Build vs Buy Software

Choosing the wrong software for business can cost more than the price of a subscription or development project.

A ready-made application could be deployed quickly, but what happens when your team still depends on spreadsheets, repeated data entry, and disconnected systems to get their work done. On the other side, developing custom software from scratch will brings extra costs when an existing software will fulfill all your needs.

Therefore, the question arises should you build custom software or buy ready made software or combine both?

The answer depends on your business requirement, working process, total cost of ownership and future growth plans.

Here, We will compare all the three approaches, explain the pros and cons and also share the insights from real world custom build software for manufacturing industry which has remained in use for more than seven years.

This will help you to choose software that will solve your right business problem.

What Does Build vs Buy Software Mean?

Build vs buy software refers to the decision between buying a ready-made software product and building a custom software solution.

There are three practical approaches.

1. Buy ready-made software

Organizations opt for ready-made software, also referred to as off-the-shelf software, when a vendor has already developed a solution for their business processes. The organization usually purchases or subscribes to a license for the application.

Most ready-made software are accounting software, payroll applications, customer relationship management (CRM), inventory management software, and enterprise resource planning (ERP) systems.

Ready made software have an advantage over custom build software because organizations can deploy them faster, often with little or no modifications.

2. Build custom software

Custom software is designed around an organization's business model, processes, and requirements. Businesses with specialized workflows can explore custom software development when standard products cannot meet their essential requirements.

For instance, manufacturers develop production software that manages jobs work, purchasing of raw materials, stock, production, sales of products, and the company’s finance.

Some manufacturers might find difficult to purchase ready made software and modify them to fit their unique business needs. As a result, they might choose to build custom software.

However, it can be quite expensive to purchase and license the application.

3. Combine both the approach

Hybrid custom and packaged software is a mixture of off-the-shelf and custom software. The hybrid approach is suitable for some companies that want to buy ready-made applications and develop a few custom tools to support their business processes.

A manufacturer, for instance, might purchase accounting and payroll software and develop a custom production management system that handles the stock, purchase of materials, production process, and sales of their goods.

Buying Software: Advantages and Disadvantages

Buying software is usually the preferred option if you have standard requirements and existing solutions can fulfill them.

Advantages of buying software

• Quicker deployment: You do not have to design and develop a solution from scratch. Depending on the product category, you can start using it in days or months.

• Lower costs at launch: You do not have to invest in development, and you can subscribe to a product, buy a licence, or pay for its implementation.

• Vendor-managed updates: SaaS providers regularly update their products, and these updates are included in the subscription cost.

• Proven functionality: You will be depend on references, demos, and documentation.

• Less development responsibility: Your company is not responsible for improving the software’s core functions.

These advantages make buying software an attractive choice, especially for small businesses that want to spend less amount on development and reduce the number of projects on their plate.

Where buying software can become expensive

Purchasing software can become more expensive if you haven't initially anticipated in overall scenarios.

An inventory application might have excellent managerial reports but be unable to streamline the production process. while an accounting system might be perfectly suited for your operations, it might not be compatible with other critical applications, which would then have to be modified to work with it.

Those gaps can lead to:

• Additional data entry and spreadsheet usage to supplement the acquired software.

• Higher costs for additional integrations, add-ons, and employee training.

• Higher costs for reporting and record keeping if the acquired product does not meet your functional requirements.
  

A subscription that looks inexpensive at starting can cost you higher when you add user licenses, paid modules, integrations, and the time employees spend working around limitations.

A seemingly inexpensive subscription may require your company to purchase additional licenses, modules, and connectors to another application or database.

Buy ready made software when you have standard requirements, don't have time to build software, and the product can support your current needs without extra modifications.

Building Custom Software: Advantages and Disadvantages

Custom software is an option whenever existing products fail to meet critical business needs in a way that is negatively impacting the organization.

When custom software provides the real value

Fits actual workflows: Instead of telling employees to follow a pre defined process, you can design the software according to your business requirements.

For a manufacturing company, the requirement is inter connect raw material purchase, manage inventory, job work, production, finished goods, sales, and accounting.

Control future changes: When business processes change, you can plan to update the software according to your requirements rather than waiting for a upgrade from software provider. This depends on your ownership agreement and the availability of a development team.

Support a competitive advantage: A specialized production process, or custom workflow helps your business perform better than competitors, custom software may help you improve and maintain that capability.

Reduce disconnected work: Proper designed system can connect across departments, reduce repetitive data entry and generating reports gets easier.

Yearly cost breakdown for custom software

Development is only the beginning.

Your investment may include:

• Requirements analysis, design, and development.

• Testing, deployment, and data migration.

• Hosting, infrastructure, and security.

• Bug fixes, technical support, and maintenance.

• Implementing new features, for compliance updates.

• Documentation and ongoing technical management.

