BUT - and this is critical - only 10-15% of potential builds deserve “strategic” classification.

Two-Track Approval

Financial ROI: For tactical builds, numbers must work
Strategic Case: For competitive advantage, justify beyond ROI

Example:

Custom analytics: Failed both tests, bought Amplitude
Custom workflow engine: Failed ROI, passed strategic test (core differentiator)

The Discipline

Most teams claim everything is “strategic.” Carlos’ framework forces honesty. If CFO can’t see the Series C pitch, it’s not strategic.

sales_jenny · February 23, 2026, 8:11pm

Adding sales impact to the calculator - these costs directly affect revenue.

Build Decisions Impact Sales Cycles

Carlos, add this component: Sales Cycle Impact

Custom Build Can Add:

30-45 days to enterprise security reviews
“Is this proven?” concerns from buyers
Integration complexity questions

Example: Our custom SSO added 45 days average to sales cycles. At $50K average deal size and 10 deals/month:

45-day delay = 1.5 months
Revenue impact: $750K delayed per month of build time

That delay cost dwarfs the build vs buy decision.

Counter-Example

When custom = competitive advantage, it SHORTENS cycles:

Custom workflow engine specific to our industry
Prospects said: “You clearly understand our needs”
Sales cycle decreased 20%

The Addition to Your Model

Ask:

Will this lengthen or shorten sales cycles?
Will buyers see this as proven (buy) or risky (build)?
What’s the revenue impact of cycle time changes?

Most builds lengthen cycles. Only strategic differentiators shorten them.

eng_director_luis · February 23, 2026, 8:11pm

From engineering management - add team retention costs to the model.

The Hidden Cost: Engineer Churn

Senior engineer turnover: $150K-250K per person (recruiting, onboarding, productivity ramp).

Build decisions affect retention:

Good builds (strategic, interesting): Improve retention
Bad builds (maintenance nightmares): Drive churn

The 70-20-10 Balance

What works:

70% buy/integrate: Focus on outcomes
20% strategic build: Interesting challenges
10% innovation: Keep skills current

Too much buy = bored engineers = churn
Too much build = technical debt = burned out engineers = churn

Add to Calculator

If build creates interesting work on core differentiation: -$50K retention benefit
If build creates maintenance burden: +$100K churn risk

Senior engineers want meaningful challenges, not endless maintenance.