SaaS vs Custom HR Software: Long-Term ROI Comparison
The true cost of SaaS HR software only becomes clear after years. Make an honest long-term comparison between SaaS and custom solutions based on concrete ROI calculations.
Door Ingmar van Maurik · Founder & CEO, Making Moves
The ROI Discussion Nobody Has
When organizations choose between SaaS HR software and a custom solution, they usually compare Year 1 costs. The SaaS option almost always wins that comparison: lower initial investment, faster implementation, no development risk. But the real question is not what it costs in Year 1 but what it delivers over 5-10 years.
The long-term ROI comparison tells a very different story. Over a 5-year period, companies pay an average of 2.3x more for SaaS than for a comparable custom solution. Over 10 years, this rises to 3.8x. That is not a theoretical number but the result of analysis of hundreds of implementations.
In this article, we make the honest calculation. No sales pitch for custom and no argument against SaaS, but an objective comparison based on concrete numbers. We show you how to calculate which option offers the best ROI for your specific situation.
The Cost Model of SaaS HR Software
The Visible Costs
SaaS vendors present their pricing as predictable and transparent. You pay a monthly or annual fee per user, per module, or per functionality. Typical pricing models for HR software:
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The Hidden Costs
Behind the visible costs lie substantial hidden costs that are rarely included in the initial comparison. The article on the true costs of ATS software covers this extensively.
Implementation costs:
Annual hidden costs:
Total actual costs:
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Note the increase: through annual price increases, growing user numbers, and additional modules, costs rise year after year. After 5 years, you pay almost 50% more than in Year 1.
The Cost Model of Custom HR Software
The Initial Investment
Custom software requires a higher initial investment, but costs are fundamentally structured differently:
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The Ongoing Costs
After the first year, costs are significantly lower than SaaS:
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Total costs over 5 years:
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Compare this with the SaaS model: EUR 510,000 versus EUR 670,000 over 5 years. That is a difference of EUR 160,000. And the gap grows every year because SaaS costs rise while custom costs remain stable.
The Value Side of the Comparison
Costs are only half the ROI equation. The other half is value. And here the difference becomes even larger.
Value of Custom: Data Ownership
With custom software, you own all your data. This has concrete financial value:
The financial value of data ownership is difficult to quantify exactly, but estimates range between EUR 50,000 and EUR 200,000 per year for mid-sized organizations, based on improved decision-making and avoided switching costs.
Value of Custom: Perfect Fit
Custom software is built for your specific processes, not the other way around. This translates into:
Value of Custom: Hiring Quality
The ultimate goal of HR software is better hires. Custom software delivers measurably more value here:
The value of this is directly measurable. If an improvement in hiring quality of 10% leads to EUR 500,000 in value creation per year (through less turnover, higher productivity, better customer satisfaction), then that is an annual value far above the cost of custom software.
The Break-Even Analysis
At what point is custom more cost-effective than SaaS? The calculation:
Year 1: SaaS is cheaper (EUR 130,000 vs EUR 200,000)
Year 2: SaaS is slightly cheaper cumulative (EUR 243,000 vs EUR 270,000)
Year 3: Break-even point (EUR 370,000 vs EUR 345,000) — custom becomes cheaper
Year 4: Custom is clearly more cost-effective (EUR 512,000 vs EUR 425,000)
Year 5: Significant difference (EUR 670,000 vs EUR 510,000)
The break-even point typically falls between month 24 and month 36. After that, custom is structurally more cost-effective. The larger the organization and the higher the volume, the faster the break-even point.
When SaaS Is the Better Choice
Honesty requires saying that SaaS is not always the worse choice. SaaS is a better option when:
In these cases, a well-chosen SaaS solution provides sufficient value. The challenge is to honestly assess whether your situation truly falls in this category.
When Custom Is the Clear Winner
Custom is the better choice when:
Companies in this category typically realize an ROI of 200-400% over 5 years compared to SaaS. Read more in our article about the ROI of custom hiring software.
A Framework for the Decision
To make the right choice, use this framework:
Step 1: Quantify Your Current Costs
Map all costs: licenses, implementation, integration, training, productivity loss, and opportunity costs.
Step 2: Project Growth
How will your hiring volumes grow over the next 5 years? How will SaaS costs develop?
Step 3: Quantify the Value of Custom
What is the value of data ownership, perfect fit, and better hiring quality for your organization?
Step 4: Calculate Break-Even
Based on steps 1-3, when is custom more cost-effective than SaaS?
Step 5: Assess Risks
What are the risks of custom (delays, technical debt, team dependency) versus SaaS (vendor lock-in, rising costs, limited functionality)?
Step 6: Make the Decision
If the break-even point is within 24-36 months and risks are manageable, custom is the wiser long-term choice.
The Hybrid Option
There is also a middle ground: a custom system built on an existing framework or platform. This combines the advantages of custom (tailoring, data ownership, integration) with the advantages of SaaS (faster time-to-market, proven technology).
At Making Moves, we offer exactly this: a hiring system built as a platform but fully configured for your specific needs. You get the scalability and speed of a platform with the flexibility and data ownership of a custom solution.
The Hidden Costs of Vendor Lock-In
An aspect often underestimated is the cost of switching. If you have built up data in a SaaS tool for 3 years and want to switch, you discover that:
The estimated cost of a SaaS-to-SaaS migration is between EUR 50,000 and EUR 150,000, excluding productivity loss. That is a hidden cost item to include in the long-term ROI. More on this in our article about why companies leave SaaS hiring.