A perpetual licence is paid for once, while a subscription grants use only as long as you pay. Weigh total cost, updates, flexibility and data access to see which model suits you.
From office suites and accounting software to design tools and security products, many applications are now sold under two different models: a perpetual licence paid for once, or a subscription paid regularly. At first glance a perpetual licence may look cheaper and a subscription more flexible, but the right decision depends on how you will use the software and for how long. For some software you may not have a choice at all, because only one model is offered.
What do the two models mean?
Perpetual licence
With a perpetual licence, you pay once and gain the right to use the version you bought with no time limit. What you own is not the software itself, but the right of use defined in the licence agreement. The agreement sets out how many devices or users that right covers, whether it can be moved to another computer and how it may be used in virtual environments.
Upgrades to new versions and technical support are usually not included in a perpetual licence. They are often sold separately as an annual maintenance or upgrade agreement. If you don't renew the maintenance agreement, you can keep using the software, but your access to new versions, and in most cases to support, ends.
Subscription
With a subscription, you use the software in return for a monthly or annual fee. As long as you keep paying, the latest version, security fixes and often support are included. When you stop paying, your right of use ends too; the software may stop working or switch to a restricted mode that only lets you view files. Most cloud-based services are offered only by subscription anyway.
Comparison
| Topic | Subscription | Perpetual licence |
|---|---|---|
| Payment | Regular, monthly or annual | One-off at the start; an annual maintenance fee may apply |
| Right of use | For as long as you pay | Indefinite for the version purchased |
| New versions | Usually included | Need a maintenance agreement or a new purchase |
| Changing user numbers | Easy to increase; reducing may depend on the contract term | Extra licences needed to grow; no refund when you reduce |
| Budget | Predictable but ongoing; price may change at renewal | High at first, then low; reinvestment at upgrade time |
| When payment stops | Use ends or is restricted | Software keeps working, but receives no updates |
Calculating the cost properly
Looking only at the first year's invoice is misleading when comparing the two models. Take the period you expect to use the software for, say three or five years, and work out the total cost over that period. On the perpetual side, add the licence fee, any annual maintenance agreement and any upgrades you may need during that time. On the subscription side, factor in the monthly or annual fee, expected changes in user numbers and possible price rises at renewal.
The "pay once, use for years" advantage of a perpetual licence holds when the software really can be used unchanged for years. If it needs an upgrade every few years because of a new operating system or new file formats, that advantage narrows.
Include not only the licence fee but also switching costs such as installation, user training and data migration. Moving from one model to another, or from one product to another, can cost more than the difference in licence fees. Ask the vendor whether your existing perpetual licences count for anything when moving to a subscription; this often varies by product and over time.
Discuss with your accountant how the payment should be recorded, whether as an expense or as an asset subject to depreciation.
A perpetual licence does not mean you can use the software safely forever. Once the manufacturer ends support for a version, that version no longer receives security fixes. Even if your licence is still valid, running unsupported software on an internet-connected computer creates risk.
Which one, and when?
When a perpetual licence may suit
A perpetual licence can make sense for software that has been used the same way for years and doesn't need new features. Software on a computer that runs a production machine and isn't connected to the internet, or a program kept only to open a particular file format, are examples. If you expect the number of users to stay the same for a long time and can afford a higher payment upfront, a perpetual licence may be more economical in the long run.
When a subscription may suit
For software that needs constant updates, such as security products, or accounting and payroll software that is updated frequently to follow regulatory changes, a subscription is the more natural model. Businesses whose headcount changes with the seasons or with projects benefit from the flexibility of adding and removing users. A subscription is also easier to manage for businesses that don't want a large upfront investment or that plan their budget around monthly costs.
In many businesses the best result is a mix of the two: stable core tools on perpetual licences, and services that must stay current or are cloud-based on subscriptions.
What to check in the contract
Commitment and cancellation
Even when subscriptions are paid monthly, they are often tied to an annual commitment. Find out in advance whether you can reduce the number of users mid-term, what happens if you cancel early and how to turn off automatic renewal. Put renewal dates in the calendar; otherwise unused licences may be billed for another term.
Access to your data
For subscription software, especially cloud-based services, ask what happens to your data when the subscription ends. Be clear about the formats in which you can export your data, how long it is kept after the subscription ends and whether it is deleted afterwards. If you can't get your data out in a usable form when you want to switch to other software, the subscription quietly turns into something that locks you in.
Licence terms and records
Under both models, understand whether the licence is granted per user, per device or per processor core. Details such as whether the same person can use it on both a desktop and a laptop, or whether extra licences are needed for remote desktop or virtual server environments, can change the cost. Also make sure that licence accounts are set up with a company email address, not an employee's personal one. Losing access to licences when an employee leaves is a common problem.
For perpetual licences, keep licence keys, purchase records and invoices somewhere accessible. If an audit or a reinstallation is needed, you must be able to document your right of use.
Checklist
- Has the expected period of use been estimated and the total cost compared over that period?
- For perpetual licences, are the scope of the maintenance agreement and the version's end-of-support date known?
- For subscriptions, are the commitment term, mid-term user reductions and cancellation terms understood?
- Are automatic renewal dates marked in the calendar?
- Is it clear how data will be exported and how long it will be kept when a subscription ends?
- Do the licence's user, device and virtual environment rules fit the way you work?
- Are licence accounts registered to a company email address?
- Are perpetual licence keys and purchase records kept somewhere secure and accessible?