Software licensing models explained: subscription, perpetual, and usage-based
Subscription, perpetual or usage-based, choosing the right licensing model can save you tens of thousands of euros. Here is a clear overview of all models, their pros and cons, and how to make the right choice.
- April 1, 2025
- 5 min
Subscription, perpetual, usage-based, per seat, per core, per server—the landscape of software licensing models has become more complex over recent years. And that complexity costs organisations money: choosing the wrong model means consistently overpaying.
The three main models
Subscription
The most common model in modern SaaS. You pay a recurring fee, monthly or yearly, for access to the software. Advantages: always the latest version, low entry costs, flexible scalability. Disadvantages: no ownership rights, structurally higher costs in the long term, and automatic price increases upon renewal.
Perpetual
You purchase a license once and own it forever. You pay annually for support and maintenance (usually 15-22% of the purchase price). Advantages: ownership rights, predictable costs, no vendor lock-in through subscription. Disadvantages: higher initial investment, no entitlement to new versions without upgrades.
Usage-based
You pay based on actual usage: number of API calls, gigabytes of stored data, active users per month. Advantages: costs follow usage, ideal for variable workloads. Disadvantages: unpredictable bills during peak times, hard to budget for.
Hybrid models
Many vendors combine models. VMware, for example, offers a subscription per core bundle. Palo Alto combines hardware (perpetual) with software subscriptions. Atlassian uses tiered pricing per user band. These hybrid models make direct comparison with alternatives difficult, which benefits the vendor.
How to choose the right model?
The choice depends on three factors: the expected duration of use, usage stability, and the importance of ownership rights. Always have a Total Cost of Ownership analysis done over at least three years—only then will it become clear which model is truly more advantageous.
Frequently Asked Questions
The most common questions about this topic.
Which is more cost-effective: subscription or perpetual?
Subscription always gives you the latest version and lower initial costs, but higher ongoing expenses. Perpetual has higher initial costs but you own the license. After three to five years, perpetual is usually cheaper, provided support is purchased separately.
When should you choose usage-based pricing?
Usage-based is ideal if usage varies greatly. You only pay for what you use, but costs are hard to predict. For stable usage, a fixed subscription or perpetual license is often more cost-effective.
How do I choose the right licensing model?
Always have the Total Cost of Ownership (TCO) calculated over at least three years, including support, upgrades, and any exit costs. SoftVaro assists with this analysis and negotiates the best model for your situation.
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