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What is a perpetual license?

Are you confused when it comes to software licensing? There are three common models: perpetual license, subscription license, and annual license. Find out everything you need to know about the perpetual license model and see how it stacks up against annual and subscription-based licenses.

Perpetual license meaning

So, what is a perpetual license? Essentially, a perpetual license is the term used to describe the traditional method of purchasing software – you pay for the license upfront, and you have the right to use the software indefinitely. Depending on the specifics of the perpetual license agreement, you may also be entitled to download updates to the software and receive technical support, although often this is only provided for a set period (one to three years), after which you’ll have to pay. However, it’s possible that updates and support will be provided free of charge in perpetuity.

Generally speaking, perpetual licenses provide the best return on investment, and because it’s a large, one-time investment, they can often be purchased at a significant discount. However, it’s important to remember that with perpetual licenses, your business will carry most of the financial risk and you’ll be responsible for implementing upgrades and updates. Furthermore, some businesses may not have enough working capital to cover the upfront investment.

Perpetual license vs. subscription license

While perpetual licenses used to be the most common type of software licensing model, the move towards SaaS solutions and cloud-based software has made subscription-based licenses much more common. In short, a subscription license relates to a licensing model wherein users pay a monthly subscription fee to use the software. The fee includes technical support services and software updates and gives you the option to scale the service up or down, depending on your requirements.

When it comes to perpetual licenses vs. subscription licenses – or even perpetual licenses vs. SaaS more generally – subscription licenses have numerous benefits. Payments are spread evenly across your usage of the service and because upfront fees tend to be relatively small, almost any business can take advantage. In addition, the vendor is responsible for all updates and software maintenance, leaving you free to get on with running your business.

However, there are several downsides of perpetual licenses vs. subscription licenses to consider. Most importantly, you’ll never actually own anything and the longer you commit to a subscription license, the more you’ll end up paying.

Perpetual vs. annual license

Very simply, annual licenses allow customers to use the software for one year. After the year has elapsed, the customer won’t be entitled to use the software anymore unless they purchase a new license. Annual licenses are relatively similar to subscription licenses, and in some senses, could be considered the same thing, as you are essentially signing up for a year-long subscription to use the software. Consequently, the advantages and disadvantages of perpetual vs. annual licenses are much like the pros and cons associated with subscription software licenses.

What’s the best software licensing option?

Ultimately, the best software licensing option for your business depends on the specifics of your financial situation. How healthy is your business’s cash flow? Can you afford the upfront costs of a perpetual license? If you can, then a perpetual license may provide a better return on investment. By contrast, a subscription license has much lower upfront costs, so if you’re operating with limited working capital, it could be a more cost-effective option. It’s also important to remember that perpetual licenses have become less common as the subscription economy has grown, and in many cases, a subscription-based license will be the only option.

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GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services. GoCardless SAS (23-25 Avenue Mac-Mahon, Paris, 75017, France), an affiliate of GoCardless Ltd (company registration number 834 422 180, R.C.S. PARIS), is authorised by the ACPR (French Prudential Supervision and Resolution Authority), Bank Code (CIB) 17118, for the provision of payment services.