Managing software costs has become increasingly complex for businesses.

With various pricing models available, many organisations struggle to determine whether traditional software licences or modern subscription-based services better suit their needs.

This confusion often leads to overspending, underutilization, and inefficient resource allocation. However, understanding the key differences between these models can help you make informed decisions about your software investments.

So today, we’ll examine SaaS licences and subscription models in detail, exploring their distinct characteristics and impacts on your business operations.

We hope that by the end of this discussion, you will have a clearer understanding of which option aligns best with your organisation’s goals and budget constraints.

Without further ado, let’s get to it.

What is a SaaS licence?

A SaaS licence is a legal agreement that defines how you can use cloud-based software.

Unlike traditional software licences that require one-time payments, SaaS licences typically involve recurring payments to maintain access to the software.

The licence specifies important details about your software usage.

This includes the number of users allowed to access the software, the features you can use, and the duration of your access.

For example, your licence might allow 50 users to access specific features of the software for a 12-month period.

When you get a SaaS licence, the service provider hosts and manages the software on their servers.

They handle technical aspects like maintenance, updates, and security. Your access to these services continues as long as you maintain the licence payments according to your agreement.

More in Nexalab’s blog: SaaS Licence Agreement Explained: All You Need to Know

What is a Subscription Model?

A subscription model is a payment system where you pay recurring fees to access and use software services.

The software provider charges these fees on a regular schedule—usually monthly or annually based on your agreement.

You maintain access to the software and its features as long as you continue paying. The provider hosts the software on their servers, handling all technical maintenance and updates, while you access it through the internet.

Your subscription plan determines what features you can use and how many people can access the software.

Many providers offer different tiers, from basic plans with essential features to premium plans with advanced capabilities.

You can usually change your plan based on your needs, upgrading for more features or downgrading if you need less.

The subscription includes ongoing support and maintenance. When the provider updates the software with new features or security patches, you get these automatically.

You don’t need to worry about server maintenance, backups, or complex technical tasks because the provider handles these as part of your subscription.

SaaS Licence vs Subscription: Key Differences

When comparing these two models, you’ll notice several key differences in how they operate.

In summary, there are 5 things that make SaaS licences and subscriptions different:

• Payment Structure: A SaaS licence typically involves a longer-term commitment (annual/multi-year) with predefined terms, while a subscription offers more flexible month-to-month payment options.
• Commitment Terms: Licence agreements often require longer commitments and may have stricter terms, while subscriptions provide more flexibility to cancel or modify
• Usage Rights: Both models provide access rather than ownership, but licence agreements may have more specific usage terms and limitations compared to subscriptions’s simpler terms.
• Pricing Model: Licence pricing is usually structured around features and capacity limits, while subscription pricing typically follows a simpler per-user or consumption-based model.
• Service Level: Licence agreements often come with more comprehensive service level agreements (SLAs) and support packages, while subscriptions may offer more standardised support options.

First, let’s talk about how you pay for each option.

With a SaaS licence, you’re typically committing to a longer-term agreement—think of it as signing a year-long lease with specific terms and conditions. In contrast, a subscription works more like a month-to-month rental, where you have the flexibility to adjust or cancel your payments with shorter notice periods.

The agreement structure also differs significantly.

When you choose a licence model, you’re bound by more detailed terms and service level agreements that specify exactly what features and support you’ll receive.

Subscription models tend to offer more standardised terms with simpler agreements, though you’ll still have access to the software only while you maintain your payments.

Pricing structures work differently too.

Licenced SaaS often comes with tiered pricing based on feature sets and usage caps, similar to choosing a comprehensive package with predetermined limits.

With subscriptions, the pricing is usually more straightforward—often based on per-user or actual usage metrics, making it easier to understand and predict costs.

The service level approach varies as well.

Licenced SaaS typically includes more comprehensive support packages and guaranteed service levels, while subscription-based services usually offer standardised support options.

This means licenced solutions often provide more dedicated support channels, but subscription models keep things simple with clear, basic support structures.

When it comes to growing your business, each model handles scalability differently.

Licenced SaaS can be less flexible—you’re often locked into specific user counts or feature sets for the duration of your agreement.

Subscription models excel in this area, allowing you to modify your plan more freely as your needs change, though this flexibility might come at a higher per-user cost.

Read more about SaaS Licence model in article: SaaS Licence Model – A Comprehensive Guide for Business Software Management

Advantages and Disadvantages

SaaS Subscription

The subscription model has some clear benefits that make it attractive to many businesses.

You won’t need to empty your bank account to get started, and you can better predict your monthly expenses.

The software automatically updates itself, and you’ll always have access to new features as they’re released. If you need to add more users or scale back, you can do so without much hassle. Plus, technical support typically comes bundled with your subscription.

However, it’s not all smooth sailing. You’ll need to factor in ongoing costs that never really end, and you’ll need a reliable internet connection to access your software. There’s also the possibility that subscription prices might increase over time, and you won’t have much say in when updates happen or which version you use.

Perpetual Licence

The traditional licence model has stood the test of time for good reasons.

Once you pay for it, the software is yours to keep forever. You get to decide when to upgrade, and you don’t need the internet to use your software.

Some businesses find that this model saves them money in the long run, especially if they don’t need frequent updates. You also have more freedom to customise the software to your specific needs.

But this approach comes with its own challenges.

The initial cost can be steep, and you’ll still need to pay for maintenance and support. When updates do come around, you’ll need to handle them manually, which can take time and resources.

Growing your user base isn’t as simple as with subscriptions, and you might find yourself stuck with outdated technology if you don’t keep up with updates.

Read more about SaaS licence agreement in article: SaaS Licence Agreement Explained: All You Need to Know

Conclusion

The choice between a SaaS licence and subscription model depends on your organisation’s specific needs, budget structure, and long-term technology strategy. While SaaS licences offer more control and potential long-term savings, subscription models provide greater flexibility and reduced initial investment.

The key is finding the right balance for your business requirements.

Whichever licence model you decide on, handling it can be difficult when there is too much software to handle.

Octobits by Nexalab will help you with your software management strategy. It is a SaaS Management Platform (SMP) that helps you track, optimise, and control all your software investments from a single dashboard. With features like automated reporting, usage analytics, and cost optimisation tools, Octobits ensures you’re making the most of your software investments, regardless of the pricing model you choose.

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