SaaS subscription vs custom software: which costs less over five years?

A subscription looks cheap on day one and a custom build looks expensive, and that gap is where most bad decisions start. The real question is how each option behaves over time: what the bill does in year three, who looks after the software in year four and what it costs to leave in year five. This guide is about the cost model over five years for companies of roughly 20 to 200 people. If you are still deciding whether a product can do the job at all, start with off-the-shelf, no-code or custom software, and for the wider decision see build, buy or integrate.

SaaS vs custom software: which costs less over five years?

SaaS costs less over five years for standard processes with stable headcount, and custom software costs less when licenses scale with users and the process is specific to you. The table shows how the two cost shapes differ before any numbers are involved.

The verdict: do not pick on the price of year one. Pick on the five-year line, and treat the year-one gap as the cost of getting a better fit or lower later bills, not as the whole cost.

How fast does a SaaS subscription cost grow?

SaaS cost grows through four channels, and each one can raise the bill without a new project: more seats, a higher tier, add-ons and price increases at renewal.

Per-seat pricing links cost to headcount, so hiring raises the bill even when the value of the product is unchanged. Tiers push you up a plan when you need one feature. Add-ons and usage charges, increasingly tied to AI features, raise the bill beyond the list price. Zylo's 2026 SaaS Management Index reports that organizations now spend an average of $55.7M on SaaS annually, an 8% increase year over year, that 78% of IT leaders saw unexpected charges tied to AI features or consumption-based pricing, and that 61% cut projects because of unplanned SaaS cost increases.

Renewal increases are the part buyers can least control. Gartner analyst Jo Liversidge told The Register that SaaS vendors hiked prices by between 9 and 25 percent in 2025, while Gartner's surveys detect a 2.8 percent annual increase in corporate IT budgets. The table lists published vendor increases so you can see what they look like in practice.

These are list prices for named plans, and your contract may differ. The point is the direction: plan for subscription lines to rise each year, and ask for a cap on renewal increases when you sign.

What does custom software cost over five years?

Custom software has four recurring cost lines after the build, and the build is rarely the largest line over five years.

1. Build. Discovery, design, development, testing and integration. The factors that move this number are covered in what drives the cost of custom software.
2. Hosting and third-party services. Cloud infrastructure on AWS or Azure, plus email, storage, authentication and any AI model usage, which can vary with use.
3. Maintenance. Security patches, upgrades of the libraries and frameworks the code depends on, bug fixes and small changes as the business evolves.
4. The people who own it. A product owner on the business side, plus engineering capacity in-house or from a partner. For scale, the US Bureau of Labor Statistics reports a median annual wage of $135,980 for software developers in May 2025, before benefits and management time.

Long-run cost is mostly upkeep. The US Government Accountability Office reports that federal agencies typically spend about 80 percent of their IT spending on operating and maintaining existing systems. A federal portfolio is not a 150-person company, so do not apply the 80 percent to your case, but the direction is a reliable warning that the first invoice is not the lifetime cost. Neglected systems become costly to change, as explained in technical debt in business systems.

How do you build a five-year total cost of ownership comparison?

Build the comparison as a table with the same cost lines for every option, one column per year, and write each assumption beside the number. Total cost of ownership (TCO) means everything you spend to acquire, run, change and eventually leave a system.

The license line is the one that surprises people, so model it with growth. The figures below are illustrative and hypothetical, not a benchmark or a quote. They assume a product at $50 per seat per month, 100 seats growing 10% a year and a per-seat price rising 8% a year.

Over five years that hypothetical license line totals about $436,000, against $300,000 if seats and price had stayed flat. The same arithmetic with your own seat count and your vendor's actual terms is the first thing to put in front of finance. Then add the custom side with the same discipline: a build quote, an annual hosting estimate, a maintenance allowance and the owner's time.

When does SaaS win on cost, and when does custom software win?

SaaS wins on cost when the process is standard, the user count is small or stable and nobody wants to own software. Custom software wins when licenses scale with people or volume, the process is specific to you and workarounds cost real staff time.

Signs that SaaS wins:

• The process is a settled category, such as accounting, payroll, help desk or applicant tracking.
• Seat counts will stay flat or grow slowly.
• The product fits the core steps with only light configuration.
• You have no engineering capacity and need value within weeks.

Signs that custom software wins:

• Per-seat fees multiply across many users, including customers, suppliers or occasional staff who each need a seat.
• You pay for tiers or modules to get one feature you could build for less.
• The product fits badly, so staff keep spreadsheets and manual steps beside it.
• The process is part of how you win customers, and you want to own the logic and the data.
• You can fund maintenance for years, through staff or a partner under a separate agreement.

Custom does not remove the bill. It converts a rising rental line into a build cost and a maintenance line you control, and that trade only works if the maintenance is funded.

Is a hybrid cheaper than either?

For many companies of this size, a hybrid is the lowest-cost shape: buy the core system, integrate it with what you already own and build only the gap. The subscription covers the standard work that vendors do well, and the custom part stays small, which keeps its upkeep small.

Illustrative example: Consider a 60-person professional services firm that pays per seat for a project and billing platform. Every staff member, and every freelancer who logs time, needs a seat, so the license bill rises with each hire. The platform handles billing and reporting well, but its client-facing approval step does not fit the firm's process, so staff chase approvals by email. The firm keeps the platform, integrates it with its document store and builds one small client approval portal that reads and writes through the platform's API. Seats stay limited to the staff who need billing, the portal covers the client side and the custom code is small enough to maintain without a dedicated team.

The hybrid still needs a maintenance owner for the integration and the portal. Count it in the table like any other custom component.

What are the exit and data-ownership risks of each option?

Both options carry exit risk, in different forms, and you should price it before you sign rather than discover it at the end.

With SaaS, the risks are getting your data out in a usable form, losing history or attachments in the export, and being tied to a vendor's roadmap and renewal terms. The Gartner advice reported by The Register is to negotiate exit provisions and data escrow for business continuity, and to start renewal planning well ahead of the date. Ask four questions before you buy: what formats can I export, how often, at what cost and with what notice.

With custom software, the exit risk is concentrated in people and paperwork. Code held in a contractor's repository, cloud accounts under a personal email address and no documentation each make the software hard to move or maintain. Settle in the contract that you own the code, the data and the accounts, and keep the documentation current enough for another team to take over.

How Kastling approaches the cost question

Kastling is an AI solutions and implementation partner, and Custom Solutions is one of its three services, alongside AI integration and automation and AI and cloud infrastructure. That means the recommendation for a given process can be a product, an integration, an automated workflow or a custom application, depending on what the work needs.

Kastling starts by understanding the work before the technology, prefers to connect existing systems rather than replace them and agrees data access and ownership up front. A well-defined software brief can move from a free discovery call to a scoped proposal, while broader AI and operations work often begins with a separately scoped, paid audit. The proposal sets the scope, milestones and measures of success, and ongoing maintenance is optional under a separate agreement. Kastling does not publish a price list, because cost depends on scope, so use a discovery call to talk through the five-year picture for your own process.