SaaS has been brilliantly marketed. No large investment, up and running quickly, always the latest version. For a small or medium-sized business, that sounds like a liberation compared to the old days, when you bought software, installed it, and maintained it yourself. And in the beginning, it is liberating. A tool costing thirty euros a month feels negligible.
The problem comes later. Not because SaaS is bad, but because it accumulates and because you never get rid of it.
The calculation
Take a small or medium-sized business with ten users. A reasonable set of tools for an operational company:
- A CRM package: approximately 50 euros per user per month
- A project planning tool: 25 euros per user
- A quoting and invoicing package: 30 euros per month fixed plus 5 euros per user
- A communication and file-sharing tool: 15 euros per user
Combined, that comes to roughly 95 euros per user per month plus 30 euros fixed. For ten users, that is 980 euros per month, or 11,760 euros per year. Over five years, that is well over 58,000 euros. And that is at today's prices, while SaaS vendors almost without exception raise their prices every year.
A comparable custom platform costs somewhere between 25,000 and 50,000 euros to build, depending on scope. After that, you only pay for hosting and any further development on an hourly basis. Hosting for such a platform is often 50 to 100 euros per month. Over five years, you are looking at 30,000 to 60,000 euros, often slightly less than SaaS, sometimes slightly more depending on where you fall in the range.
The real difference is not about money
On the numbers alone, it is almost a draw, with a slight advantage for custom development in most cases. But that is not where the real difference lies either. There are a few things that money cannot buy.
Data ownership. With SaaS, your data lives on the vendor's servers. You can access it, but you do not control it. If the vendor changes its terms, gets acquired by a larger player, or goes bankrupt, you have a problem you cannot solve yourself. With custom development on your own infrastructure, everything belongs to you.
Process fit. A SaaS tool imposes its way of working on you. For commodity processes (email, office automation) that is not a problem. For your core processes — where you differentiate yourself — it means you adapt your competitive advantage to the software rather than the other way around.
No subscription risk. SaaS prices move in one direction: up. With custom development, your costs are fixed: hosting plus the occasional further development. You can go years without changes and it will not cost you any more.
When SaaS is the better choice
I do not want to suggest that SaaS is always the wrong choice. For commodity functions — things that are the same everywhere — SaaS is almost always the best option. Email, office suites, accounting, helpdesk tools for standard queries. There is nothing to be gained from custom development there, and the convenience of SaaS is well justified.
The tipping point comes with processes where your way of working adds value. That is where SaaS costs you more than you realise — not in money, but in agility and competitive advantage.
The right question
The question is therefore not "SaaS or custom development", but "for which process". Choose SaaS where it does not matter, choose custom development where it does. That is the combination that will serve you best after five years, both financially and operationally.