Rent vs. Buy: The 3-Year ROI of Custom Software

In real estate, the "Rent vs. Buy" calculation is standard practice. In technology, it is often ignored.

Business owners habitually sign up for SaaS (Software as a Service) platforms because the monthly fee seems low. "$50 a month is cheap," they say.

But they forget to multiply. $50 x 20 users x 5 apps = $5,000 per month.

That is $60,000 per year in pure operating expense (OpEx). This money leaves the business and never returns. This is the definition of the "SaaS Prison" we discuss in our Sovereign Software Strategy.

The Mathematical Crossover

Let’s compare two scenarios for a logistics company needing a "Job Management System."

Scenario A: The SaaS Route

• Cost: $150/user/month (Industry standard for specialized ERP).
• Users: 20 staff.
• Annual Cost: $36,000.
• 3-Year Cost: $108,000.
• Asset Value at Year 3: $0.

Scenario B: The Custom Build

• Upfront Cost: $45,000 (One-off CapEx).
• Hosting/Maintenance: $300/month ($3,600/year).
• 3-Year Cost: $55,800.
• Asset Value at Year 3: High (Proprietary IP).

The Verdict

By Month 16, the Custom Build has paid for itself. By Year 3, the Custom Build has saved the business $52,200 in cash flow.

The Valuation Multiplier

The ROI goes beyond cash flow. It impacts Exit Value.

When you sell a business, you are typically valued at a multiple of EBITDA (e.g., 4x).

• SaaS Users: The $36k/year expense lowers your EBITDA. It reduces your valuation by ~$144,000.
• Custom Owners: The proprietary software is an Intangible Asset. It increases efficiency (higher EBITDA) and is a defensible "Moat" against competitors. It increases your valuation.

Conclusion

SaaS is renting. Custom is owning. If you plan to sell your business in the next 5 years, building your own software assets is not just an IT decision; it is a balance sheet decision.