SaaS licensing: most important facts you need to know
Written by
Olha Kurinna
Published on
December 14, 2022
TL;DR
On the level of organizations, we are all witnessing tremendous growth in adopting and using SaaS. Because businesses sign up for new applications, new subscriptions, and new licenses daily, they have a significant amount of software as a service (SaaS) to handle. It is estimated that the typical organization of a given size will have to manage approximately 600 SaaS licenses. However, what precisely does it mean to have a "SaaS license," and why is it essential to properly manage licenses?
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What exactly does "SaaS Licensing" mean?
SaaS licensing is a method of providing clients with software for a monthly cost. SaaS licensing models are analogous to paying rent in that businesses are permitted to utilize the software on an ongoing basis as long as they continue to make regular payments.
The SaaS sector, which is worth several billions of dollars, has produced apps for virtually every imaginable activity, from viewing movies to signing work contracts remotely to safeguarding SaaS environments. SaaS applications such as Microsoft Office 365, Netflix, DocuSign, and Zendesk are among the most well-known on the market today.
The broader concept of software management contains the subfield of SaaS license management. It entails assessing, recording, and monitoring all SaaS licenses to ensure that technology is used in a manner that is legal and compliant. It applies to all technology forms, whether accessed through a local system, a mobile device, or in the cloud.
A customer must agree to the terms and conditions included in a SaaS license, such as the following:
Service that is accessible to the customer
How long is a consumer allowed to use the product before it must be replaced?
How many users currently have access authorization?
About ten years ago, software licensing was considered a part of the software acquisition and was paid for as an upfront capital expense. In today's world, when there is a growing need for applications that run in the cloud, most software companies prefer to offer their products in the form of SaaS subscription model. The SaaS operating expenses include the fee and can be paid monthly or annually.
The software as a service license offers several advantages, including its adaptability, a reasonable price tag, the capability to remove or add a group of users, and many more. There are four different SaaS license types, which are as follows:
Standard SaaS licensing is typically done per-user basis, in which case a license is issued to each user who has logged into an application.
Usage-based licensing allows businesses to pay only for the amount of time they spend using a particular program; nevertheless, these licenses typically demand a flat payment, even if the app is never opened.
A monthly membership price is referred to as a "flat rate," which is an annual flat fee offered at a discount.
A price that goes up in proportion to the number of newly accessible features is called "tired."
In contrast to licenses for on-premise software, which need only a one-time payment and result in the company's ownership of the software, licenses for software as a service (SaaS) are purchased on a subscription basis.
This indicates that you can utilize the cloud software so long as your membership is current and you have paid for it in full. Put another way, a SaaS subscription is necessary to use the license.
The opportunity to obtain free upgrades and support for the duration of your total subscription period is a significant advantage of purchasing SaaS licenses.
There is no need for you to be concerned about the infrastructure of the servers, the maintenance of the servers and software, the safety of the data, etc.
As a result, software as a service is simpler to implement and more convenient to operate than traditional on-premise software. Another advantage is the simplicity of onboarding a SaaS, which is typically accomplished for an inexpensive monthly or annual charge.
Even while the downsides of SaaS are only sometimes obvious to identify, they can nevertheless cause a great deal of trouble for the firms that use it.
Because implementing a SaaS is so simple, IT departments no longer need to take responsibility for centralized software management. As a result, individual workers or teams can purchase and take ownership of the SaaS they require without even informing IT of their intentions.
In fact, it is believed that around one-third of an organization's total SaaS inventory is comprised of SaaS purchased without IT knowledge. This could result in duplicate SaaS subscriptions, which would waste money and cause overlapping functionality.
If your firm has in the past utilized an on-premise software management strategy, the transition to a SaaS license management strategy will be challenging for the company.
Facts about managing licenses for SaaS applications
Here are the facts:
Extra licenses
There are a variety of reasons why businesses find themselves in possession of extra SaaS licenses. It could be as simple as the fact that the license is no longer being utilized. It is also possible for it to result from sporadic purchases that eventually lead to overbuying. Or not maximizing the benefits of local, national, or worldwide enterprise agreements and not keeping track of how and where they are installed.
It is also possible for there to be a breakdown in communication across departments, leading to an incorrect application of user rights.
Licenses that are not optimized
There is a price difference between the various licenses, with some providing access to more advanced capabilities than others. But what if not all of the employees in your client organization have access to these premium features?
Some people buy licenses but never use them. And if IT is unable to manage the application, certain employees may need to have their provisioning removed. This can still occur even when an employee has been away from a client's business for several months or years.
The issue is that every month, tens of thousands of people in the United States quit their jobs. In addition, they will take all of their IT access credentials with them, including passwords to the company Twitter account and passwords to personal Dropbox accounts containing sensitive files. 89% of individuals surveyed still had access to essential company apps such as Salesforce, PayPal, email, and SharePoint.
It can be challenging to keep track of subscription renewals for software as a service (SaaS), especially given that they occur at different times of the year.
Some sellers are good at contacting you to remind you that your subscription has to be renewed, while others appear and disappear with no fuss. Consequently, many companies fail to take advantage of contract renewals by renegotiating pricing and terms or reassessing the team's requirements.
Pricing and managing SaaS applications
The cost of a subscription to a SaaS service might vary from a few dollars per month to several thousand. There are many considerations when deciding on a price approach for a product.
Establishing prices for your software as a service (SaaS) that are fair to the market, within consumers' price ranges, and attractive to new businesses can be achieved through a pricing strategy and licensing model.
Let’s take a look at five prominent SaaS pricing strategies:
Price skimming
Companies price their items at the most significant feasible rate that clients are prepared to pay and then steadily drop the price to attract the next tier of their targeted customers. Skimming successive tiers of clients is the goal of this pricing approach, which employs an ever-decreasing cost.
Margin of entry pricing
Penetration pricing, in contrast to price skimming, seeks out customers by charging them less than they would otherwise pay. Penetration pricing tries to engage a considerable client base, develop brand loyalty, and demolish competitors.
In value-based pricing, the price of a good or service is determined by how much the market values it. This strategy, which requires extensive market research, is best suited for high-end items with cutting-edge capabilities not currently available to the general public.
Cost-plus pricing
When using a cost-plus pricing structure, the product's value is ignored. Instead, it adds a certain percentage to the product's production cost to determine the price.
Offering reasonable rates
Offering the lowest price possible in the market is the goal of competitive pricing model, based on the assumption that customers will buy more of the product if it is much less expensive than similar products. After establishing a solid customer base, the corporation gradually increases pricing while still maintaining far lower rates than competitors.
Conclusion
The right SaaS license management can be the difference between an IT strategy weighing you down and one skyrocketing business growth. That's why focusing on it more effectively is critical for today's businesses. If you need help with building a SaaS application and setting up its logic - don't hesitate to get in touch with us.
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