How to Choose Between Off-the-Shelf and Custom Software

Introduction

Every growing business eventually faces a choice:

• Off-the-shelf: Quick to deploy, lower initial cost, but may require workarounds.
• Custom software: Fits your exact needs, but takes longer and costs more upfront.

Below is a straightforward checklist for decision-makers and a short Python script so developers (or finance teams) can compare 3- to 5-year costs for each option.

1. Clarify Your Needs

• List “Must-Haves” vs. “Nice-to-Haves”
  • Must-Haves: Non-negotiable features (e.g., “Automated invoicing with multi-currency” or “Five-step approval chain”).
  • Nice-to-Haves: Helpful but not critical (e.g., “Calendar widget in dashboard”).
• Map Your Processes: Write down each step of a core workflow. For example:
  1. Customer orders on your website.
  2. Invoice generated automatically.
  3. Order details manually re-entered into the warehouse system.
  4. Shipping tracking copied back into Excel.
• Talk to Each Department
  • Sales: Need CRM integration?
  • Finance: Require detailed billing reports?
  • Support: Want tickets linked to invoices automatically?

By the end of this step, have a one-page list: “Core Features We Cannot Live Without” and “Nice-to-Haves.”

2. Compare Total Cost of Ownership (TCO)

Looking only at Year-1 fees is misleading. You need a 3- to 5-year perspective.

2.1 Off-the-Shelf Costs

• Subscription/Licenses: e.g., €20/user/month or €10000/year total.
• Setup Fees: e.g., €1000 for implementation and training.
• Customization/Add-Ons: e.g., €2000 for special reports or integrations, growing ~5%/year.
• Upgrade or Forced Migration Fees: Sometimes you must jump to a higher plan unexpectedly.

2.2 Custom Software Costs

• Development Budget: e.g., $20000 for design, coding, testing.
• Hosting & Infrastructure: e.g., $500/month, rising ~3%/year.
• Maintenance: Roughly 15–20% of initial dev cost per year (security patches, minor tweaks).

Below is a Python script to compare 5-year cash flows (in Net Present Value terms). Business readers can share it with developers to plug in real numbers.

# Compare 5-year TCO: Off-the-Shelf vs. Custom Software
#
# Author: Savant Realms
# Website: savantrealms.com
# Date: 2025-06-01

import math

def npv(cash_flows, discount_rate):
    return sum(cf / ((1 + discount_rate) ** year) for year, cf in enumerate(cash_flows))

def build_off_the_shelf_costs(init_sub, sub_growth, setup_fee, init_cust, cust_growth, years):
    flows = [setup_fee + init_sub + init_cust]  # Year 0
    sub, cust = init_sub, init_cust
    for _ in range(1, years):
        sub *= (1 + sub_growth)
        cust *= (1 + cust_growth)
        flows.append(sub + cust)
    return flows

def build_custom_costs(dev_cost, host_monthly, host_growth, maint_rate, years):
    flows = [dev_cost + host_monthly * 12]  # Year 0
    host_annual = host_monthly * 12
    for _ in range(1, years):
        host_annual *= (1 + host_growth)
        flows.append(host_annual + dev_cost * maint_rate)
    return flows

def main():
    # Off-the-Shelf parameters
    init_sub = 10000           # Year-1 subscription
    sub_growth = 0.05          # 5% yearly increase
    setup_fee = 1000           # One-time setup
    init_cust = 2000           # Year-1 customization
    cust_growth = 0.05         # 5% yearly increase

    # Custom Development parameters
    dev_cost = 20000           # Initial build cost
    host_monthly = 500         # Hosting per month Year-1
    host_growth = 0.03         # 3% yearly increase
    maint_rate = 0.20          # 20% of dev_cost per year

    discount_rate = 0.05       # 5% annual discount rate
    years = 5

    ots_flows = build_off_the_shelf_costs(init_sub, sub_growth, setup_fee, init_cust, cust_growth, years)
    custom_flows = build_custom_costs(dev_cost, host_monthly, host_growth, maint_rate, years)

    ots_npv = npv(ots_flows, discount_rate)
    custom_npv = npv(custom_flows, discount_rate)

    print(f"{'Year':<6}{'Off-the-Shelf':>18}{'Custom':>15}")
    print("-" * 40)
    for i in range(years):
        print(f"{i:<6}{ots_flows[i]:>18,.0f}{custom_flows[i]:>15,.0f}")

    print("\nNPV (5-Year Total):")
    print(f"  Off-the-Shelf:   ${ots_npv:,.0f}")
    print(f"  Custom Software: ${custom_npv:,.0f}")
    diff = abs(ots_npv - custom_npv)
    if ots_npv < custom_npv:
        print(f"\n=> Off-the-Shelf is cheaper by ${diff:,.0f}")
    else:
        print(f"\n=> Custom Software is cheaper by ${diff:,.0f}")

if __name__ == "__main__":
    main()

Link to GitHub Repo: https://github.com/savant-realms/tco-calculator

Link to the Python script: https://raw.githubusercontent.com/savant-realms/tco-calculator/refs/heads/main/compare_tco.py

How to Use the Script:

1. Copy the code into compare_tco.py or clone the repo using:
   git clone https://github.com/savant-realms/tco-calculator.git
2. Adjust the parameters to match your vendor quotes and development estimates.
3. Run
   python3 compare_tco.py
   to see a side-by-side, year-by-year cost and a 5-year NPV comparison.

3. Quick Decision Checklist

How Unique Are Your Processes?

• If highly specialized (e.g., a custom approval chain), lean toward custom (or a hybrid approach).

Budget & Timeline Constraints?

• Tight budget or need a live system in 2–4 weeks → off-the-shelf.
• Longer timeline (3–6 months) + long-term vision → custom.

Maintenance Capability?

• No internal IT team or unwilling to manage code → off-the-shelf’s managed updates may be safer.
• Ready to own maintenance or keep a consulting retainer → custom gives you full control.

Growth & Scalability Needs?

• Predictable, moderate growth → off-the-shelf might suffice.
• Rapid expansion or millions of users expected → custom’s scalability is more reliable.

Conclusion

By clarifying must-haves, running the TCO comparison script, and using the checklist above, you can make a well-informed “buy vs. build” decision. Whether you choose an off-the-shelf solution to get up and running quickly, or invest in custom software for a perfect fit, this process helps align your choice with both short-term needs and long-term goals.