Should we buy internal tools or build them in-house? A CFO's take

At Forest Admin, we are often challenged by finance teams on the cost of buying an internal tool.

It is easy to understand why:

Most employees require a seat, which can be pricey for companies. In contrast, more vertical tools (think of your CRM for Marketing/Sales, your Ticketing tool for Customer Support, etc.) serve small groups, which streamlines their cost
Subscription costs are the first to get scrutinised by the finance team (especially in a downturn!). “Extract Purchase ledger, sort from High to Low, select top 10 vendors and bring out the axe” we all know the drill.

Yet, looking at the cost from this angle can be misleading. Is it really cheaper to internalize your internal tools?

The short answer is “no”!

This post is an attempt to map out what your CFO (he/she can take the blame) may be overlooking and dispel a persistent myth:

Very simply, if you are not buying your internal tool, you are going to have to hire (think onboard, train and retain) - or at a minimum dedicate - a developer for the project.

Why is that?

Forget about offloading the internal tool work on your existing product and dev team. There is no client-facing glory in developing these. You will likely be met with reluctance and poor engagement.
These tools need to be maintained, same as any app. The average life expectancy of an unmaintained web app can be counted in weeks, or months at best. Not to mention the security risk if you don’t regularly update the apps’ dependencies.

There is no way out of it, over time you will need dedicated resources, as the team grows and the internal tools ingrain themselves in your internal processes.

What's the catch?

Developers are probably the single most expensive hires at any company these days. The average base salary for a developer in the US is $75K, i.e a total cost to the company of ~$100K.
Not to mention the rest of the iceberg! You will likely incur hiring costs, onboarding costs (need to add seats to your code repository, monitoring & admin tools…think Github, Datadog, Gusto, etc. the list goes on).
Compare that with the cost of a seat in an off-the-shelf internal tool which ranges from $0 (most tools have a fremium offerings) to $65/month for enterprise grade plans.

Looking at it from this angle, there are probably very few companies that can rationally argue that it makes sense cost-wise to build their internal tool in-house, except perhaps larger (enterprise?) teams.

But the nail in the coffin of the home-built approach is it’s static nature.

Modern internal tools are low-code by nature and allow power-users to be much less dependent on developer teams to customize their internal tools (think changing layouts, building new views, adding indicators). Forfeiting this benefit is by far the biggest downside of the in-house approach.

Not convinced? Share your thoughts👇 Ready to try? Create a free account! 🌲

Thanks for reading!

Two words about me: Franco-American born and raised in Paris, my father passed on the tech bug in my early years. Yet it took 12 years in Private Equity for me to listen to my calling and attend a bootcamp (LeWagon ❤️). I am now a happy jack-of-all-trades having the time of his life working as the CFO of a (Franco-American!) tech start-up.