Should You Build New Software or Buy It? – It Comes Down to Cost vs. Control

You need a serious piece of software to help run your business—an Enterprise Resource Planning (ERP) system. Maybe you’re replacing what you’ve got, or maybe you’re outgrowing your paper processes. You’ve looked around, but you don’t see anything for sale that exactly meets your needs. And now you’re considering building your own.

Many, many companies have faced this decision. Should you buy something off the shelf that sort of fits your needs, or should you pay the big bucks for something custom-fit to your business?

There are pros and cons to both approaches (You can read about them here and here). But how do you weigh them in your particular case?

At the end of the day, the decision comes down to cost and control. You have two options:

  • More Control (& More Cost) – You get to define your process and then make custom technology/software that does exactly what you want.
  • Less Cost (& Less Control) – You select the best possible existing technology/software for your use case and then subordinate your process to the technology.

Cost and control rise in tandem—the more control you want, the more you’ll have to pay for it. So the question is…

How Much Are You Willing to Pay for Control?

When determining a high-level direction for a software build vs. buy decision, I recommend working through the following set of steps.

1. Figure the Cost to Buy

Identify an off-the-shelf system that’s a decent fit. Talk to the vendor and get a quote for implementation. At this step, I always assume that the final product I’m buying will be less ideal than the story told by the vendor’s sales team.

2. Estimate the Cost to Build

If we assume your ideal system has a reasonable amount of complexity, the custom solution will cost more than the off-the-shelf solution. In my experience, assuming you hire an experienced external team to build your software, that difference can cost from twice to 20 times more.

(The developer of the off-the-shelf system is able to amortize the cost of the solution across tens or hundreds of clients within a similar industry. Their system will provide more functionality than you need, and it will be generically built for your industry. You’ll find both of these annoying, but the cost saving is advantageous.)

To make a rough guess on the custom cost, multiply the cost of the off-the-shelf solution implementation by 10. That means that a $10K off-the-shelf system will cost $100k to develop custom capabilities, or customizing a $100k system would cost $1MM.

Ten times is a huge difference. Is the juice worth the squeeze? That depends on how much you value control.

3. Gauge Your Need for Control

Different organizations have different needs for control. When thinking about your need, I’d consider these questions:

  • How difficult would it be to modify my workflow to match a technology platform that was developed generically for my industry? How much would I spend internally making these personnel adjustments?
  • How much value do I put on future flexibility to change and modify my workflows based on the way my company evolves?
  • Are there parts of my internal workflow that create a competitive advantage for my company? If not, do I anticipate discovering some in the future?

Use these questions try and quantify the value that you’d derive from having more control.

4. Compare & Evaluate

Compare the estimated cost of custom software with the value you’d get from having more control.

  • If the cost argument is clear (not enough value in having control), then the choice is easy. Buy the off-the-shelf solution.
  • If the control argument is clear (enough value in having control), then the choice is easy. Hire a firm and build a custom solution.
  • If you’re having a hard time deciding, listen to your gut. It’s telling you that you’ll be happier in the long run with the custom solution.

If you need help thinking through your options or have decided to take the custom route, please reach out. We’re happy to help.