Hosting, infrastructure, security, monitoring, and disaster recovery should also be included in your budget. Review the requirements for cloud hosting and infrastructure when estimating the ongoing cost of operating a custom application.

Poorly defined requirements leads to unnecessary features implementation which cause to missed deadlines, and increase project costing. Dependency on a single developer or freelancer can make future maintenance difficult if the system is not properly documented.

Before developing custom software, it is necessary to analyze the project requirements, scope, source code ownership and maintenance.

Build custom software when the existing solutions cannot meet the requirements, which, in turn, have a negative impact on the business, and the benefits of such a solution outweigh the costs.

6 Factors to Consider Before Deciding whether Build vs Buy Software

Before comparing development quotations or software subscriptions cost, consider these six factors.

1. Uniqueness of your business requirements

Begin by documenting your current processes to understand:

• Which tasks are performed manually?

• Where do employees enter the same information more than once?

• Which departments depend on each other's data?

• What type of reports do you need?

• Which processes are essential to how your business?

Once you understand your requirements, determine whether existing ready made software can fulfill them. If you have common requirements, give priority to ready made solutions .

However, if you have unique work flow or reporting requirements, check if they can be fulfill by small configuration or third party integration.

2. Does an existing product fulfill your requirements?

One approach is to compare available products against your must have features.

If a product fulfills 80% to 90% of your requirements, it may be a good fit for your business. But look closely at the missing capabilities.

Differentiate your requirements as essential, important, or optional. Then evaluate whether the gaps can be resolved through configuration, integration, or custom development.

3. Total cost of ownership (TCO)

When considering ready made software, ensure that you evaluate the total cost of ownership, not just the license fee. This considers the costs of integration, configuration, migration, training, support and switching. The cost of switching should also be weighed against the cost of retention if you are considering a move from one product to another.

For custom software, which includes discovery, development, testing, hosting, maintenance, security, support, future enhancements, and technical management.

Compare both options over three to five years rather than looking only at the initial price. The numerical example in the next section shows how this comparison works.

4. Time-to-Market & Urgency

While buying an existing product is a far better option if you need something immediately, urgency should be measured in terms of the value of time saved to your business.

A product that takes a week to implement but requires a month of your team’s time every year might be less urgent than another product that requires 6 months to implement but only 2 days of your team’s efforts every year.

5. Business need in next 5 years

Estimate your requirements in 5 years’ time.

How many transactions will you be processing?

How many employees will you have?

How many locations will you have?

Will you be offering additional products and services?

How will your business processes change?

For ready made software, evaluating whether the vendor offers time to time software upgrades, integrations and plans that will fulfill your evolving needs.

For custom software, your development partner needs to build flexible software which can scale with the future changes without disturbing the technical architecture and take care of security aspects.

When budgeting for software, allocate funds to address these requirements rather than budgeting for features that you will never use.

6. Who will maintain the software?

With ready-made software, the vendor maintains the software, but it is important to understand their support, security, data access and roadmap policies.

With custom software, your business needs to ensure that there is a reliable support system in place. Decide, before implementation, who will be responsible for maintaining the system, bug fixing and managing future enhancements.

Ensure that you understand the technical implications of any changes that you request. Understand your rights to support, documentation, source-code access and exit clauses if something were to happen to your development partner.

If you're unsure how to evaluate vendors, estimate long-term costs, or prioritize your requirements, IT consulting for software selection can help you assess the available options before committing to a solution.

Real World Example: Custom Software for a Manufacturing Business

One of the clearest examples from my experience involves a cooler manufacturing company that wanted to automate its complete business workflow.

The requirements was more then basic inventory management or accounting software.

The challenge

The company needed a software that could manage the following:

• Raw material purchasing from multiple vendors.

• Inventory of the raw materials and stock transfers.

• Manufacturing and production.

• Job work process during production.

• Finished goods inventory.

• Sales of the finished products (both B2B and B2C)

• Accounting, expenses, revenues, profits and loses.

• Customized reports on inventory and accounting.

The available solutions did not address all of the user’s concerns since their manufacturing and job work processes were highly specific and unique to the company, and they needed tailored reports for their operations, which the existing products did not provide.

Moreover, if they opted for the available options, they would have to make do with the shortcomings of the existing products, introduce workarounds, and possibly invest heavily in customization and the removal of unnecessary features.

The recommendation

After understanding the company requirement, I recommended them to build custom software.

We developed a system designed to connect the company essential activities instead of treating purchasing, manufacturing, inventory, sales, and accounting as separate functions.

The goal was to educe unnecessary manual work and natural flow of information between departments.

The seven year outcome

The company has been using the software for over seven years, and they report that it has helped them to standardize and optimize their operations.

The product has evolved in accordance with the changing needs of the clients, and we continue to update the software till date.

