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September 24, 2023
Mieke Houbrechts
Wondering whether to build or buy software for your product? Here is all the info to consider when making an informed decision.
When you're building out a new product, there are many choices you can make. All of them have a profound effect on the final product, your customer satisfaction and ultimately, your revenue. One of those decisions is build vs. buy software. Both have their pros and cons and the path you take will have a deep impact on your product.
We talk with hundreds of SaaS founders every month, all facing this same dilemma. Here is how to make a choice that is right for your business, based on our learning and experience.
The world is in flux, and your software users’ needs change constantly. Evidently, you want to build the best possible product for your customers. But that task is less than evident.
Product teams are juggling many priorities that require scarce engineering resources. Meanwhile, engineers are swamped. Too many projects, and too little time to complete them.
Developing new features for your own software can easily take months. Therefore, SaaS companies are exploring alternatives to move faster. Many of them are considering buying vs building software to further improve their product and speed up their workflows. As a SaaS CEO, this decision is critical to the success of your business.
But which route is right for you and which one will give you the most competitive advantage at the lowest cost?
In this guide, you’ll get actionable advice to make the right decision as a SaaS CEO. Read on for a deep dive into the build or buy analysis!
In general, product and engineering teams prefer building product features in-house. For example, in our PropTech SaaS trend report, a striking 75% of respondents say they built reporting features in-house, instead of choosing an embedded analytics solution.
This natural aversion to buying software is no surprise. As a SaaS builder, your love for building products led you to start a SaaS business in the first place. There’s nothing like the thrill of building something from zero. And the potential to change the lives of many.
If you’ve built software products before, you know the many benefits of building all product features in-house.
But like any approach, building software in-house has its drawbacks.
Especially for product features that lie far from your core business, in-house development isn’t without risks. Without the right expertise in your team, your product is more prone to errors and roadmap delays.
Still, in-house development is the better option for building your core differentiators. With the following considerations, you’ll increase your chances of success.
If you had unlimited time, budget, and resources to build all the cool product features your customers want, you wouldn’t be reading this article. The reality is that SaaS companies always want to grow faster than their current resources allow.
For that reason, more and more SaaS execs are considering buying third-party software and integrating it into their existing product. Buying vs building software has many benefits for software teams that want to scale quickly on a shoestring budget.
Despite the obvious benefits, many SaaS founders still fear the risks of buying third-party software. This just might be the best solution, but here are some fears that most stakeholders have:
There are plenty of buy vs build success stories to debunk these myths about software development outsourcing through integrations. However, selecting the right vendor will be essential to your success. Below are a few key factors to consider.
For example, buying software for data visualization is a lot cheaper and faster than building something on your own.
Cost is a critical factor in making the build vs buy decision. SaaS teams wrongly believe that building software in-house is the cheapest option. However, the cost of a yearly software license comes nowhere near the cost of custom software development.
The most overlooked costs of building product features in-house are:
With the average US developer salary clocking out at $95k per year, building features in-house can make a giant dent in your company budget and hurt your profitability. Buying a third-party, off the shelf solution, on the other hand, can save you time and money.
Ongoing maintenance can skyrocket the total cost of ownership (TCO) when you build software in-house. Therefore, buying third-party software is almost always the most cost-effective option.
However, be mindful upfront about any hidden costs. If your setup needs a lot of customizations or custom integrations, you might end up disappointed. The upfront cost is not always the final cost you end up paying.
If you build a product feature in-house, even the smallest detail is for you to decide. With endless customization, SaaS product teams can tailor the software to their needs. Having full control is especially useful in industries with many (legal) requirements, like healthcare or finance.
Third-party software solutions almost always start from a standard package that serves many. Although your solution is standard, these off-the-shelf components give you a headstart at a much lower cost.
To make sure it meets your individual use case, these tools often come with customization options on top. You can either develop customizations yourself using an open API or pay for professional services and have it done for you.
And remember, third-party software vendors are experts in their domain. If you buy their off-the-shelf software, it means you’re buying a package that meets industry standards and follows best practices by default.
To decide what’s best for you, you’ll have to balance your needs against resources. Are deep customizations necessary for a functional MVP? Or is time of the essence? This will help you make a better assessment of whether to purchase software or build it.
Choosing between buying vs building software right now means choosing for the future too. You’ll want to ensure your new software choice will scale as your product and user base grow.
Building in-house means you can scale when and how you want. You have much more flexibility to add features as you go. With full control over the roadmap, you’ll work closely with product and engineering as you grow. However, you’ll need to sacrifice a good deal of resources to keep building and maintaining these features.
Third-party software solutions, on the other hand, are scalable by design. You add users, features, and functionality as needed over time.
Not only is it faster, but also cheaper for startups that scale fast but lack the resources and expertise to develop the software in-house. However, beware of the caveats. Ensure you understand any limits as to how far you can customize to make sure you’ll meet your product users’ unique needs in the future.
Both options can support SaaS companies as they scale, depending on your unique needs. Companies that think about future-proof solutions early on will have higher chances of making the right choice.
SaaS companies often overlook the cost of maintenance and ongoing support. Therefore, it’s an important factor in your build vs buy software analysis.
Bug fixes, security updates, and new feature development will be an ongoing process if you decide to build in-house. Not only are the costs and effort high, but you need to take into account logistical challenges.
If crucial developers leave your company, you may lose all resources and expertise to handle ongoing maintenance. And it leaves you with an even larger hole to fill.
Taking the buying road comes with ongoing maintenance and support included. However, don’t be mistaken by the long-term costs of licensing fees, customizations, and potential upgrades. Costs can quickly add up, and you may not be aware of it at first.
Making a back-of-the-envelope budget calculation will prepare you to make the right decision. Uncover hidden costs of buy and build approaches upfront and reap the benefits later.
Now you know which business requirements to keep in mind when building or buying software for your next product feature. Use this simple flowchart below to make the decision for any development project on your roadmap!
You can use it for build or buy considerations for analytics features, onboarding experiences, in-app communication, or whichever feature you're working on next!
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We hope this thorough build vs buy analysis helped you weigh the pros and cons of each approach. You can now guide your decision-making and find a solution that best fits your company’s needs and business goals.
Is client-facing reporting on your roadmap, but unsure whether to buy or build analytics? Get in touch with our product experts, and explore the power of off-the-shelf reporting dashboards.
Experience the power of Luzmo. Talk to our product experts for a guided demo or get your hands dirty with a free 10-day trial.
