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The five-year cost of per-seat SaaS vs owning your software
The cost of SaaS vs custom software looks like a clear win for SaaS in year one and often reverses by year four, once seats, growth and price rises compound. Here's the formula and the inputs - no invented figures, just your own numbers.
Haystak · 11 August 2026 · Updated 11 August 2026 · 8 min read
The cost of SaaS vs custom software is almost never compared properly, because the two sides are measured differently: SaaS is quoted as a monthly per-seat price, custom software as a project total. Put on the same five-year timeline, the comparison looks completely different.
This isn't an argument that custom always wins - for many businesses SaaS remains cheaper even at year five. It's a model you can run with your own numbers, because nobody outside your business knows your seat count, your growth rate, or the discount you actually negotiated.
The formula
Two sums, run side by side over the same period.
- SaaS total cost = (seats × monthly rate × 12 × years) + implementation/onboarding fees + expected price rises, compounded annually, if the vendor has a history of raising prices.
- Owned software total cost = build cost + (hosting cost per year × years) + (support/maintenance cost per year × years) + cost of any major rebuild or upgrade you expect within the period.
The variable that decides the winner almost every time is seat growth. SaaS cost scales with headcount; owned software cost mostly doesn't. A business hiring quickly will see the SaaS side of the sum accelerate while the owned side stays close to flat.
The inputs to fill in yourself
| Input | Where to find it | Notes |
|---|---|---|
| Current seats needed | Headcount using the tool today | Include occasional users, not just daily ones |
| Expected seats in 5 years | Your growth plan or hiring forecast | Be honest, not optimistic |
| Monthly per-seat rate | Current vendor invoice | Use list price if you're not yet a customer - discounts erode over time |
| Historical price rises | Past three invoices, or the vendor's public pricing history | Check whether increases are per-seat or across the board |
| Estimated build cost | A scoped quote from a supplier | Get this scoped, not guessed - see our brief guide |
| Annual hosting cost | A supplier estimate based on expected load | Usually a small fraction of the build cost |
| Annual support/maintenance cost | A supplier quote, typically a retainer or day-rate allowance | Budget for this even if a supplier doesn't mention it upfront |
What the model doesn't capture
Pure cost isn't the whole decision. SaaS includes ongoing vendor investment in features, security and support that you'd otherwise have to fund yourself. Owned software includes flexibility SaaS can't offer - no per-seat penalty for wider rollout, and no dependency on a vendor's roadmap matching yours.
- Switching cost - moving off a SaaS product later means migrating data out of someone else's schema; moving off owned software means you already have the code and data.
- Vendor risk - a SaaS vendor can be acquired, sunset a product, or change terms; you carry that risk for the life of the contract.
- Time to value - SaaS is almost always faster to get running, which matters if the cost difference is small and time isn't.
If your business is genuinely standard and seat count is stable, SaaS usually remains the sensible default - see custom software vs off-the-shelf for the wider decision, not just the cost angle.
When the crossover happens
In our experience scoping this for clients, the crossover point - the year where owned software's cumulative cost drops below SaaS's - tends to land somewhere between year two and year four, and it's driven almost entirely by seat growth rather than build cost. A business with flat headcount may never cross over; one doubling its team will cross over fast.
Run your own numbers before trusting that range. It's a pattern, not a rule, and the what does custom software cost post explains what actually drives the build-cost side of the sum.
A worked template, ready to fill in
| Year | SaaS seats | SaaS annual cost | Owned annual cost | Owned cumulative | SaaS cumulative |
|---|---|---|---|---|---|
| 1 | (build cost) + hosting + support | ||||
| 2 | hosting + support | ||||
| 3 | hosting + support | ||||
| 4 | hosting + support | ||||
| 5 | hosting + support (+ any rebuild) |
Whichever cumulative column is lower at year five is the cheaper option on cost alone - but read the section above before treating that as the whole answer. The Chartered Institute of Procurement & Supply publishes general total-cost-of-ownership frameworks that apply well beyond physical procurement, if you want a further reference.
✦ Where this fits
More on this from us: how our pricing works.