Taxation and compliance requirements also evolved, including requirements affecting GST billing. We made necessary updates to support the applicable changes.

The company has benefited from:

• Better visibility into raw materials, job work, and finished products.

• Fewer manual entries and duplicate records.

• Tracking of expenses, revenue, and profitability gets easier.

• Better coordination between departments.

• Less time spent preparing reports and making business decisions.

• Greater control over future software changes.

Although I cannot quantify the time savings and reduced costs for the client since I do not have hard metrics at my disposal.

I can confirm that they continue to use the software, and it has undergone improvements during the more than seven years of its existence.

For this particular client, the custom software development solution has been a most suitable choice.

A company that has more generic needs may be far better served by choosing one of the existing ERP or manufacturing solutions and customizing it to their specifications.

For another example of business systems built around operational requirements, explore Hexaloop's inventory management system project.

Build vs Buy: A 3-5 Year Cost Comparison

A ready-made product may cost less initially, but that does'nt tell you what it will cost to use over several years. Likewise, a custom application may require a large upfront investment but have a different recurring cost.

Consider this illustrative example.

Uploaded Image

All figures are illustrative, not actual client costs or quotations. Totals assume the annual costs remain constant and exclude additional expenses not listed in the table.

In this example, initially ready-made software is cheaper but for longer duration custom software gets cheaper.

Over five years, the difference is more than ₹1,00,000 in favor of custom software.

However, the cost could change if the ready made product requires expensive integrations, additional licenses, or significant manual work. Equally, custom software could cost more than expected if maintenance and future development are underestimated.

The purpose of the calculation is to compare realistic costs, not to prove that one approach is always cheaper.

Include the cost of manual work

Manual work such as the time spent by staff transferring information between spreadsheets, reconciling records, checking stock balances, and producing reports should also be reflected in the cost of the software.

An example of this is:

A task that takes 5 hours every week adds up to approximately 260 hours a year.

Multiply this with the loaded hourly cost of the employee to estimate the annual cost of this task.

Then, estimate how much of this time the proposed software would realistically save. Just because a task takes time, it doesn’t always mean that the time has a direct cost.

The financial benefit should reflect whether the business can reduce costs, avoid additional headcount, or redeploy this time to some other valuable activity.

Include these costs in your analysis along with subscriptions, development, and maintenance before making your decision.

Why a Hybrid Approach Could Be the Right Choice

A hybrid approach can help where a fully off-the-shelf solution does not meet the requirements, but a fully custom solution is too time taking and resource-consuming.

A hybrid approach allows you to purchase existing software for most functions, while developing only the parts that need to be different in house.

For example:

• Manufacturing: Buy accounting and payroll software, then build custom production planning and job-work tracking.

• Trading: Buy CRM and accounting software, then develop a specialized quoting and order management system.

• Professional services: Buy accounting and document management tools, then build a client portal or document automation workflow.

• Service businesses: Buy CRM and payment software, then develop custom scheduling or operational workflows.

This approach can help reduce development costs and avoid redeveloping functions that other products have already mastered.

It also makes it possible to focus on the areas in which your business really needs to differentiate itself.

There is one important consideration: integration.

If the systems cannot share information reliably, the business could end up with more siloed, disconnected systems than it already has. Before choosing a hybrid approach, analyze the data sharing, costs of integration, support, and ongoing maintenance, and potential impacts of any one product changing its offering.

“Before adding another application, consider whether integrating your existing business software could solve the underlying problem with less disruption.”

Final Recommendation: Build, Buy, or Combine Both?

Custom software should be considered if the company has some specialized workflows or existing products make their work-life unnecessarily difficult. A system that can be tailored to the specific needs of the business can also be a viable option if it allows the organization to improve its processes sufficiently to make it worth the investment.

A combination of both can be the optimal solution in some cases if the company needs a system with basic functions but also requires some degree of customization for specific processes.

Before making any decisions, it is essential to document all of the workflows, determine the most critical requirements, and calculate the costs of each available solution. Calculations should also include the value of employee time, which would be spent performing various monotonous tasks during software installation and configuration, not just the payment terms and conditions.

In my experience, the cooler manufacturing company is a good example of why this matters. Its requirements called for a connected system that could adapt as the business changed. More than seven years of continued use, supported by ongoing updates, has made custom development a practical long-term solution for that business.

The needs of your company may be different, but the idea is to find an ideal solution that would make the most sense in the long run without causing any additional issues.

Not Sure Whether to Build or Buy Software for Business?

Before investing into buying a new system, analyze your current processes, requirements, existing software, third party integrations, and long term costs.

Hexaloop can help you identify the available options and helps you to decide whether ready made software, custom development, or a hybrid approach is the most practical fit for your business.

If you're still weighing your options, start by documenting your requirements and comparing the alternatives. You can Discuss your Software Requirement with Hexaloop to determine the most practical next step.