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 pounds. This is a clear overview of all models, their pros and cons, and how to make the right choice.
- 1 April 2025
- 5 min
Subscription, perpetual, usage-based, per seat, per core, per server, the landscape of software licensing models has become more complex in recent years. And that complexity costs organisations money: choosing the wrong model means consistently paying too much.
The three main models
Subscription
The most common model in modern SaaS. You pay a periodic fee, monthly or annually, for access to the software. Advantages: always the latest version, low entry costs, flexible scalability. Disadvantages: no ownership rights, consistently higher costs in the long term, and automatic price increases upon renewal.
Perpetual
You buy a licence 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 upgrade.
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 periods, difficult 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: expected duration of use, stability of usage, and the importance of ownership rights. Always have a Total Cost of Ownership analysis done over at least three years; only then does it become clear which model is truly more cost-effective.
Frequently Asked Questions
The most commonly asked questions on 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 upfront costs but you own the licence. After three to five years, perpetual is generally 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 difficult to predict. For stable usage, a fixed subscription or perpetual licence 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 potential exit costs. SoftVaro assists with this analysis and negotiates the best model for your situation.
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