What is SaaS Perpetual Licensing?

Perpetual licensing is a revenue model in which SaaS organizations charge customers a one-time fee in exchange for the right to access and use a software version over an indefinite period. Even though the subscription model is widely spread in the SaaS industry, software companies still employ perpetual licensing.

Through this business model, customers obtain a permanent right to use a specific version of the software. This approach may suit organizations that do not require the most recent technological advancements.

The differences between perpetual licensing and the subscription model consist of structure and software updates.

Perpetual licensing requires a higher upfront cost on behalf of the customer but grants the right to use a specific software version over an indefinite timeframe.

Subscription licensing, however, entails recurring monthly, quarterly, or annual payments and offers access to the latest system version and feature updates. A perpetual-license product also usually runs on the customer’s own devices or servers, while a SaaS product runs on the vendor’s infrastructure.

Perpetual licensing has both advantages and disadvantages, which include:

Pros

• Cost assessment across an extended period
• Software ownership
• Suitable model for organizations that do not require frequent updates

Cons

• Higher upfront investment
• Feature and functionality update additional costs
• Potential risk of using outdated software

A perpetual license permits indefinite use of a specific software version, though associated support, including updates and assistance, is subject to the vendor’s defined timeline. Microsoft’s Fixed Lifecycle Policy specifies a minimum of five years for Mainstream Support, in addition to Extended Support for certain products.

There are three instances where perpetual licensing is an appropriate revenue model for SaaS organizations:

• Your customers prefer upfront expenses instead of recurring payments.
• Your target industry is made up of businesses that are less reliant on frequent software updates.
• Your SaaS product has a definite core set of features that do not require ongoing innovation.

To establish the optimal pricing for your perpetual licensing model, SaaS businesses should consider the following aspects:

• Production costs: Make sure that your pricing includes the cost of actually developing the product.
• Ongoing maintenance expenses: In addition to development costs, your pricing should incorporate support, marketing, and upkeep fees.
• Competitor pricing: Perform thorough market research to understand your competitors’ offerings.
• Value proposition: Your product’s price needs to match the value your customers receive when using it.
• Maintenance plan: The maintenance plan includes an annual fee for support and updates.