Maintaining legacy systems is notoriously expensive. And, while there are many reasons to replace legacy systems, many organisations continue to hold on.
But what actually makes up the costs? And how can you measure those costs to make a business case for modernizing the software?
Legacy systems can plague businesses from a variety of industries.
We’ve seen SaaS startups struggle with poorly built customer-facing software, as well as nonprofits and government agencies dealing with costly internal use software that wasn’t designed to scale. These legacy systems may have once served their purpose, but today they’re dragging organizations down. If you’re curious about what this looks like in practice, check out these internal use software examples.
What is a legacy system?
A legacy system is any outdated application, platform, or piece of software that your organization still depends on but struggles to maintain or improve. These systems are often business-critical and may have been custom-built years or even decades ago. Because of their age and complexity, they create a significant financial burden of legacy systems for companies that continue relying on them.
Legacy systems usually fall into one of a few categories:
Obsolete technologies: They run on outdated programming languages, frameworks, or hardware that few developers are trained to use today.
Hard-to-maintain custom software: Many organizations invested in tailored solutions to fit their processes at the time, but those same systems now hold them back.
Vendor-locked platforms: Some systems can’t easily be replaced because the organization has become overly dependent on a vendor.
The problem is that these systems aren’t just inconvenient—they come with hidden operational costs that compound over time. From patching security vulnerabilities to hiring specialized developers at premium rates, organizations often underestimate the hidden costs of maintaining legacy systems. On top of that, there are operational inefficiencies when employees are forced to work around clunky workflows instead of using modern, automated solutions.
What makes legacy systems especially challenging is that they’re often mission-critical. You can’t simply shut them down without risking disruption. For example, some government and enterprise applications are decades old but still control vital processes. This is why leaders tolerate the direct costs of maintaining legacy systems for so long, even when they know those resources could be redirected toward modernization projects.
In short, a legacy system is any outdated, business-critical technology that drains resources, slows innovation, and quietly eats away at your operating budget year after year. The longer you keep them, the more the balance tips toward wasted investment instead of sustainable growth.
Why businesses stick with legacy systems longer than they should
There are several reasons why businesses continue to fork out the high amounts that it costs to maintain legacy applications. Executive leaders at an older, profitable software company might feel content to keep the customers they have and the software they have, instead of tackling new opportunities. Executives at a large enterprise or government organization might have undertaken a legacy system update, only for it to fail or cause further disruptions. And in another scenario, leaders might be spending exorbitant amounts to maintain their legacy system, without fully realizing how much it's costing the organization.
In any case, it's smart to take a step back and assess your own costs. When you know what your legacy application is actually costing you, it can help you put the cost of a software modernization project into perspective.
The major direct costs of maintaining legacy systems
Direct costs are the easiest to identify. These are the line items you can clearly measure in your budget, and they tend to rise every year as your system ages.
1. Maintenance costs
Just maintaining a software and its current feature set can be expensive.
What goes into this cost:
This category is made up by what you spend on infrastructure, such as your cloud provider and DevOps platform, as well as what you spend on development just to maintain and QA the current set of features. What you spend on product development staff, agencies, and freelancers are all included here.
2. Security costs
While security is related to maintenance, it can come with its own costs.
What goes into this cost:
This category covers everything you spend on security, both proactively (like cybersecurity staff and services) as well as retroactively (like data recovery). The more users you have, the more you will likely spend on security.
3. New development costs
Updating a legacy application is typically much more expensive than a modern one. Longer development times cost more staff and contractor hours. You might be paying 2 - 5X more for new development because your system is so difficult to update.
What goes into this cost:
This cost is typically measured in terms of the hourly or monthly rates you're paying staff or contractors to develop new features. However, there might be some fixed costs associated with adding new features to a legacy system, such as overly high cloud fees due to lengthy code.
4. Compliance and regulatory costs
Legacy systems often fall short of today’s data privacy and industry regulations, requiring constant patchwork fixes and audits.
What goes into this cost:
This includes compliance audits, legal reviews, additional software or services to patch gaps, and the cost of consultants who help make outdated systems minimally compliant with regulations such as GDPR, HIPAA, or PCI DSS.
5. Talent acquisition and retention costs
Hiring and retaining developers who can work with outdated technology stacks is both difficult and expensive.
What goes into this cost:
You may need to pay premium rates to contractors familiar with older programming languages or frameworks, plus invest more in recruitment and retention efforts as modern engineers prefer working with up-to-date tools.
The indirect costs of maintaining legacy systems
Indirect costs are less obvious on paper, but they show up in wasted time, lost productivity, and the ripple effects of keeping outdated systems in play.
6. Downtime costs
Legacy applications tend to go down more frequently because their tech is outdated. You might also experience more outages because your development team doesn't have the necessary skills to properly maintain the system due to its old architecture or programming language.
What goes into this cost:
This category is made up of what you spend on uptime monitoring, downtime notifications, and staff or contractor hours to get the system back up again. But downtime also cause increases in other costs on this list, such as lost opportunity from new customers, higher churn, and increased customer support tickets.
7. Customer support costs
If you have a legacy system that is a nightmare for your dev team to maintain and update, there's a really good chance it's a disaster for your users as well.
