Make vs. Buy: The Most Expensive Decision Nobody Analyzes

"We need a custom solution" – this sentence has cost many companies hundreds of thousands. Just like: "Standard software will be enough" – when it wasn't.

The make-vs-buy decision is among the most consequential IT decisions. And among the least analyzed.

Why This Decision Goes Wrong So Often

The "Custom Development" Trap

• Initial underestimation: "It's just a CRUD system"
• Scope creep: New requirements every week
• Maintenance costs ignored: After 3 years, maintenance costs more than rebuilding
• Dependency: The one developer who understands it quits

The "Standard Software" Trap

• Customization costs: "Out of the box" rarely means without customizing
• Process adaptation: Eventually you adapt to the software
• Vendor lock-in: Switching gets more expensive each year
• License cost explosion: What started cheap scales expensively

The Total Cost of Ownership (TCO) Comparison

The honest calculation over 5 years:

Custom Development TCO

Year 1: Development
├─ Requirements analysis: €20,000
├─ Design & Architecture: €15,000
├─ Development: €80,000
├─ Testing: €20,000
├─ Deployment: €10,000
└─ Year 1 Total: €145,000

Years 2-5: Maintenance & Evolution
├─ Bug fixes (20% p.a.): €16,000/year
├─ Security updates: €8,000/year
├─ Feature extensions: €25,000/year
├─ Infrastructure: €6,000/year
└─ Per year total: €55,000

5-Year TCO: €145,000 + 4 × €55,000 = €365,000

Standard Software TCO

Year 1: Implementation
├─ License costs: €24,000
├─ Implementation/Customizing: €40,000
├─ Data migration: €15,000
├─ Training: €10,000
└─ Year 1 Total: €89,000

Years 2-5: Ongoing Costs
├─ License costs: €24,000/year
├─ Support contract: €8,000/year
├─ Updates/Upgrades: €5,000/year
├─ Customizations: €10,000/year
└─ Per year total: €47,000

5-Year TCO: €89,000 + 4 × €47,000 = €277,000

However: These are average figures. Your situation may be completely different.

Calculate your TCO: Our Make-vs-Buy Decision Tool calculates costs for your specific situation.

The 7 Decision Criteria

1. Strategic Differentiation

Question: Is the software a competitive advantage?

Examples:

• Online shop for a retailer → Buy
• Algorithm for a fintech → Make
• CRM for a service provider → Buy
• Configuration tool for a machine builder → Evaluate

2. Fit of Available Solutions

Question: How well does standard software match your requirements?

Warning: "We're different" is the most common misconception. Critically examine whether your requirements are really that unique.

3. Time-to-Market

Question: How quickly must the solution be available?

Custom development almost always takes longer than planned. Factor 1.5-2x is realistic.

4. Change Frequency

Question: How often do requirements change?

High change frequency → Make

• Own development enables quick adjustments
• No dependency on vendor roadmaps
• Cost per change often lower

Low change frequency → Buy

• Stable requirements = standard suffices
• Updates come from provider
• Less own effort

5. Available Resources

Question: Do you have capacity for custom development?

Reality: Most SMEs don't have these resources internally. External development is possible but more expensive and risky.

6. Integration Complexity

Question: How must the software communicate with existing systems?

Many integrations → Tendency Make

• Full control over interfaces
• No limitations from standard APIs
• But: Every integration must be built yourself

Few/Standard integrations → Tendency Buy

• Standard software often has ready connectors
• Established interfaces to common systems
• Faster implementation

7. Regulatory Requirements

Question: Are there special compliance requirements?

The Decision Matrix

Rate each criterion from 1-5:

Evaluation:

• Score > 28: Tendency Make
• Score 18-28: Detailed analysis needed
• Score < 18: Tendency Buy

The Hybrid Option: Best of Both Worlds

Often the answer isn't Make OR Buy, but Make AND Buy:

Composable Architecture

• Standard software for base functions
• Custom development for differentiation
• APIs connect the components

Low-Code as Middle Ground

• Faster than classic development
• More flexible than standard software
• But: Own limitations

Build-on-Top

• Use SaaS as platform
• Own logic via API/Extensions
• Example: Shopify + Custom Apps

Avoid Common Mistakes

Mistake 1: Only Compare Initial Costs

Custom development seems initially cheaper, but maintenance costs.

Mistake 2: Ignore Opportunity Costs

What else could your developers build instead?

Mistake 3: Believe Vendor Presentations

"Out of the box" rarely means "without effort".

Mistake 4: Forget Exit Costs

How expensive is switching in 5 years?

Mistake 5: Not Prototyping

Before big investments: Do a POC!

Your Next Steps

1. Use Make-vs-Buy Tool – Calculate TCO and risks
2. Prioritize requirements – What's truly differentiating?
3. Survey the market – What standard solutions exist?
4. Plan POC – Test 2-3 options

Understand process costs: Before choosing a solution, understand the true costs of your current situation with our Process Cost Analyzer.

Conclusion: Analysis Beats Gut Feeling

The make-vs-buy decision is too important for gut feeling. With a structured analysis of the seven criteria and an honest TCO calculation, you make informed decisions.

And sometimes the best decision is: Don't decide yet. First understand the process, then clarify requirements, and then evaluate options.

Facing a complex make-vs-buy decision? Our AI Adoption Audit helps you understand the strategic implications and make the right choice.