Custom Software vs SaaS - A Decision Framework for Growing Businesses

The SaaS vs custom decision shapes your operational flexibility for years to come.

A 40-person logistics company we worked with in 2024 was paying $2,100 per month across seven different SaaS tools - a CRM, a route planner, a fleet tracker, a scheduling app, an invoicing tool, a customer portal, and a reporting dashboard. Each tool did its job reasonably well. The problem was that none of them talked to each other without duct tape.

Their operations manager spent roughly 12 hours every week copying data between systems, fixing sync errors, and building manual reports by pulling numbers from four different dashboards. That is 624 hours a year - about $31,200 in salary - spent on data entry that software should handle automatically.

They eventually replaced five of those seven tools with a single custom platform. The build cost $95,000. It paid for itself in 14 months through eliminated labor, reduced errors, and faster invoicing. But here is the thing - that outcome is not universal. For a different company with different workflows, those same seven SaaS tools might be the perfect setup.

When SaaS Is the Right Call

SaaS products exist because most business processes are not unique. Sending invoices, managing contacts, tracking projects, running payroll - these are solved problems. If your workflow matches what a SaaS tool was designed for, buying is almost always smarter than building.

• Your team is under 50 people and your processes are fairly standard
• The workflow you need is the core product of an established SaaS company with thousands of customers
• You do not need deep customization - configuration options cover 85%+ of your requirements
• Speed matters more than precision - you need a working system this week, not in three months
• The data you are handling does not have strict residency or ownership requirements

A 15-person marketing agency does not need a custom project management tool. Asana or Monday.com will work fine. A solo accountant does not need custom invoicing software. FreshBooks exists for exactly this reason. The pattern is clear - if your needs align with a product category that has mature competitors, SaaS wins on speed, cost, and reliability.

When Custom Software Pulls Ahead

Custom development starts making sense when your business processes are genuinely different from the standard playbook - and that difference is what makes you competitive.

• Your workflow is a competitive advantage that no SaaS product supports natively
• You are stitching together 4+ tools with Zapier, manual exports, or custom API integrations
• Per-seat SaaS pricing is scaling faster than your revenue as you add team members
• You need full control over your data for compliance, security, or contractual reasons
• You have hit the ceiling of what your current tools can do and workarounds are eating 10+ hours a week
• Your industry has specific requirements that horizontal SaaS products ignore

Total Cost of Ownership - The 5-Year View

Most teams compare the monthly SaaS bill to the upfront build cost and stop there. This is like comparing the price of renting vs buying a house by looking only at this month's payment. You need the full picture.

SaaS Cost Model Over 5 Years

Take a mid-range SaaS stack for a 40-person company. Assume $50/user/month average across your core tools, with 15% annual price increases (the industry average for B2B SaaS).

1. Year 1: $50 x 40 users x 12 months = $24,000
2. Year 2: Price increase + 10 new users = $34,500
3. Year 3: Another increase + 10 more users = $47,600
4. Year 4: $63,200 (you are now locked in and switching costs are high)
5. Year 5: $82,800

Five-year total: roughly $252,000. And that does not include the hidden costs - the Zapier plan connecting everything ($6,000/year), the part-time admin managing integrations ($15,000/year), or the productivity loss from context-switching between six different interfaces.

Custom Software Cost Model Over 5 Years

1. Year 1: $90,000-$140,000 build cost (depending on complexity)
2. Year 2: $12,000-$24,000 maintenance and hosting
3. Year 3: $15,000-$30,000 maintenance plus feature additions
4. Year 4: $15,000-$30,000 continued maintenance
5. Year 5: $15,000-$30,000 continued maintenance

Five-year total: $147,000-$254,000. The range is wide because it depends on complexity, but the pattern is consistent - custom software has high upfront cost and low ongoing cost, while SaaS has low upfront cost and compounding ongoing cost. The lines cross somewhere between year 2 and year 4 for most businesses.

A side-by-side cost projection helps reveal when custom software becomes more economical than SaaS.

The Decision Matrix

Score each of these factors from 1 to 5. A score of 1 means SaaS is clearly better. A score of 5 means custom is clearly better.

1. Workflow uniqueness - Are your processes standard (1) or highly specialized (5)?
2. Scale trajectory - Staying under 50 users (1) or growing past 200 (5)?
3. Integration complexity - Standalone tool (1) or must connect deeply with 5+ systems (5)?
4. Data sensitivity - Public data (1) or regulated/proprietary data requiring full control (5)?
5. Competitive differentiation - Software supports back-office work (1) or software IS the product (5)?
6. Time pressure - Need it running this week (1) or can invest 3-6 months for a better outcome (5)?

If your total score is 6-14, SaaS is likely your best bet. Focus on finding the right tool and configuring it well. If your score is 15-22, you are in the gray zone - consider a hybrid approach where you buy commodity functions and build the unique parts. If your score is 23-30, custom development will almost certainly deliver better ROI within 3 years.

The Hybrid Path Most People Miss

The smartest companies rarely go 100% SaaS or 100% custom. They buy standard tools for standard problems - payroll, email, basic accounting - and build custom solutions only where their business is genuinely different.

A property management company we advised uses QuickBooks for accounting (bought), Slack for communication (bought), and a custom tenant portal with maintenance tracking built specifically for their workflow (built). The custom piece cost $68,000 and handles the one process that differentiates them from every other property manager in their market - a 24-hour maintenance response guarantee with real-time tracking.

They did not build a custom accounting system because accounting is not what makes them special. They built the thing that makes them special.

Three Questions to Ask Before You Decide

1. If a competitor uses the same SaaS tool, do they get the same advantage? If yes, it is not a differentiator - just buy it.
2. Will this tool still fit in 3 years if you double in size? If the answer is uncertain, factor migration costs into your SaaS estimate.
3. What happens if the SaaS vendor raises prices 40%, gets acquired, or shuts down? If the answer is painful, you have a dependency risk that custom software eliminates.

The right choice is not always obvious, and it changes as your company grows. A startup with 8 people and a SaaS stack is making a rational decision. That same company at 80 people, paying $15,000/month for tools that do not quite fit, is making an expensive habit. Review the decision annually, run the numbers honestly, and build only when the math and the strategy both point in the same direction.