Build vs. Buy Calculator

The underlying economic framework estimates the total initial investment required for in-house development and compares it against ongoing operational expenses. First, an adjusted employee cost is calculated by multiplying the gross salary by overhead: Employee Cost = Gross Salary * (1 + Overhead). The initial cost to build is then derived from development time, team size, and employee cost: Cost to Build = Time to Build * Employee Cost * Number of Employees. Annual maintenance is projected using monthly working equivalents: Annual Maintenance = Days Maintenance * Employee Cost * 12 / 5. Net annual savings determine how quickly the initial capital investment is recovered: Annual Savings = Annual Cost - Annual Maintenance, and finally, Years to Profit = Cost to Build / Annual Savings.

Imagine a mid-sized tech company evaluating a proprietary project management tool versus a SaaS subscription costing $50,000 annually. They plan to assign 2 developers for 3 months (0.25 years). Each developer earns a gross salary of $100,000 with a 20% overhead factor. First, the adjusted employee cost is $100,000 * 1.20 = $120,000 per year. The cost to build is 0.25 * $120,000 * 2 = $60,000. Next, assuming 2 days of maintenance per month (24 days annually), the annual maintenance cost becomes 24 * $120,000 * 12 / 5, which scales to operational hours. If annual savings (subscription cost minus maintenance) equals $20,000, the years to profit calculation is $60,000 / $20,000 = 3 years to break even.

When running your numbers, always account for hidden expenses such as security audits, employee turnover, and continuous software updates. Ensure your overhead percentage includes benefits, hardware, office space, and software licenses. Finally, consider opportunity cost: even if building in-house is slightly cheaper on paper, diverting your top engineering talent away from core product features can stall overall business growth.