Software as a Service, or SaaS, is a way to use software over the internet instead of installing it on your own computer. 

With SaaS, you pay to use the software, usually every month or year, rather than buying it outright. 

The company that makes the software takes care of running it on their computers, and you just log in to use it.

This is different from old-style software that you had to install yourself. 

SaaS can be easier to use because you don’t have to worry about updates or maintenance. 

But it also means you need the internet to use the software, and you’re relying on the company to keep your data safe.

In this article, we’ll look at how SaaS works, its good and bad points, and how it’s changing the way we use software. 

What is a SaaS licence model?

A SaaS licence model is a framework that governs how users access and pay for cloud-based software.

Unlike traditional software licencing, where you purchase a perpetual licence and install the software on-premises, SaaS operates on a subscription basis.

Users typically pay a recurring fee to access the software via the internet, with the vendor handling maintenance, updates, and infrastructure.

According to mailguard, key characteristics of SaaS licence models include:

1. Subscription-based pricing
2. Remote access through web browsers or APIs
3. Regular updates and maintenance managed by the vendor
4. Scalability to accommodate changing business needs
5. Multi-tenant architecture, allowing multiple customers to use the same application instance

For IT managers and MSP business owners, understanding these models is crucial for optimising software expenditure and ensuring compliance with licencing terms.

Types of SaaS Licence Models

SaaS providers offer various licencing models to cater to different business needs. Here are some common types:

1. Per-User Licencing: This model charges based on the number of individual users accessing the software. It’s straightforward but can become costly for larger organisations.
2. Tiered Pricing: Vendors offer different feature sets at various price points, allowing businesses to choose the tier that best fits their needs and budget.
3. Usage-Based Pricing: Charges are based on actual usage metrics, such as the number of API calls or data processed. This model can be cost-effective for businesses with fluctuating usage patterns.
4. Flat-Rate Pricing: A single fee grants access to all features for unlimited users. This model is often suitable for small to medium-sized businesses with stable user bases.
5. Freemium: Basic features are offered for free, with premium features available for a fee. This model can be attractive for startups or businesses wanting to test the software before committing.
6. Per-Device Licence: Charges are based on the number of devices accessing the software, which can be beneficial for organisations with shared workstations.
7. Enterprise Licencing: customised agreements for large organisations, often including tailored features, support, and pricing structures.

Each of these models has its own advantages and considerations. The choice of model can significantly impact an organisation’s software costs, scalability, and overall IT strategy. It’s essential for IT managers and MSP business owners to carefully evaluate their needs and usage patterns when selecting a SaaS licence model.

More in Nexalab’s blog: 6 Top SaaS Licence Management Tools to Help You Save Money on Software

Benefits of Selecting the Right SaaS Licence Model

Choosing the appropriate SaaS licence model can significantly impact both the provider and the customer. Here are some key benefits:

Cost Optimisation

You can prevent overpaying for capacity or features that you don’t utilise by matching the licencing model to your usage habits. Over time, this can result in significant savings and guarantees that you’re getting the most out of your software investments.

Scalability and Flexibility

Flexible licencing allows your software infrastructure to grow or shrink with your business needs without significant upfront investments. This scalability is particularly valuable for businesses experiencing rapid growth or seasonal fluctuations in demand.

Enhanced Productivity

The right model can provide your team with the tools they need when they need them, boosting overall productivity. With access to a full suite of features tailored to your business requirements, employees can work more efficiently and effectively.

Reduced IT Overhead

With the vendor managing infrastructure and updates, your IT team can focus on strategic initiatives rather than software maintenance. This shift in focus can lead to improved innovation and more value-added activities within your organisation.

Access to the Latest Features and Security

SaaS models typically include regular updates, ensuring you always have access to the latest features and security patches. This continuous improvement cycle keeps your software current and secure without the need for manual updates or upgrades.

Challenges and Pitfalls in SAAS Licencing

While SaaS licencing offers numerous benefits, it also presents challenges that IT managers and MSP business owners should be aware of:

1. Vendor Lock-in: Transitioning between SaaS providers can be complex and costly, potentially leading to dependence on a single vendor.
2. Hidden Costs: Some licencing models may have additional fees for support, integrations, or data migration that aren’t immediately apparent.
3. Compliance Risks: Ensuring proper usage across the organisation can be challenging, especially with per-user or device-based licencing.
4. Data Security and Privacy: With data stored in the cloud, ensuring compliance with data protection regulations becomes crucial.
5. Performance Issues: Reliance on internet connectivity can lead to downtime or reduced performance if not properly managed.
6. Feature Limitations: Certain licencing tiers may restrict access to advanced features, potentially hindering productivity.
7. Licence Sprawl: Without proper management, organisations can end up with redundant or underutilised licences across different departments.

To address these challenges, many IT managers and MSP business owners turn to SaaS management platforms like Octobits. These tools provide centralised visibility into SaaS usage, spending, and compliance across the organisation, helping to optimise licencing and reduce associated risks.

More in Nexalab’s blog: SaaS Spend Optimisation Strategy: A Simple Guide to Reduce Your IT Costs

Conclusion

Now you know what kind of SaaS licence model is available there. Understanding the different pricing models—from usage-based to per-user—will help you to choose the ones that best suit your requirements and financial constraints. Later on, this knowledge may also serve as a springboard for learning how to appropriately manage a SaaS licence.

But if you are already overwhelmed in managing SaaS licences, you might need a SaaS management platform.

Octobits by Nexalab is a powerful SaaS management platform that helps you take control of your software subscriptions. It automatically finds all your SaaS apps, shows you where you’re spending money, and helps keep your data safe.

With Octobits, you can easily track how your team uses apps, cut unnecessary costs, and make sure you’re following all the rules. Whether you’re a small business or a large company, Octobits’ easy-to-use system can help you manage your SaaS tools more effectively.

Contact Nexalab now to get started with Octobits.