What goes into this cost:
You'll end up paying more on customer support if the experience is bad. If there are constantly tons of errors and the UX is so confusing that customers can't figure things out independently, you'll have more customer support tickets. You'll also have to pay your dev team to fix the bugs that users uncover.
8. Integration costs
Organizations often try to extend the life of legacy systems by connecting them to newer tools. While this may work for a while, continuing to integrate legacy systems may be more costly and create highly fragile ecosystems over time.
What goes into this cost:
This includes development hours to build custom integrations, API workarounds, middleware subscriptions, and ongoing maintenance of fragile connections between old and modern systems.
The hidden costs of maintaining legacy systems
Hidden costs are the most dangerous because they quietly erode your ability to grow. They don’t always appear in a budget report, but they represent major financial and strategic setbacks.
9. Lost revenue costs
In the next category, we'll take a look at the new opportunity costs, but this category is all about the business you already have that you're losing as a result of your legacy system.
What goes into this cost:
For software companies, calculate your rate of churn, your average lifetime value, and the average length of the customer relationship when customers churn.
For internal-use systems, you need to calculate how many staff hours are being lost because of time spent in an inefficient application.
10. Opportunity costs
Here is a category that is incredibly hard to calculate: your lost opportunity costs.
What goes into this cost:
Every dollar and hour spent keeping a legacy system running is one less that could go toward growth initiatives like product innovation or business process automation.
For software companies, you need to research your total addressable market and the share your company could conceivably achieve were it not for your outdated system and poor user experience.
For internal-use systems, your lost opportunity costs come down to what your dev team could be focused on if they didn't have to maintain this application. What could they achieve?
11. Energy and infrastructure costs
Running legacy systems on inefficient on-premises servers or outdated hardware drives up operating expenses compared to cloud-native solutions.
What goes into this cost:
This includes electricity, cooling, physical server maintenance, and extra IT staff required to support older infrastructure.
12. Reputational costs
Reliance on outdated systems can harm your brand perception with customers, partners, and even potential hires.
What goes into this cost:
Reputational costs come from poor user experiences, negative reviews, and the impression that your company isn’t innovative or forward-thinking. This can reduce customer trust and make it harder to recruit top talent.
Average costs of keeping legacy tech
From our work with startups, enterprises, and government agencies, we've seen that legacy tech can easily cost 20 - 25% more on an annual basis compared to modern software. After a successful modernization project, the amount that you spend could very well be less, especially if the system is for internal use, has a simple use case, or doesn't need an expanded feature set.
However, software companies might end up spending more on software development after a successful modernization project because they finally have the technical capacity to build the new features that their target audience demands.
In extreme cases, an organization will experience extreme savings. For example, the AirForce was able to cut the annual expenses of one legacy application from $35 million a year down to $1 million a year.
At the very least, you should expect to see 15%+ savings on infrastructure and maintenance costs.
How to identify if your operating on a legacy system
Not every old piece of software qualifies as a legacy system. Some tools may be mature but still efficient, flexible, and cost-effective. A true legacy system is one that creates a measurable drag on your business..
Here are the most common signs you’re dealing with a legacy application:
Rising maintenance and support costs: If your IT budget is being eaten up just to keep the lights on, that’s a strong indicator of a legacy system.
Slow or impossible feature development: When adding a new feature costs two to five times more than it should, or takes months longer than expected, you’re looking at the operational inefficiencies that come with outdated architecture.
Frequent downtime and outages: Legacy systems are prone to failure, whether from outdated code, unsupported dependencies, or a shrinking pool of experts who can manage them.
Compliance and security concerns: If your system constantly requires patches to stay compliant, it may be time to look at modernization strategies such as refactoring legacy code or moving to a new platform altogether..
Difficulty finding or keeping talent: Modern engineers prefer working with current frameworks and cloud-native tools. If recruiting developers with the right skills feels like searching for a needle in a haystack, or if turnover is high, your system is likely a legacy liability.
Inability to integrate with modern tools: When simple integrations with CRMs, analytics platforms, or business process automation tools require months of custom development—or aren’t possible at all—you’re stuck with a legacy system that blocks innovation.
7. Growing user frustration: If customers or employees complain about poor UX, lagging performance, or limited mobile access, those frustrations add up.
How to modernize your legacy system and get ROI quickly
When undertaking a software modernization project, you need to make sure you're hitting these essentials:
Speed: The faster the modernization project gets done, the faster you can start experiencing cost savings.
Future-proof tech: Your UX, data architecture, and DevOps processes should all be ready to power innovation for at least 5 years to come.
Developer-favorite frameworks: Make sure to use modern tech that developers actually want to use, such as Laravel and Vue.js.
You might want to start by reading examples of legacy system modernization so you can get a feel for the positive results that other organizations have experienced.
Once you’re ready to transition out of that legacy system—be it internal use or a sellable product—find a partner who excels in this work. At DevSquad we help companies and agencies alike upgrade their legacy systems to achieve:
Ready to modernize your software? Let DevSquad do the heavy lifting. Learn more about our Legacy App Modernization services.