The total cost of ownership (TCO) is the number that matters when comparing custom software and SaaS. A SaaS subscription that costs 40 per user per month looks cheap at 10 users. At 80 users over five years, the same subscription costs 192,000, before any price increases. Custom software with a 60,000 build cost and 10,000 annual maintenance totals 100,000 over the same period. The crossover point, where custom software becomes cheaper, is typically between 30 and 60 users.
We help UK SMEs calculate this comparison with real numbers. The goal is to show the true cost over three to five years, not just the first month. Use our SaaS ROI calculator to run the numbers with your own subscription costs.
How Do You Calculate SaaS Total Cost?
SaaS pricing is per-seat and linear. Every additional user adds the same monthly cost. The formula is simple but the result is often surprising.
To calculate SaaS TCO over five years:
- Base subscription: Per-seat monthly cost multiplied by current users multiplied by 60 months.
- Growth allowance: Add the cost of projected new users over five years.
- Price increases: Apply an annual increase of 7 percent (Gartner consistently reports SaaS price rises of 5 to 10 percent annually).
- Integration costs: Add one-off costs for connecting SaaS tools to your existing systems, typically 5,000 to 20,000.
- Admin overhead: Account for staff time managing multiple SaaS platforms, user provisioning, and support. The Office of National Statistics estimates the average UK knowledge worker costs about 35,000 per year including overheads, so even 5 percent of their time on SaaS admin adds up.
Example: A 50-user team on a CRM at 80 per seat per month. Base cost: 50 x 80 x 60 = 240,000. With 7 percent annual increases, the five-year total rises to approximately 276,000. That is for one platform.
How Do You Calculate Custom Software Total Cost?
Custom software has a different cost structure. The build is a one-off upfront cost. Maintenance is a percentage of the build, not per-seat. Adding users costs nothing beyond infrastructure.
To calculate custom software TCO over five years:
- Build cost: One-off development cost, typically 40,000 to 120,000 for a business application. See our guide on how much custom software costs for a full breakdown.
- Annual maintenance: 15 to 20 percent of build cost per year, covering bug fixes, security updates, and minor improvements.
- Hosting and infrastructure: Cloud hosting typically 100 to 500 per month depending on usage.
- Internal support time: Less than SaaS admin, because you control the system and can train users directly.
Example: A 70,000 build with 15 percent annual maintenance and 300 per month hosting. Five-year total: 70,000 + (70,000 x 0.15 x 5) + (300 x 60) = 70,000 + 52,500 + 18,000 = 140,500. This is fixed regardless of whether you have 20 users or 200 users.
Where Is the Crossover Point?
The crossover point is the user count at which custom software becomes cheaper than SaaS. It depends on the SaaS per-seat cost and the custom build cost.
For a CRM comparison (SaaS at 80 per seat, custom build at 70,000):
- 20 users: SaaS five-year cost is about 110,000. Custom is 140,500. SaaS wins.
- 40 users: SaaS five-year cost is about 221,000. Custom is 140,500. Custom wins.
- 60 users: SaaS five-year cost is about 331,000. Custom is 140,500. Custom wins by a large margin.
The crossover for this example is around 25 users. Below that, SaaS is cheaper. Above it, custom software saves money every year. The exact crossover varies by platform cost and build complexity.
What Hidden Costs Does SaaS Have?
SaaS has costs beyond the subscription that are easy to overlook:
- Price increases: SaaS vendors raise prices. Gartner reports typical annual increases of 5 to 10 percent, with larger jumps at tier changes.
- Add-on costs: Many SaaS platforms charge extra for features that seem included: API access, advanced reporting, additional storage, or premium support.
- Integration costs: Connecting SaaS tools to your existing systems often requires paid middleware or custom integration work.
- Switching costs: Moving off a SaaS platform means exporting data, retraining staff, and potentially losing historical records. This is a deliberate friction point.
- Admin overhead: Managing user accounts, permissions, and billing across multiple SaaS tools consumes real staff time.
These hidden costs push the real SaaS TCO 20 to 40 percent higher than the subscription price alone suggests.
How Do You Make the Decision?
The decision framework is straightforward once you have the numbers:
- Calculate the five-year SaaS TCO at your current and projected user count, including price increases and add-ons.
- Get a realistic custom software build estimate from a development partner.
- Compare the two numbers at your expected user count in three to five years.
- Factor in the value of owning your software: no vendor lock-in, no price increases, full data control.
- If custom is cheaper or close, and your needs are not fully met by SaaS, build. If SaaS is significantly cheaper and meets 80 percent or more of your needs, buy.
For most UK SMEs with 40 or more users on a single SaaS platform, custom software is worth exploring. Book a free discovery call to discuss your specific comparison, or read our broader guide on build or buy software.