A calculator for the ongoing cost of in-house solutions

Mohammadreza Javanian

Talon.One loyalty expert

illustration of assessment of build versus buy

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8 minutes to read

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Businesses can be held back by technical challenges, which can quickly move from pain point to a growth blocker. To avoid this, companies should always keep track of their tech debt, fine tune their tech stack, and invest in flexible scalable systems. This can be achieved through developing in-house solutions or building an integrated toolkit of third-party solutions.

The decision to move in either direction can heavily impact a company’s ability to expand its market share and increase its customer base in the long term. As a business grows, its leaders need to explore the pros and cons of different software solutions in order to embrace all aspects of customer experience.

In search of overt and covert cost of in-house solutions

Traditionally, companies relied on their own capabilities to fulfil their technological requirements. However, more and more businesses are creating an ecosystem of microservices, which allows them to buy their required solutions from different vendors. One of the primary reasons behind the declining allure of in-house solutions is their ongoing cost which increases significantly as the business develops.

Let’s calculate these expenses for a company that wants to develop a simple tech solution. Needless to say, the more complex the projects the more the expenses.

CapEx

CapEx (capital expenditure) refers to the cost of developing or providing non-consumable parts for the system. Buying infrastructure, tools, software, and hardware is considered to be the CapEx for a certain project. Think of capEx as the money you pay for buying a car or a house.

OpEx

Are you done with spending money when you buy an automobile or a property? Certainly not. You need to pay for the maintenance of your purchase. Therefore, you need to consider another sort of cost, called opEx (operational expenditure), which refers to the ongoing cost of running a system. These costs are usually referred to as ‘hidden costs’ because most of them are unknown at the outset of developing an in-house solution.

This type of cost is what a business might not expect from the beginning. You might consider the money needed for the maintenance of the solution, but there is always support, bug fixes, frequent upgrades, customization, and numerous small problems that make in-house solutions an accumulating financial burden for a business.

A key point to consider here is that the unforeseen updates and support during the development process of an in-house solution push the finish line further away. That’s why IT projects tend to exceed your initial estimation in terms of the required money and time to complete. According to a Gallup IT survey, one in six IT projects has a cost overrun of 200% on average and a schedule overrun of almost 70%.

Let’s zoom in to see how these expenditures differ between developing in-house solutions and building an integrated toolkit of third-party solutions.

Finding, training & paying developers

One significant cost of building in-house solutions is the one related to your developers. It’s not only the salary of developers, but the time and money you spent during the process of recruiting and onboarding them. The images below compare the devops cost in build vs. buy directions:

Image 1: Salary and other related devops cost when developing in-house solutions (courtesy: bitbar.com)

Image 2: Salary and other related devops cost when buying solutions (courtesy: bitbar.com)

As the images show, the difference between the two methods is stark. They vividly illustrate the opportunity cost of using your talent resources for developing an in-house solution. On top of that, the software developer shortage has made it harder than ever to hire engineering talent. That’s why companies are increasingly trying to create a reliable ecosystem of microservices to get access to their required tech solutions:

“Why spend countless hours having your best people -- or hiring new people -- architect a solution that already exists and is proven in the market? Generally, a vendor has already solved the same problem hundreds of times, therefore bringing clients the benefits of best practices based on others’ experiences.”

- Bo Hagler, CEO, LiveSource

Downtime Cost

If you decide to develop your own in-house solution, you can’t guarantee that your website or app will have 100% uptime through development or maintenance. And the cost of any downtime can be super heavy. Research shows that 25% of small businesses estimated the hourly cost of downtime for their business around $20,000 - $40,000.

You can add to this the friction that your downtime will create in your customer journey. Your absence will affect the trust of your most loyal customers, driving them towards your competitors.

If you properly vet and select third parties, you can ensure a more robust system with plenty of redundancy to prevent outages. Part of this is embracing a headless architecture where systems are decoupled. As the backbone of the software development side of digital transformation, headless separates backend content functions (management and storage) from front-end functions (SEO and graphic design).

It’s all about collaboration and improvisation

“It is the long history of humankind (and animal kind, too) that those who learned to collaborate and improvise most effectively have prevailed.”
- Charles Darwin

Your business will stay competitive if you continue to engage your customers through innovative approaches to messaging, outreach and activation. To stay innovative, your team needs to focus on your core products and services. By collaborating with reliable third parties to buy your tech solutions, your team can concentrate on your core competency, delivering on your promises to customers.

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Explore our report, "The business impact of Talon.One," where we analyzed data from 250+ enterprise customers to understand how Talon.One impacts their performance and drives billions of dollars in incentivized revenue.