This is the final part of a three-part series. For more, check out the Introduction, Part I, and Part II.

Key Takeaways

• Not all costs are created equal. When evaluating potential costs of building vs buying software, be sure to ask key 2nd-order questions like — (1) Who will maintain this software and fix issues over time — there are always issues. (2) Who will improve this product over time so that I get growing business value out of it?

• You WANT to pay ongoing costs for your software. On it’s own, software degrades over time. The best products get better over time via continuous improvement.

• At the end of the day, it’s not actually about cost. It’s about ROI — the actual business impact you get for your investment. Curious about ROI? Get in touch for your own free ROI study.

Considering Cost(s)

It can be easy to oversimplify the cost question to “what’s it going to cost to build it versus what’s it going to cost to buy it?”

Instead, here’s a simple framework for evaluating different types of costs across the Build vs Buy lifecycle:

1. Upfront Costs: What will this cost up front, including development, implementation, and upfront licensing fees?

2. Ongoing Costs: What are the ongoing operational costs, including maintenance, improvements/upgrades, and ongoing licensing or service fees?

3. Opportunity Costs: How much time, energy, and focus will this take from me and my team, and what else could we do with that effort?

Upfront Costs

Upfront costs are what they sound like: dollars invested to get a product or service live in the first place. Type of upfront costs include:

• Development costs: If you’re building a product yourself (either in-house or with agency partners), you’re paying engineers, designers, product managers, project managers, and QA to get a product built.

• Implementation costs: Many software vendors either explicitly charge upfront “implementation costs,” or deliver a product that requires the customer to pay for their own implementation needs — think integration with existing systems, any customization and configuration needed, migrations, training, etc.

• Licensing costs: an older-school practice that still exists in some parts of the software world is to charge customers a one-off, upfront “licensing fee” for delivery of a software product.

Ongoing Costs

Typical types of ongoing or operational costs include:

• Maintenance costs: the price of maintaining the software over time, fixing bugs, etc

• Improvement and upgrade costs: costs paid to improve your software over time

• SaaS licensing costs: costs paid for software licensing over time (rather than upfront development or licensing fees)

Cost Traps (and what to do about them)

Estimating costs is hard. We see homebuilders fall into three common traps when evaluating Build vs Buy opportunities.

1. Underestimating development costs

2. Hidden fees and surprise upsell costs

3. Not budgeting for maintenance and continuous improvement costs

Underestimating Development Costs

The easiest cost trap to spot is that you will almost certainly underestimate the costs of building your own solutions. The reason you will likely underestimate development costs isn’t that you didn’t do enough diligence, and it isn’t that your agency is trying to get you to sign based on a low estimate (even if they are).  Your teams will likely underestimate costs because estimating software development costs is notoriously difficult; even the best technology companies are rarely accurate.

To help, here are some benchmarks to consider:

• Homebuilders spend anywhere from <$500,000 to $3M-$5M+ for web applications to help manage closing and ownership.

• If you want native mobile applications (for iOS and Android), expect those to double your total cost

Hidden Fees and Surprise Upsell Costs

Another trap we see is homebuilders choosing a vendor based on the “base” price, and not factoring in additional costs for the products or features that will actually deliver value to their teams. At Foundation, we think gated upsell products like these are extractive and counterproductive.

Not budgeting for maintenance & continuous improvement costs

Here’s our contrarian take: you WANT to pay for software over time. This isn’t just because it should let you avoid large upfront costs. You want to pay ongoing fees because it means somebody (else) is responsible for maintaining and improving your product(s) over time.

Here’s a “secret”: software isn’t permanent. If you leave it alone, it generally doesn’t sustain itself forever — it degrades. It gets slower, buggier, and worse.

Software degrades over time because it doesn’t exist in a vacuum.

• The phones, computers, and browsers that people use to access your software change over time

• The backend libraries, integrations, and tools that your software relies on change over time

• People's expectations and behaviors change over time (as other apps, websites, phones, and computers change)

It’s all about ROI

Despite this exploration of costs, we think the most valuable frame you can have is to evaluate software on the impact it will have on your business and your customers.

From this perspective, software isn’t a line-item cost — it’s an investment.

So what’s the ROI? At Foundation, we consider a few dimensions of return or impact. These include:

• Customer impact — the measurable improvement to customer satisfaction (measured as CSAT or NPS)

• Financial impact — quantifiable business benefits you may receive

• Operational impact — great software products should help you run a simpler, less complex business

Customer impact

Hopefully, the buyer impact of a buyer experience platform speaks for itself. Poor and infrequent communication is one of the biggest sources of complaints and detractors across the homebuyer journey.

Foundation gives your buyers self-service tools to answer their own questions about closing and home ownership. Also, it increases communication/update frequency from your teams (by making their jobs easier).

Financial impact

For the types of products that Foundation delivers — a buyer experience platform and owner network — we see three main types of financial impact:

1. Sales productivity — Foundation accelerates sales productivity by taking work off of salespeople’s plates so they can do what they do best: sell more homes.

2. Warranty & support efficiency — Foundation can help reduce support and service requests — making your teams more efficient.

3. Low-cost lead generation and ongoing revenue — Foundation turns your past buyers into your own owner network and then re-engages that network for you to drive referrals, repeat purchases, and ongoing services revenue.

Get your own (free) ROI study

Are you curious about the potential ROI of implementing Foundation’s buyer experience platform? Contact us, and we’ll create an ROI evaluation based on your own metrics, performance, and opportunities.

Have your own experiences?

Been burned by building (or buying)? Knocked one out of the park? We’d love to hear from you about lessons learned the hard way — drop a comment below, or reach us anytime at founders@buildwithfoundation.com.