Total cost of ownership for software: what to count over 3 years
Total cost of ownership is everything you pay or spend over the years you use a tool, not only the price on its pricing page. Here is a small team, four routes and three years, with every sum shown.
In one line: total cost = what you pay once + yearly fees × years + your own time × your hourly value. That is our plain definition, not a standard. Every number below is invented. Replace them with yours in the build, buy or rent calculator.
Sources checked 19 October 2026. Prices and indexes move, so check the date.
What to count, in order
Go down this list once per option. Skip a line only when it is truly zero. The last column shows where to find the number.
| Cost line | Who pays | Where to find it |
|---|
| Subscription × people | You, every month | Pricing page, your team list |
| Price rises | You, from year two | Estimate |
| Template: price and yearly fee | You, once and yearly | Seller's product page |
| Developer quote and yearly upkeep | You, once and yearly | Written quote, builder's answer |
| Your hours to build and to keep it running | You, in time | Your honest guess, your hourly value |
| AI tool and builder plans | You, every month | Their pricing pages |
| Set-up, training, moving your data out | You, in cash or time | Your own estimate. The calculator does not price these. |
A per-person subscription over 3 years
Multiply the monthly price by the number of people, by 12, by the years. Count the people you plan to hire in the next year or two, not only today's team.
Example (invented numbers): $12 per person a month for 5 people is $60 a month, $720 a year and $2,160 over 3 years.
Priced per person, the total grows with every hire. At 10 people the same plan is $120 a month, or $4,320 over 3 years. For where the lines cross, see custom vs off-the-shelf software.
Price rises
Vertice's SaaS inflation index put SaaS price inflation at a record 16.4% in June 2026 and 12.7% in August (preliminary). Vertice sells procurement software, describes no calculation method, and its figure moves each month. The calculator's worst case adds 10% a year to subscriptions and yearly fees. That 10% is our assumption, not a forecast. Details are in price rises.
Source type: estimate
Source: Vertice SaaS inflation index.
Example (invented numbers): $720, then $792, then $871 is $2,383 over 3 years, against $2,160 if the price never moves.
Worked example: four routes, one small team
A team of 5 needs one tool. These are the calculator's default inputs, so you can open it and see the same totals. All numbers are invented.
- Rent: $12 per person a month, 5 people.
- Buy ready-made: $300 once and $120 a year.
- Pay someone: a $6,000 quote and $1,500 a year in upkeep.
- Build yourself: a 20-hour guess, your hour worth $30, AI tools at $45 a month, 5 hours a month of upkeep.
| Route | The sum | 3-year total | Worst case |
|---|
| Rent | $60 × 12 × 3 | $2,160 | $2,383 |
| Buy ready-made | $300 + 3 × $120 | $660 | $697 |
| Pay someone | $6,000 + 3 × $1,500 | $10,500 | $13,200 |
| Build yourself | $1,620 cash + $6,600 of your time | $8,220 | $14,820 |
How the build-it-yourself line is made:
- Cash: $45 × 12 × 3 = $1,620.
- Build time: the 20-hour guess counted double is 40 hours, × $30 = $1,200.
- Upkeep time: 5 hours × $30 × 12 months × 3 years = $5,400.
- Your time: $1,200 + $5,400 = $6,600. Total: $1,620 + $6,600 = $8,220.
How to read the example
Renting is $2,160 and buying is $660. The cheap routes win here because the team is small. A bigger team changes that: paying per person stays cheaper than having it built up to about 24 people, in this example.
The worst case is a test, not a forecast. It adds 10% a year to the subscription and the yearly fee. For paying someone, it raises upkeep to 40% of the quote, which is $2,400 a year. For building yourself, it counts your hours guess four times and upkeep at 10 hours a month. Both multiples are our assumptions. They are not measured rules.
Why count more hours than you guess? Flyvbjerg and Budzier studied 1,471 IT projects. The average cost overrun was 27%, and about one in six overran its budget by 200% on average (paper). The calculator counts your time only for the build-it-yourself route. If you pay someone, you will still spend some hours on it. Add them yourself.
Source type: estimate
The same 3 years for a custom build
Take the written quote, add upkeep for each year, and add your own hours for briefing and testing. Ask the builder for the upkeep figure. Without one, test 15%, 25% and 40% of the quote a year. All three are our assumptions, because we found no source for one rate. The calculator starts at 25%.
Example (invented numbers): A $6,000 quote at 25% upkeep is $1,500 a year. Over 3 years that is $6,000 + $4,500 = $10,500.
Why 3 years
It is our default. US tax law depreciates off-the-shelf computer software over 36 months, so 3 years has a real anchor (26 U.S.C. 167(f)). That is not a rule for your business. An AI-built app may need rebuilding sooner, which is our assumption. Ask your accountant about tax.
Source type: estimate
A template you can copy
One row per option, one column per cost line. Fill every cell, then add across.
| Cost line | Rent | Buy | Pay someone | Build yourself |
|---|
| Paid once | 0 | Price | Quote | 0 |
| Paid each year × years | Price × people × 12 | Yearly fee | Upkeep | Tools × 12 |
| Your time × your hour | 0 | 0 | Your own estimate | Build hours × 2 + upkeep hours × 12 × years |
| Total | Add each column |
Questions
What is included in total cost of ownership?
Everything you pay or spend over the years you use the software: subscription or purchase price, yearly fees, price rises, upkeep, and your own time if you build or run it yourself. The calculator counts these. Set-up, training and moving your data out are real costs too, but it does not price them, so add your own figure.
How many years should I use?
We default to 3 years. US tax law depreciates off-the-shelf computer software over 36 months, so 3 years has a real anchor. It is not advice for your business, and you can set 1 to 10 years in the calculator. Ask your accountant about tax.
Is total cost of ownership the same as ROI?
No. Total cost of ownership counts only what the software costs you. ROI also needs what you gain from it. To compare options that do the same job, the cost total is enough.
How much do software prices rise each year?
Vertice's SaaS inflation index put SaaS price inflation at a record 16.4% in June 2026 and 12.7% in August (preliminary). Vertice sells procurement software, describes no calculation method, and the figure moves each month. The calculator's worst case uses +10% a year on subscriptions and yearly fees. That 10% is our assumption, not a forecast.
Do I count my own time?
Yes, when you build or run the software yourself. Price an hour at what you charge a client. An hour spent on the tool is an hour not spent selling or serving clients. The calculator counts your time only for the build-it-yourself route.
Run your numbers
The calculator asks about the price per person, the number of users, price rises and years of use, plus the quote, your hours and your upkeep. It marks which numbers are yours and which are examples.
Run your numbers →
Where each input comes from: estimate software costs. To see how the math works, read how it works.
Sources
Anything not listed here is our assumption or plain advice, and is labeled that way. This is not financial, tax or legal advice.